DealLawyers.com Blog

Awhile back, we blogged about the abandonment of the Endocare Inc./Galil merger and the potential for antitrust scrutiny of transactions even if they are not subject to Hart-Scott-Rodino pre-merger review. This recent Davis Polk memo, discussing the two opposing statements made by the FTC Chairman and Commissioners on the Endocare/Galil merger, notes that the FTC’s actions indicate that it will not make concessions from its rules for small companies.

On June 8, 2009, the FTC issued two statements expressing opposing views as to Endocare, Inc.’s announcement that its proposed merger with Galil Medical, Ltd. had been terminated “as a result of” the FTC’s ongoing investigation. The proposed merger between the medical device companies, both of which develop prostate and renal cancer therapies, was too small to be reportable under the Hart-Scott-Rodino Act.

The FTC investigation began in late 2008, more than six months prior to the company’s announcement. According to the statement of Commissioner J. Thomas Rosch,the parties had produced several boxes of hard-copy documents, but declined to produce additional documents requested on the grounds that the burden would be too great on the small companies’ “severely limited resources.” In a harsh rebuke of the FTC, Commissioner Rosch argued that the case “represents a ‘poster child’ for how protracted investigation of a transaction or practice can result in the Commission failing to determine in a timely fashion whether there is a ‘reason to believe’ that a transaction or practice will violate the antitrust laws and the public interest.” He blamed the lengthy investigation on the Commission’s own failure to apply remedies available to it to enforce the subpoena, and emphasized the public policy reasons weighing in favor of the merger, including the “very small and diminishing share of the market” for the particular type of therapy the proposed merger was intended to develop.

In a joint statement, FTC Chairman Jon Leibowitz, Commissioner Pamela Jones Harbour, and Commissioner William E. Kovacic expressed their sharp disagreement with Commissioner Rosch’s portrayal of the investigation and downplayed these policy arguments, emphasizing that a small company’s claim of limited resources will not serve as an exemption from full compliance with a second request: “No special rule or Section 7 principle . . . exempts two small companies with small scientific/engineering staffs and limited resources from meaningful antitrust review, even when the companies claim that their proposed transaction will enable them to conduct additional research and development relating to a socially significant product.” The Commissioners instead blamed the lengthy investigation on the parties’ failure to provide a complete record or to negotiate the scope of the subpoena, and noted that “even the parties’ self-selected documents were insufficient to substantiate the parties’ purported efficiencies claims.”