Antitrust Law Daily Wrap Up, TOP STORY: FTC drops challenge to merger of sterilization companies, (Nov 2, 2015)

By Jeffrey May, J.D.

Steris plc completed its $1.9 billion acquisition of Synergy Health plc today, in light of the FTC’s decision to drop an administrative challenge to the combination of the second- and third-largest sterilization companies in the world. Despite competitive concerns about the acquisition, the Commission issued an order on Friday dismissing the matter, since it was unlikely that the agency would be able to devise meaningful relief even if the transaction were ultimately found to be anticompetitive (Steris Corp., FTC Dkt. 9365, File No. 151 0032).

The FTC failed in its effort to obtain a preliminary injunction blocking the acquisition, pending the administrative litigation. In September, the federal district court in Cleveland denied the agency’s request for preliminary injunctive relief on the ground that the FTC did not show, by a preponderance of evidence, that it was likely to succeed on the merits in the upcoming administrative trial.

According to the FTC's complaint, the merger would substantially lessen likely future competition in regional markets for sterilization of products using radiation, particularly gamma or x-ray radiation. Gamma radiation is the leading method for sterilization. The FTC contended that United Kingdom-based Synergy was the only major worldwide sterilization company without a gamma sterilization offering and that the company was on the verge of launching a disruptive sterilization technology, x-ray, that would allow it to compete with Steris and the leading provider—Sterigenics International LLC—in the United States. The FTC had alleged that the acquisition would eliminate likely future competition between Steris’s gamma sterilization facilities and Synergy’s planned x-ray sterilization facilities in the United States.

In denying the FTC's request for a preliminary injunction, the federal district court concluded that the agency did not meet its burden to demonstrate that, absent the acquisition, Synergy would have entered the U.S. contract sterilization market by building one or more x-ray facilities within a reasonable time period. The court found that evidence demonstrated: (1) a business plan endorsing the concept of a U.S. x-ray project was never approved; (2) the announced merger had no significant impact on Synergy’s plans for the U.S. x-ray project; and (3) Synergy’s CEO of Applied Sterilization Technologies & Laboratories made the decision to discontinue the U.S. x-ray project after concluding that there was little to no likelihood of obtaining senior executive board approval.

After the court denied the preliminary injunction, the FTC issued a one-sentence statement, disclosing that it would not appeal the order. The agency then withdrew the matter from adjudication, in order to determine whether pursuing the merger challenge was in the public interest.

The Commission has concluded that continued administrative litigation would not serve the public interest. According to a Commission statement, “the district court’s denial of preliminary relief would render it difficult for us to craft meaningful relief were we to find the merger unlawful at the conclusion of the administrative proceeding.” Because it was unlikely that Steris would continue Synergy’s efforts to bring x-ray sterilization technology into the U.S. market, there would not be any asset or business to divest that would recreate the competitive environment that likely would have emerged in the absence of the merger.

While the Commission concluded that the “inability to devise meaningful relief largely negates the potential benefits of continuing the administrative litigation,” it explained that five factors are considered when determining whether to pursue administrative litigation following the denial of a preliminary injunction. Those factors are: (1) the district court’s findings, (2) any new evidence developed during the preliminary injunction proceeding, (3) whether the transaction raises important issues requiring resolution, (4) the costs and benefits of further litigation, and (5) any other matter that bears on the public interest.

Attorneys: Amy Posner for FTC. Geoffrey S. Irwin (Jones Day) and Kevin M. Jonke (Wachtell, Lipton, Rosen & Katz) for Steris Corp. David H. Bamberger (DLA Piper) for Synergy Health PLC.

Companies: Steris Corp.; Synergy Health plc; Sterigenics International LLC

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