China blocks P3 Shipping Alliance from Steaming Ahead

Shippers hit Chinese iceberg: MOFCOM blocks JV outright

Møller-Maersk A/S, MSC Mediterranean Shipping Company SA and CMA-CGM SA have abandoned plans to enter into a long-term operational vessel-sharing agreement of about 250 cargo ships, servicing worldwide container liner shipping routes.

According to a Maersk statement,  the decision came on 17 June 2014, causing the partners to abandon the deal scheduled for completion this fall.  The agency has also given the parties the right to appeal the decision, but that seems unlikely at this stage.

MOFCOM suprises yet again

The blocking decision – only the second outright refusal after MOFCOM’s 2009 derailment of a Coca-Cola transaction involving a Chinese drinks manufacturer – is yet another example in the ongoing antitrust saga of Chinese unpredictability.

After obtaining clearance from the EU’s DG COMP earlier in June and likewise from the United States Federal Maritime Commission in March 2014, the three shipping giants apparently perceived a greater chance of their alliance being approved by regulators worldwide.  Yet, the MOFCOM ruling has put a full halt to the joint venture:

“The decision does come as a surprise to us, of course, as the partners have worked hard to address all the regulators’ concerns,” according to the CEO of Maersk Nils Andersen.

MOFCOM, one of China’s three antitrust enforcement bodies, is said to have concluded that the proposed JV would have enhanced the market power of the P3 members and increased barriers to entry.

Maersk states disappointment

“In Maersk Line we have worked hard to address the Chinese questions and concerns. So of course it is a disappointment. P3 would have provided Maersk Line with a more efficient network and our customers with a better product. We are committed to continuing to be cost competitive and offer reliable services,” says Vincent Clerc, Chief Trade and Marketing Officer of Maersk Line.

 

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U.S. update: FTC’s aggressive scrutiny of generic pharma deals

4-to-3 deals raise level of FTC scrutiny in generic pharma sector

In what should be of interest to pharmaceutical companies’ deal teams and in-house counsel looking for strategic expansion opportunities in the U.S., the Federal Trade Commission has shown a recent tendency of conducting rather meticulous merger reviews in the generic pharma sector, especially where the number of competitors is reduced from 3-to-2 or, occasionally, even in a 4-to-3 deal.

According to the FTC’s analysis (PDF) of the $640 million acquisition by Akorn Enterprises, Inc. (a “niche generic pharmaceutical company engaged in the development, manufacture and marketing of multi-source and branded pharmaceutical products in the areas of ophthalmology, antidotes, anti-infectives, and controlled substances for pain management and anesthesia”) of fellow generic pharmaceutical company Hi-Tech Pharmacal Co., the specialized expertise necessary to produce the generic products at issue (eye drops and creams) required a lengthy development process, thus yielding fewer competitors and potential entrants and, overall, increasing barriers to entry.  The agency also relied on customer impact statements (who pointed out that the merging parties’ separate existence allowed them to play one off against the other and obtain lower prices as a result).  The FTC concluded that generic pharmaceuticals markets are “commodity markets in which the number of generic suppliers has a direct impact on pricing,” and “[i]n generic pharmaceuticals markets, price is heavily influenced by the number of participants with sufficient supply.”  As a result of its Akorn/Hi-Tech investigation, the FTC ordered the parties to divest five of their products, four commercialized and one under development, which will be sold to competitor and Actavis subsidiary Watson Laboratories, even though in two of the overlapping product areas, the number of competitors would only be reduced from 4 to 3.

In conclusion, even relatively low market shares around or below one-third of the overall market do not protect the parties from scrutiny, if the number of competitors is sufficiently reduced – no matter what Commissioner Wright’s dissents may say to the contrary, as the recent Senate confirmation of Terrell McSweeny as 5th Commissioner (and 3rd Democrat) only further amplifies.

FTC Commissioner McSweeny