Relevant Documents:
DOJ’s Motion to Clarify
AMA’s Opposition to DOJ’s Motion
Takeaways
- The U.S. District Court for the District of Columbia has presided over two previous extended Tunney Act reviews in its U.S. v. Anheuser-Busch InBev SA/NV and U.S. v. Verizon Communications Inc. precedents. The average timeline in those two reviews, from the filing of the DOJ’s complaint to the entry of final judgment, was 671 days.
- While both the InBev and Verizon Tunney Act reviews were administered and overseen by Judge Emmet Sullivan, the present Tunney Act review stemming from the Aetna/CVS Health merger is being conducted by Judge Richard Leon. Judge Leon is, however, undoubtedly familiar with these two prior, and unusually longer, Tunney Act precedents and timelines.
- Judge Leon has given several indications that the present Aetna/CVS Tunney Act proceedings may likely take on similar levels of involvement as presented in the InBev and Verizon precedents. At the April 5 status hearing, the judge declared that “tens of millions of people will be affected by this merger,” and that this Tunney Act proceeding is a “matter of great public importance.”
- Late Friday, May 24, the DOJ filed a motion to clarify and amend the court’s planned Tunney Act hearings. In its motion, the DOJ requests that Judge Leon take three actions that the DOJ argues will restore and further the appropriate division of authority between the executive and judiciary branches.
- The American Medical Association responded today, May 29, that the Tunney Act grants the court explicit authority to go beyond the public comments and request the views of anyone, about any aspect of the proposed judgment or its effect, as the court sees fit.
The U.S. District Court for the District of Columbia has presided over two previous extended Tunney Act reviews in its U.S. v. Anheuser-Busch InBev SA/NV and U.S. v. Verizon Communications Inc. precedents. The average timeline in those two reviews, from the filing of the DOJ’s complaint to the entry of final judgment, was 671 days.
While both the InBev and Verizon Tunney Act reviews were administered and overseen by Judge Emmet Sullivan, the present Tunney Act review stemming from the Aetna/CVS Health merger is being conducted by Judge Richard Leon. Judge Leon is charged with reviewing whether entry of a consent decree requiring the divestiture of Aetna’s individual PDP business to WellCare is in the public interest. Judge Leon is, however, undoubtedly familiar with these two prior, and unusually longer, Tunney Act precedents and timelines.
Long Tunney Act proceedings are uncommon. Within the past 14 months, the U.S. District Court for the District of Columbia has entered an order granting the DOJ’s motion for entry of final judgment in a Tunney Act proceeding in a relatively quick and routine fashion in at least three substantial reviews: (1) Monsanto/Bayer (DOJ motion filed Feb. 4, 2019, and order granted on Feb. 8, 2019); (2) Level 3/CenturyLink (DOJ motion filed Feb. 8, 2018, and order granted March 6, 2018); and (3) Sinclair Broadcast Group/Nexstar (anti-competitive behavior) (DOJ motion filed April 24, 2019, and order granted May 22, 2019). The average timeline for the entry of these three orders, from the date the DOJ filed its motion for entry of final judgment, was just over 19 days.
Indeed, back in 2008, Judge Leon entered an order granting the DOJ’s motion for entry of final judgment on Oct. 30, only seven days after the DOJ filed its motion on Oct. 23.
U.S. v. Anheuser-Busch InBev SA/NV
On Oct. 13, 2015, AB InBev and SABMiller announced that the companies had reached an agreement in principle on the terms of a recommended offer to be made by AB InBev for the entire issued share capital of SABMiller at £44 per share. The transaction valued SABMiller’s entire issued and to be issued share capital at approximately £71 billion.
On July 20, 2016, the DOJ filed its complaint, which alleged that the proposed acquisition would substantially lessen competition for the sale of beer both nationally and in every local market in the U.S. in violation of Section 7 of the Clayton Act. The DOJ asserted that the loss of competition would likely result in higher beer prices for U.S. consumers and less innovation, with the loss of innovation also leading to a reduced variety of beers and fewer choices for U.S. beer drinkers.
Simultaneously with the filing of its complaint, the DOJ also filed a proposed final judgment. As part of the DOJ’s antitrust approval for the transaction, InBev and SABMiller agreed to divest SABMiller’s equity and ownership stake in MillerCoors, the joint venture through which
SABMiller conducted substantially all of its operations in the U.S. InBev was also required to divest certain other assets related to MillerCoors’ business outside the U.S. and agree to certain restrictions on how the company interacted with independent distributors that sell InBev’s beers. SABMiller eventually sold its 58% stake in MillerCoors to Molson Coors for $12 billion.
During the pendency of the Tunney Act review, 12 parties submitted public comments relating to the proposed final judgment, and four parties, the (1) International Brotherhood of Teamsters, (2) the National Beer Wholesalers Association, (3) Yuengling & Son and (4) Consumer Action and Consumer Watchdog, also each filed amicus curiae briefs. On Jan. 13, 2017, the DOJ filed its response to public comments.
The four amicus briefs were filed between February and October 2017, but the DOJ did not file its response to the amicus briefs until March 15, 2018. In its response, the DOJ asserted that the SABMiller divestiture adequately addressed the harm alleged in the complaint by ensuring that MillerCoors would remain an independent and economically viable competitor, and by introducing the possibility for international interactions between Molson Coors (the buyer of the divested assets) and InBev to affect competition in the U.S. beer market.
In response to certain concerns raised by the amici parties, the DOJ and InBev also filed a joint modified proposed final judgment on March 15, 2018. The modified proposed final judgment was intended to incorporate four new procedural provisions designed to improve the final judgment’s enforceability. The provisions provided for (1) a preponderance-of-the-evidence standard for any actions brought by the DOJ for breach of the agreement, (2) a fee-shifting provision pursuant to which InBev would reimburse the DOJ for its costs in enforcing the judgment, (3) the right of the DOJ to apply for a one-time extension of the term of the consent decree and (4) authorization for the DOJ to terminate the judgment after five years upon notice to the court and InBev.
No hearings were held during the pendency of Judge Sullivan’s review pursuant to the Tunney Act. On Oct. 22, 2018, Judge Sullivan issued an order that entry of the modified proposed final judgment was “in the public interest,” 221 days from when the DOJ and InBev filed the joint modified proposed final judgment, and 824 days from when the DOJ filed its complaint.
U.S. v. Verizon Communications, Inc.
On Feb. 14, 2005, Verizon Communications and MCI announced that the companies had entered into a definitive agreement pursuant to which Verizon would acquire MCI in a cash and stock deal with a transaction value of approximately $6.75 billion. At the time, the transaction was set to create one of the largest providers in telecommunications services in the U.S.
On Oct. 27, 2005, the DOJ filed its complaint, which alleged that Verizon and MCI’s combination would substantially lessen competition for local private lines that connected commercial buildings in Verizon's franchised territory to a carrier's network or other local destination, as well as for other telecommunications services that rely on local private lines. Simultaneously with the filing of its complaint, the DOJ also filed a final judgment. The final judgment provided that Verizon and MCI were to grant indefeasible rights of use to lateral connections in about 100 major commercial buildings located in Baltimore, Boston, New York, Philadelphia, Portland, Providence, Richmond, Tampa and Washington, D.C.
During the pendency of the court’s Tunney Act review, multiple parties sought to participate as amici, including Comptel and ACTel. On April 5, 2006, the DOJ filed is motion for entry of final judgment, while thereafter on May 10, 2006, the court held a hearing on Comptel’s motion to intervene. Comptel was thereafter granted status to participate as an amicus party at the conclusion of the hearing.
Comptel argued that the proposed divestitures were insufficient because they were determined using a building-specific analysis. Comptel asserted that a building-specific analysis was inappropriate because AT&T and/or MCI effectively constrained pricing throughout each metropolitan area by reselling RBOC circuits. The DOJ countered that AT&T and MCI's sales of resold circuits were relatively small and of limited competitive significance, and that therefore any competitive harm was likely only in a specific set of 2-to-1 buildings.
As a result of Comptel and other third-party amici’s continued participation in the proceedings, the court held four subsequent in-person hearings with counsel for the DOJ, parties and amici, including two status conferences (one on June 27, 2006 and another on July 25, 2006) and two motions hearings (one on July 12, 2006 and another on Nov. 30, 2006). During the Nov. 30 hearing, however, the court discussed whether it was necessary to hold an evidentiary hearing to examine the government’s witnesses, but it appears that the court, the parties and the amici were mostly in agreement that an evidentiary hearing would not aid the court in its review.
On March 29, 2007, the court entered an order that entry of the proposed final judgment was “in the public interest,” 358 days from when the DOJ filed the proposed final judgment, and 518 days from when the DOJ filed its complaint.
Judge Leon has given several indications that the present Aetna/CVS Tunney Act proceedings may likely take on similar levels of involvement as presented in the InBev and Verizon precedents. At the April 5 status hearing, the judge declared that “tens of millions of people will be affected by this merger,” and that this Tunney Act proceeding is a “matter of great public importance.”
Were the present Tunney Act proceedings to continue moving towards the formalities and timelines of the InBev and Verizon precedents, it should be noted that 671 days from Oct. 10, 2018, the day the DOJ filed its complaint in the present merger, would be Aug. 11, 2020.
DOJ’s Motion To Clarify
On Friday, May 24, the DOJ filed a motion to clarify and amend the court’s planned Tunney Act hearings. In its motion, the DOJ requests that Judge Leon take three actions that restore and further the appropriate division of authority between the executive and judiciary branches.
First, the DOJ asks for the court to make an express pre-hearing finding that the previously submitted Tunney Act materials provide a sufficient factual basis for concluding that the proposed consent judgment is a reasonably adequate remedy for the harm alleged in the complaint and that, absent reliable evidence showing otherwise, the court will enter the proposed judgment without requiring further evidence from the DOJ. Second, the DOJ requests that the court restructure the hearing to give the DOJ the opportunity to participate through cross-examination. Third, the DOJ seeks for the court to limit the scope of amici witnesses’ testimony at the hearing to the objections that amici clearly and specifically raised during the comment process.
The DOJ concludes that, without these further clarifications, the procedure the court has adopted for the scheduled June 4 to June 6 hearing excludes the DOJ from “meaningful participation” and fails to give adequate deference to the DOJ’s prosecutorial discretion.
The American Medical Association, or AMA, responded today, May 29, that the DOJ’s motion should be denied because the clarifications the DOJ is seeking are unnecessary and contrary to the court’s prior orders in the proceeding. The AMA counters that the Tunney Act grants the court explicit authority to go beyond the public comments and request the views of anyone, about any aspect of the proposed judgment or its effect, as the court sees fit.
The AMA also cites the Tunney Act’s provisions in its response, which provisions authorize the court to “request and obtain the views, evaluations, or advice of any individual, group or agency of government with respect to any aspects of the proposed judgment or the effect of such judgment, in such manner as the court deems appropriate.”
Reorg M&A’s previous coverage of this transaction can be found HERE.
--Patrick Flavin
