A deal that might have easily passed antitrust review a decade ago on account of its verticality may face greater skepticism these days from not only the DOJ and FTC but judges as well.
KEY TAKEAWAYS
Some public comments raised vertical concerns about the CVS-Aetna deal, but the DOJ says those possible harms were ‘unlikely to occur.’
The judge’s review of the $69 billion deal comes as some see rising skepticism of vertical mergers.
The case offers a reminder for healthcare executives, especially, to anticipate potential anticompetitive concerns in light of shifting enforcement trends.
The federal government’s review of a megamerger between CVS Health and Aetna is a step closer to final judgment after the U.S. Department of Justice published its response online Wednesday to public comments about the proposed transaction.
The DOJ signed off on the $69 billion CVS-Aetna deal with stipulations in October, and the two companies celebrated the completion of their merger in November. But a federal judge instructed them to keep some operations separate while he reviews the DOJ-approved agreement, a move that highlights what some see as rising regulatory skepticism of vertical mergers.
A proposed deal that might have sailed through the antitrust review process a decade ago on account of its verticality may be greeted with warier eyes these days by the DOJ, the Federal Trade Commission, judges, and others, says Andrea Murino, a partner at Goodwin in Washington, D.C., and co-chair of the firm’s antitrust and competition practice.
“Vertical transactions as a whole, not just in the healthcare industry but in all industries, are garnering increased scrutiny by the FTC and the DOJ for sure,” Murino tells HealthLeaders.
“There’s a lot of chatter in the antitrust bar about the willingness of the antitrust enforcers to look more closely and potentially to challenge vertical transactions, and anybody that wants to be giving their clients good advice has to be paying attention to those trends,” she adds.
Some had expected CVS-Aetna’s verticality to unlock regulatory approval without a challenge. But even beyond the DOJ’s stipulations, U.S. District Judge Richard J. Leon in the D.C. District Court has made clear the he shouldn’t be seen as a rubber stamp in this process.
“It’s certainly unusual and interesting that a judge is getting involved with this level of detail, but it is not unprecedented,” Murino says, noting that Leon is the same judge who signed off last summer on a merger between AT&T and Time Warner (with a 172-page opinion).
Despite the partial government shutdown, Leon last month ordered DOJ attorneys to continue working on their responses to public comments regarding the proposed CVS-Aetna transaction, giving them until this Friday to publish the materials.
“You have to be monitoring what’s coming out of the agencies, what’s coming out of the courts, and you have to be willing to adjust your strategy as a result.”—Andrea Murino
The DOJ published those comments and detailed responseWednesday, affirming its position that Leon should issue final judgment in favor of the DOJ-approved terms for the CVS-Aetna merger. The response acknowledges that some commenters raised vertical concerns about the deal but said such questions are beyond the scope of Leon’s review.
“The United States investigated the potential for vertical harms from the merger by obtaining and reviewing documents as well as interviewing industry participants,” the DOJ response states. “For the reasons outlined below, the United States concluded that vertical harms were unlikely to occur and did not allege any harm related to vertical concerns in its Complaint. The vertical concerns therefore are outside the scope of this Tunney Act proceeding.”
Even if Leon ultimately agrees to sign the DOJ’s proposed order of final judgment, this entire episode serves as a good reminder for any executives contemplating M&A activity to do so with antitrust considerations at forefront of mind.
“You have to be monitoring what’s coming out of the agencies, what’s coming out of the courts, and you have to be willing to adjust your strategy as a result,” Murino says.
Healthcare is one of those industries that will always find itself wrapped up in antitrust proceedings, so healthcare executives especially should be paying attention to these enforcement trends, Murino adds.
“Before they contemplate any kind of transaction,” she says, “it behooves them to make sure they have a read on what the potential risks are in light of the current enforcement landscape.”
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