On Friday, September 5, 2014, Family Dollar issued a press release that effectively foreclosed a friendly deal with Dollar General. On Wednesday, September 10, 2014, Dollar General said it would initiate a cash tender offer for Family Dollar. Dollar General has gone hostile. (See our previous blog on this matter.)
In Family Dollar’s release, Family Dollar outlines the reasons why a deal with Dollar General would raise more antitrust issues than a deal with Dollar Tree. These reasons include:
- Family Dollar and Dollar Tree are deeply involved in an FTC investigation.
- Family Dollar and Dollar General compete in far more than 1500 local geographic areas, the limit of the number of stores Dollar General would divest to close the deal.
- Family Dollar and Dollar General price aggressively where they do compete, and less so where they do not, suggesting that they are in fact close substitutes. Dollar General’s CEO has made statements to this effect publicly.
- The FTC would need to review over 20,000 local geographic markets, more than it has ever reviewed.
In effect, Family Dollar’s antitrust lawyers disagree with Dollar General’s antitrust lawyers, and the Family Dollar board has decided to believe their own counsel. Dollar General could not make any argument that would conclusively refute these assertions and thereby force the Family Dollar board to go with Dollar General.
Dollar General’s only recourse was the tender offer. The tender offer allows Dollar General to file notification and trigger an antitrust review of its own deal, independent of what Family Dollar may or may not do. It allows, or really forces, the FTC to focus on the Family Dollar/Dollar General transaction even to the exclusion of the Family Dollar/Dollar Tree transaction because of the unique timing issues under HSR associated with tender offers. It also eliminates a lot of the antitrust deal risk Dollar General wanted to avoid as suggested by their comments on the hell-or-high-water clause. Continue Reading
Last week, we suggested that Dollar General needs to offer a “hell or high water” clause and begin its response to a potential second request if it wants to eliminate antitrust as an issue in its bid to acquire Family Dollar. It looks like Dollar General has taken a more conservative, incremental step, in an effort to address the antitrust concerns of Family Dollar’s board. Dollar General has upped its bid for Family Dollar to $80 a share and included an offer to divest up to 1,500 stores. Dollar General has also apparently hired Richard Feinstein, a former Director of the FTC’s Bureau of Competition, to “independently review” Dollar General’s antitrust work. According to Feinstein, the Family Dollar/Dollar General transaction could be completed “on the terms previously proposed.”
Mr. Feinstein is an extremely well-regarded antitrust attorney with a great deal of experience, particularly as it relates to the application of antitrust, and the FTC’s version of antitrust, to this deal. Mr. Feinstein’s statement, while likely correct, is still just his opinion. There is nothing about his opinion that would render it inherently more compelling than that of whomever is advising Family Dollar. Under the business judgment rule, Family Dollar’s board is entitled to trust whichever advisor they feel is best. Hiring Mr. Feinstein will not move the dial.
Nor will increasing the number of stores Dollar General is willing to divest. A combination of Family Dollar and Dollar General will have approximately 20,000 stores. Fifteen hundred stores represents about seven percent of the total. A reasonable antitrust attorney could conclude that is simply not enough. The press is reporting that Dollar General has argued that the companies compete with a “host of retailers” like pharmacy chains, convenience stores, Walmart and Amazon. The FTC could take the view that there is a class of customer for whom brick-and-mortar dollar stores are the only close substitutes. As such, you would be looking at a very large Dollar General compared to a much smaller Dollar Tree. In that event, one might argue that, with the Family Dollar/Dollar General deal, one has a merger to duopoly with the dominant player significantly larger than the closest competitor. Irrespective of whether that’s true, the 1,500-store divestiture offer may not fix that problem. In that circumstance, Family Dollar’s antitrust attorney, and therefore its board, could reasonably conclude that the 1,500-store divestiture offer simply doesn’t address that concern, and therefore Dollar General’s bid remains inferior. Continue Reading
Dollar General said on August 28, 2014 that it is “fully” committed to the Family Dollar deal. Bloomberg is reporting that “people familiar with the matter” said last week that Family Dollar is willing to consider Dollar General’s offer if it agrees to sell as many stores as regulators would require (see our previous blog post on this matter). I also saw somewhere a suggestion that the dialogue with the agencies has already started. If so, there is now timing pressure on Dollar General to get that bid in. If Dollar Tree is able to get substantially down the path with the investigating agency, then the relative timing difference between the two bidders does in fact become an issue. The agency would have to start the process over with Dollar General, delaying consummation by a potentially significant amount. If there is a clear path to a deal with Dollar Tree at the agency, even at significantly less and without hell-or-high-water clause, the Family Tree board could quite legitimately conclude Dollar Tree is still the best mate.
But it’s unclear if/when Family Dollar and Dollar Tree have filed HSR, how much has been done, and how far along the parties are in coming to a consensus on a divestiture package with the agencies. I doubt that either Family Dollar or Dollar Tree has made much progress. Indeed, I suspect that Family Dollar and Dollar Tree are expecting a normal, slow, congenial-ish second request process and haven’t done much at all with the agencies. That could be an advantage for Dollar General.
If Dollar General is serious about pursuing a genuine bid for Family Dollar, Dollar General should consider starting to respond in earnest now to what they anticipate a second request would look like. Continue Reading
American Airlines (AA) issued a press release today stating that it and US Airways were withdrawing their fares from Orbitz and Orbitz-affiliated websites effective immediately. Orbitz’s shares were immediately down 5 percent. AA stated that it “ha[s] worked tirelessly with Orbitz to reach a deal with the economics that allow us to keep costs low and compete with low-cost carriers.” AA went on to say that “[w]hile [its] fares are no longer on Orbitz, there are a multitude of other options available for . . . consumers, including brick and mortar agencies, online travel agencies, and [its] own website.”
Unilateral refusals to deal are generally not illegal under the Sherman Act. A company is usually free to deal with whom it wishes. An exception may lie for a company with market power that engages in a profitable, long term course of dealing with a competitor, then abruptly terminates the relationship without reasonable justification. These so-called Aspen Skiing cases are not usually successful. Concerted refusals to deal can be per se illegal: an agreement between competitors not to deal with another competitor can violate the antitrust laws irrespective of the rationale. Parallel behavior, without an agreement, is not a per se violation of the Sherman Act, however. Continue Reading
Family Dollar, a troubled discount store, is up for sale. They have entered an agreement to merge with Dollar Tree for US$8.5 billion. Recently, Dollar General, a competitor, offered US$9.7 billion. On August 21, 2014, Family Dollar’s board unanimously rejected Dollar General’s offer and reasserted their desire to go forward with Dollar Tree. The grounds were that Dollar General failed to address Family Dollar’s antitrust concerns. Somewhat ironically, this rationale has likely given Dollar General a roadmap to a bid that Family Dollar’s board couldn’t refuse without breaching their fiduciary duties.
Substantive antitrust issues rarely arise in mergers and acquisitions. When they do, they can have significant ramifications. The government can demand meaningful divestitures or even sue to block a deal. When considering competing bids, all other things being equal, a seller looking at a strategic and financial buyer should always pick the financial buyer. They will have no antitrust issues, and therefore no chance of delay or litigation. Potential strategic buyers must compensate sellers for the additional risk as well as shift some or all of this risk to themselves to produce a superior bid. Continue Reading
If you read our recent article discussing the allegations of monopolization in the replacement k-cup market, you may have detected a certain measure of skepticism about the antitrust claims’ potential for success. And you’d be correct. But does that skepticism extend to all aftermarkets? Do we mean to suggest that all aftermarket manufacturers are inefficient free-riders unworthy of the protection of the antitrust laws?
To some extent, yes, all aftermarket participants are free riding off the efforts of the original equipment manufacturer. After all, in an aftermarket, a third party is making a part for someone else’s device. But this articulation, if taken to its logical conclusion, would imply that an OEM should never face antitrust liability because all they are doing is driving out inefficient free-riders. That is not what we’re saying. OEMs can face antitrust liability for driving out aftermarket competitors. Continue Reading
Last week, the New York State Department of Financial Services (NY-DFS) released its highly anticipated proposed BitLicense regulatory framework which addresses many of the problems that have plagued the virtual currency in the media over the last year. In an attempt to engage the grass-roots Bitcoin community directly, Benjamin Lawsky, the Superintendent of the NY-DFS, posted a link to the proposed regulatory framework on reddit last week, a week before it was published in the New York State Register. While Superintendent Lawsky’s efforts to engage the Bitcoin community on reddit are laudable, they are unlikely to make up for what many will see as the destruction of one of Bitcoin’s fundamental properties – pseudonymity.
Although Bitcoins have never actually been fully anonymous, they are currently pseudonymous. However, the proposed BitLicense regime would require any company transacting in Bitcoins (other than miners or companies who accept Bitcoin as payment), to record the identity and physical address of both parties to all bitcoin transactions. Moreover, BitLicensees will be prohibited from knowingly allowing the transfer of Bitcoins when doing so will obfuscate the identity of a customer or counterparty. While such anti-money laundering measures are almost certainly necessary for Bitcoin to gain wider adoption, particularly on Wall Street, many of the libertarians who provided the initial support for the digital currency will likely be disappointed by this element of the proposed BitLicense framework.
An informative summary of the proposed BitLicense framework and some of its implications can be found here. Those interested in the potential impact of the proposed regulations on start-up companies can find a nice review here. For an impartial synopsis, please see our Client Alert.
Recently, we have written about Aereo and its battles at the Supreme Court to put live TV on the Internet. In our most recent post, we noted that following the Supreme Court decision that Aereo is a cable television system for purposes of copyright liability analysis, Aereo would change its legal strategy; to continue to operate, it would try obtaining from the U.S. Copyright Office a so-called “compulsory copyright license” that cable television companies are entitled to use.
The Copyright Office responded quickly. On July 16 it issued this letter which essentially says to Aereo that it will not issue such a license.
We think the Copyright Office is out on a limb. The letter fails to provide any kind of reasoned analysis, and it dismisses the Aereo Supreme Court decision in a single sentence. In lieu of analysis, it simply cites a Second Circuit decision in an unrelated case (WPIX v. ivi, Inc.), even though the Supreme Court reversed the Second Circuit’s Copyright Act analysis in the Aereo case.
The letter suggests that the Copyright Office’s analysis of whether Aereo is entitled to a compulsory license is dependent upon certain FCC proceedings. As our last blog discussed, the two are not necessarily connected.
We have not seen Aereo’s application to the Copyright Office, but we have to think Aereo could have done a better job of convincing the Copyright Office so that it could not have taken the summary action that it did.
Hard 2 Find Accessories, Inc., a third party vendor on Amazon’s marketplace, has sued Amazon and Apple for violating the Sherman Act, among other laws. H2F alleges that Amazon and Apple conspired to drive H2F off Amazon’s marketplace for purposes of stabilizing the price of iPad covers. The complaint makes some interesting allegations that stand a chance of surviving a motion to dismiss. There are problems with the complaint, however. And some of these problems may be sufficient for Amazon and Apple to have the complaint dismissed. Given the heart of the complaint is how Amazon polices its marketplace, I suspect a hard fight.
H2F’s Complaint. H2F makes iPad covers and sells them on Amazon’s marketplace. Amazon allows certain third-party vendors to sell their products on Amazon.com. At some point, Apple identified H2F as an infringer of Apple’s intellectual property and informed Amazon. Amazon subsequently warned H2F. H2F vigorously denied the allegations. Ultimately, Amazon terminated H2F entirely, refusing to allow H2F to sell products on Amazon’s marketplace. According to the complaint, Apple admitted to H2F and Amazon that H2F’s products did not infringe Apple’s intellectual property. Notwithstanding that admission, Amazon refused to reinstate H2F. H2F alleges that Apple targeted H2F because of H2F’s “aggressive price point” on the iPad covers, and that Amazon terminated H2F pursuant to an illegal agreement between Amazon and Apple to stabilize the price of iPad covers. Continue Reading
In a recent article, we said that the Supreme Court’s decision in the Aereo case doesn’t answer the most interesting question: Can Aereo now offer a lawful service by paying copyright fees to broadcasters in accordance with the compulsory copyright license for cable television services provided for in the Copyright Act and administered by the U.S. Copyright Office?
Not long after that article, Aereo teed up this very question before Judge Nathan in the U.S. District Court proceeding. But it’s not clear that either Aereo or the broadcasters have thought through the next intriguing question, retransmission consent.
An Update on the Copyright Question
In our last article we provided a quick summary of the Compulsory Copyright License contained in Section 111 of the Copyright Act. The compulsory license allows cable television companies to retransmit broadcast programs, so long as they file a Statement of Account with the Copyright Office and pay the required royalties (which the Copyright Office dutifully doles out to the copyright owners).
In a seismic shift in business and legal strategy, Aereo told Judge Nathan that Aereo is going to file with the Copyright Office as a cable television company and pay copyright royalty fees. Aereo asserts that “After the Supreme Court’s decision, Aereo is a cable system with respect to those transmissions [of television broadcasts].” Broadcasters objected, stating that Aereo has always said it’s not a cable system and can’t use the compulsory copyright license under Section 111.
Is Either Party Thinking Through Retransmission Consent?
Both parties seem to have rushed into the compulsory copyright license arguments without thinking through the next intriguing question. Suppose Aereo is a cable television system for purposes of the Copyright Act. Is it also a cable television system under the Cable Act administered by the FCC? Continue Reading