CURRENT MONTH (September 2018)
International M&A
European Commission Approves Apple’s Acquisition of Shazam
By Chris Johnson
On September 6, 2018, the European Commission (the “Commission”) approved the proposed acquisition of Shazam Entertainment Ltd., a British music recognition app developer (“Shazam”) by the multinational tech giant Apple Inc. (“Apple”). The Commission’s investigation, opened April 23, 2018, focused on competition in the digital music streaming market. Apple provides the second largest music streaming service in Europe, while Shazam is a music recognition application. The Commission assessed whether the acquisition would provide Apple with sensitive customer data, whether said data would allow Apple to gain a competitive advantage over its competitors, and if Apple’s competitors would be harmed by the potential for Apple to stop referrals to them from the Shazam application. After investigation, the Commission concluded that any access to Shazam’s data would have a “negligible impact” on Apple’s ability to make customers switch music streaming services. Further, the Commission determined that the acquisition would not give Apple a competitive advantage because Shazam’s data is not unique and Apple’s competitors would have access to similar data. Finally, the Commission decided that the acquisition would not allow Apple to shut out competitors by restricting access to the Shazam application. Margrethe Vestager, the Commission’s Commissioner for Competition, stated that “after thoroughly analysing [sic] Shazam’s user and music data, we found that their acquisition by Apple would not reduce competition in the digital music streaming market.”
Federal Judge Temporarily Blocks Tronox Acquisition of Cristal
By David Marshburn
On September 5, 2018, The U.S. District Court for the District of Columbia issued an order granting a motion by the Federal Trade Commission (“FTC”) for a preliminary injunction, temporarily blocking the consummation of the proposed merger between Tronox Limited, a U.S. based mining and inorganic chemical manufacturer (“Tronox”), and the National Titanium Dioxide Company Limited, the national industrialization company owned by the Kingdom of Saudi Arabia (“Cristal”). The transaction between two of the world’s largest titanium dioxide producers was previously announced on February 21, 2017, and, if completed, would result in Tronox acquiring Cristal in exchange for $1.67 billion in cash and a 24 percent equity stake in the combined entity. Due to concerns arising from the merger’s potential for producing anticompetitive effects, the FTC initially filed an administrative complaint on December 5, 2017. While the administrative court finished its trial on June 22, 2018, recent approval of the merger by the European Commission led the FTC to file a motion with the District Court out of fear that Tronox and Cristal would close before the administrative court could issue a final order. In a redacted version of the court’s memorandum opinion released on September 12, 2018, the court explained that the FTC had successfully demonstrated a strong likelihood that, if completed, the proposed merger would create a highly concentrated market in the United States and Canada for chloride process titanium dioxide, thus resulting in a substantial reduction of competition and possibly violating antitrust laws. The District Court’s preliminary injunction ensures that Tronox and Cristal are enjoined from closing on the merger until the administrative court either issues a final order or dismisses the FTC’s complaint.
M&A Law
Justice Department Approves Cigna’s $67 Billion Proposed Acquisition of Express Scripts
By Chris Johnson
On September 17, 2018, the Department of Justice Antitrust Division (the “DOJ”) cleared the pending $67 billion merger between Cigna Corporation, a worldwide health services organization (“Cigna”) and Express Scripts Holding Company, a pharmacy benefit management organization (“Express Scripts”). The decision marks the end of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. Over the course of six months, the DOJ reviewed millions of documents and interviewed hundreds of industry participants. The investigation specifically focused on whether the merger would “(1) substantially lessen competition in the sale of [pharmacy benefit management] services or (2) raise the cost of [pharmacy benefit management] services to Cigna’s health insurance rivals.” The merger was approved because: (1) Cigna’s nationwide pharmacy benefit management business is too small to substantially lessen competition; (2) at least two other large pharmacy benefit management companies and many smaller pharmacy benefit management companies will remain in the marketplace; and (3) if Express Scripts was to raise its prices charged to Cigna’s rivals, the merged company would experience a net-loss from the attrition of pharmacy benefit management customers. Tim Wentworth, President and CEO of Express Scripts, stated “Together, we believe we will be able to do even more to reduce healthcare costs, expand choice, and improve patient outcomes. . .” Cigna’s President and CEO, David Cordani, believes the merged company can help in “delivering greater affordability, choice and predictability to our customers and clients. . .” Although the merger still faces approval from certain state regulatory bodies, including the department of insurance, Cigna and Express Scripts forecast the deal to close by the end of the calendar year.
SAIC’s Acquisition of Engility Creates the Second Largest Independent Technology Integrator in Government Services
By Lora Wuerdeman
On September 10, 2018, Science Applications International Corp., a government services and information technology support company (“SAIC”) and Engility Holdings Inc., an engineering and logistics services company (“Engility”) announced that they had entered into an agreement for SAIC to acquire Engility in an all-stock transaction valued at $2.5 billion, or $40.44 per share of Engility. This acquisition creates the second largest independent technology integrator in government services with $6.5 billion of pro-forma last 12-month revenue. SAIC’s CEO, Tony Moraco, said, “The highly complementary portfolios, combined with our similar cultures, operating models, and histories, make this transaction a compelling combination that enhances the value proposition for our customers, employees, and shareholders.” Under the terms of the acquisition, SAIC shareholders will own roughly 72% and Engility shareholders will own approximately 28% of the combined company. Engility’s Chairman, CEO, and President, Lynn Dugle said, “Engility’s market-leading expertise in next generation systems engineering and integration services, particularly among space, federal, and intelligence customers, will augment SAIC’s strong mission, engineering, and enterprise IT offerings to create a more comprehensive suite of capabilities serving a broader set of customers.”
Shareholders Seek to Enjoin Shareholder Vote for Proposed Merger
By Michael Caine
On September 19, 2018, shareholders (the “Plaintiffs”) of Dun & Bradstreet, Inc. (the “Company”) filed a class action complaint against the Company to enjoin a shareholder vote for a proposed acquisition of the Company, claiming the Company provided false and/or misleading proxy statements (the “Proxy”). Specifically, the Proxy did not include positive financial results, including a significant increase in both net income and earnings per share growth during the fiscal year. According to the Plaintiffs, the “[Company] is well-positioned for financial growth, and [sic] the [m]erger [c]onsideration fails to adequately compensate the Company’s shareholders.” The Plaintiffs asked the court to enjoin the Company from continuing with the shareholder vote until the Company discloses the material information omitted from the Proxy so that the Plaintiffs “can properly assess the fairness of the [m]erger [c]onsideration for themselves and make an informed decision concerning whether or not to vote in favor of the [p]roposed [t]ransaction.” The suit is currently pending in The U.S. District Court for the District of Delaware.
Mootness Fee Merger Cases May Hit Roadblock
By Cooper Overcash
Shareholder lawsuits challenging corporate actions (and transactions) have become commonplace in courtrooms across the country. Such litigation rarely centers on the actual merits of the business action (or transaction), but rather on accusations by the plaintiff shareholder of breach of fiduciary duty. Many see these lawsuits as meritless attempts to extort money from the corporate coffers and obtuse attempts by plaintiffs (and their attorney(s)) to collect the infamous “mootness fee.” These lawsuits often follow a predictable pattern of: (i) the plaintiff shareholder filing a breach of fiduciary duty claim against the company, (ii) the company making additional disclosures regarding the business action (or transaction), thereby “mooting” the litigation, and (iii) the plaintiff shareholder (and their attorney(s)) collecting a fee for their “supposed” value-add by producing the additional disclosures.
In 2017, several of these lawsuits were brought against Akorn Inc. (“Akorn”). As a non-plaintiff shareholder of Akorn, Theodore Frank (“Frank”) took a stand. Frank filed a motion to intervene, in an attempt to deny the plaintiff shareholders (and their attorneys) from collecting any mootness fee. Frank asserted that the additional disclosures made by the company in response to the allegations were meaningless and therefore the plaintiffs are underserving of any fee. Frank’s motion was denied by the district court, but on September 10th, Frank filed his opening brief on appeal with the Seventh Circuit. Many see this case as a potential landmark moment for the Seventh Circuit to stem the tide of shareholder litigation and aggressive tactics by attorneys seeking a quick payday via the “mootness fee.”
