DOJ’s Antitrust Division Begins Trials to Block Two Large Mergers
The Justice Department’s Antitrust Division continues to push its aggressive civil and criminal agenda. While the Division has lost several high-profile criminal cases in the chicken processing industry and the labor market, the Antitrust Division just recently started civil trials seeking to block two proposed mergers or acquisitions.
The first case involves United Health Group’s proposed acquisition of Change Healthcare, a provider of health insurance data and important supplier of independent data to UnitedHealth’s insurance competitors. United Health is proposing to pay $13.8 billion for Change Health’s business.
The second case stems from Penguin Random House’s proposed acquisition of Simon & Schuster and the anti-competitive impact the acquisition will have on competition for best-selling authors’ books.
United Health – Change Healthcare
The United Health trial is being conducted before Judge Carl Nichols, in the US District Court for the District of Columbia. Nichols just recently competed the criminal trial of Steve Bannon for content of Congress.
DOJ is arguing that United Health’s control over Change’s business processing insurance claims and access to the claims data between insurers and health care providers will have an anti-competitive impact on the health care and insurance markets. DOJ specifically contends that the combination would give United Health a 94 percent market share over the claims-editing business, although Change has suggested it will divest its claims editing business if the merger is approved. Even aside from the claims-editing part of the business, United Health and Change are the two most significant competitors in the insurance processing market. To address the impact of United Health’s access to competitor insurance information, Change and United Health have promised to maintain information firewalls to prevent the sharing of such information across the merged entity.
DOJ also contends that, once merged, the Change insurance processing business would be incentivized to favor United Health claims over those of competitors in an attempt to steer business to United Health medical services. Corporate documents generated about the merger included reference to a term “the U-factor,” which DOJ contends is a short-hand for the incentives that would distort effective competition in the insurance processing industry and reflects the benefits from the United Health combination.
Penguin Random House — Simon & Schuster
The Penguin Random House-Simon & Schuster trial is being conducted before Judge Florence Pan in the US District Court for the District of Columbia.
DOJ is challenging Penguin Random House’s acquisition of Simon & Schuster, claiming that the merged company will exercise too much leverage with bestselling authors for book rights. Early in the trial, DOJ called best-selling author Stephen King as a witness to support its position. King’s books are published by Simon & Schuster. King testified that “consolidation is bad for competition” in the “book business,” and that, “[t]he more companies there are, the better it is.”
King recounted his career and business deals with numerous book publishers along the way. King described the changes in the publishing market and the stead consolidation of publishing houses during his fifty year career.
Aside from King, DOJ has presented testimony from two literary agents and Simon and Schuster’s COO and CFO, and finally its CEO. The agents both testified that the merger would result in fewer alternatives for potential literary projects promoted by their clients.
DOJ elicited testimony from Simon & Schuster’s COO and CFO concerning the availability and leverage exercised with respect to printing operations.
With the CEO, DOJ was able to demonstrate in presenting an email chain that competition between Penguin Random House and Simon & Schuster increased the amount of an advance for a specific book from $5 million to $8 million. When the CEO tried to deny that Simon & Schuster’s participation in the market increased competition for book deals , DOJ impeached his testimony through statements made during his deposition.
In another email, Simon & Schuster’s CEO wrote that he did not expect that DOJ would approve Penguin Random House’s acquisition of Simon & Schuster.