Goodwin Procter LLP © Keith D. Shugarman, Chair J. Todd Hahn, Senior Counsel Domestic & Foreign...

Goodwin Procter Goodwin Procter LLPLLP

© Keith D. Shugarman, Chair J. Todd Hahn, Senior Counsel

Domestic & Foreign Competition Group

ANTITRUST ISSUES IN INSURANCE MERGERSANTITRUST ISSUES IN INSURANCE MERGERS©©

ABA SECTION OF ANTITRUST LAWABA SECTION OF ANTITRUST LAW

Recent Developments in Insurance Antitrust

April 30, 2004Novato, California


Total M&A TransactionsTotal M&A TransactionsU.S. SellersU.S. Sellers(1994-2004)(1994-2004)

$0.0

$0.2

$0.4

$0.6

$0.8

$1.0

$1.2

$1.4

$1.6

$1.8

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

0

2000

4000

6000

8000

10000

12000

Value in $Trillions # of deals


Total H-S-R Transactions ReportedTotal H-S-R Transactions Reported (1994-2004) (1994-2004)

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

0

1000

2000

3000

4000

5000

6000


YTD


Total Insurance M&A Total Insurance M&A (1994-2004)(1994-2004)

$0.0

$0.2

$0.4

$0.6

$0.8

$1.0

$1.2

$1.4

$1.6

$1.8

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

0

2000

4000

6000

8000

10000

12000



2003 Insurance Deals By Segment2003 Insurance Deals By Segment129 Insurance Deals129 Insurance Deals

Life55%

Accident/Health6%

Hospital/Medical Service Plan13%

Fire/Marine Casualty8%

Surety1%

Title15%

Other2%

Life Accident/Health Hospital/Medical Service Plan Fire/Marine Casualty Surety Title Other


2003 Insurance Deals By Segment2003 Insurance Deals By Segment2003 Deal Value in $Billions2003 Deal Value in $Billions

0

2

4

6

8

10

12

14

16

18

20

Life Accident/Health Hospital/MedicalService Plan

Fire/MarineCasualty

Surety Title Other


Recent Mega-DealsRecent Mega-Deals


Key M&A Advisory QuestionsKey M&A Advisory Questions

• Are there any exemptions (e.g., McCarren or state action)?

• Are there any foreign, federal, or state filings?

• How long will it take?

• What issues will be analyzed?

• If there is a problem, can we fix it?


H-S-R Filings with FTC/DOJH-S-R Filings with FTC/DOJ• Jurisdictional Elements:

– Size-of-Transaction Threshold:

• $50M

– Size-of-Person Test:

• $100M/$10M persons for deals valued at less than $200M;

• No Size-of-Person requirement for deals valued at greater than $200M.

• Exemptions

• Item 4(c) documents


Timing: Timing: FTC/DOJ Merger Review FTC/DOJ Merger Review

ProcessProcess


H-S-R Filing

FTC or DOJObtains

Clearance

Second Request

CompanyResponds to

Second Request

FTC or DOJ Staff Recommendation

FTC: BC/BEDOJ: Front Office

Commissioners or AAG

Seek P.I.

FTC MergerScreening

PreliminaryDOJ Review

EarlyTermination

No Suit

No Suit

No Suit

30DAYS

30DAYS

+Voluntary

Extensions

Meetings/Presentations

To AvoidSecondRequest

Oral andWritten

PresentationsTo AvoidChallenge


What Issues Will FTC/DOJ What Issues Will FTC/DOJ Analyze?Analyze?

• Nature and extent of competition between the merging parties

• Market definition– Geographic– Product

• Market participants and concentration

• Ease of expansion/entry (including state regulatory requirements)

• Market conditions which increase/decrease the potential for anti-competitive effects


Examples in Specific Insurance Examples in Specific Insurance IndustriesIndustries

• Healthcare

• Title

• Disability

• Life


Health Insurance MergersHealth Insurance MergersInvestigated By FTC/DOJInvestigated By FTC/DOJ

• United HealthCare Corp. / GenCare Health Systems, Inc. (1994)

First second request: DOJ investigated but didn’t challenge merger creating 39-47% of HMO, 45% of PPO, and 41% of HMO-PPO enrollees in St. Louis.

• United HealthCare Corp. / MetraHealth Cos. Inc. (1995)

First divestiture: United resolved Federal & State antitrust concerns by agreeing to sell MetraHealth’s HMO serving greater St. Louis.

• Wellpoint Health Networks Inc. / Health Systems Intl. Inc. (1995)

No second request for proposed creation of second largest HMO in U.S.


Health Insurance MergersHealth Insurance MergersInvestigated By FTC/DOJ (cont’d.)Investigated By FTC/DOJ (cont’d.)

• Aetna Inc. / The Prudential Insurance Co. of Am. (1998)

Seven-month investigation by DOJ & TX:

Count I: reduction in competition in the sale of HMO and HMO-POS plans in Houston (44 + 19 = 63%) and Dallas (26 + 16 = 42%);

Count II: reduction in competition to purchase physician services in Houston and Dallas;

Consent decree required Aetna to divest NYLCare HMO operations in Houston and Dallas.



• Anthem/Wellpoint Health Networks (2004)

In October 2003, Anthem announced its intention to acquire Wellpoint Health Networks for $16 billion in cash and stock.

Physician and hospital groups oppose the merger on grounds it would lead to further industry consolidation; Congressional members call for FTC investigation of deal.

DOJ conducts a 4 month investigation, which it closed on March 9, 2004.



• Anthem/Wellpoint Health Networks (cont’d)In announcing its decision, the DOJ explained that it had examined the following issues:

1. The competition for sale between Anthem and Wellpoint for the sale of health insurance products;

2. The possibility that a combined Anthem/Wellpoint would have buyer-side market (monospony) power;

3. Despite the lack of direct competition, whether the combination of complementary Blues plans might increase their incentives or ability to exercise monopsony power;

4. The possible effects of this deal on competition for the acquisition of Blues plans to the detriment of the plans’ shareholders.



• Anthem/Wellpoint Health Networks (cont’d)

Even as it was announcing the close of its investigation, the DOJ stated:

“Although this particular transaction should not threaten to harm competition or consumers, we will continue to be vigilant in our enforcement of the antitrust laws in this area.”

• United Health/Mid Atlantic Medical Services (2004)

United Health’s acquisition of Mid Atlantic Medical Services in February 2004 created the second largest US health insurer


Title Insurance MergersTitle Insurance MergersInvestigated By FTC/DOJInvestigated By FTC/DOJ

• Lawyers Title Corp. / Reliance Group Holdings, Inc. (1997)

FTC required divestiture of the plans and related agreements in seven counties in FL, three in MI, St. Louis and D.C.

• Commonwealth Land Title Insurance Co. / First American Title Insurance Co. (1997)

FTC required dissolution of JV and refunds to customers in D.C. area.

• Fidelity National Financial, Inc. / Chicago Title Corp. (1999)

FTC required divestiture of title plant interests in six CA counties.


Life/Home Service InsuranceLife/Home Service InsuranceMergers Investigated By FTC/DOJMergers Investigated By FTC/DOJ

• AEGON N.V./Transamerica Corp. (1999)

FTC terminated its 30-day review of $9.7 billion transaction creating the 3rd largest US Life insurer.

• Manulife Financial/John Hancock Financial Services (2003)

In November 2003, FTC granted early termination of the 30-day waiting period on Manulife’s $10.4 billion acquisition of John Hancock.


Life/Home Service Life/Home Service Insurance (cont’d)Insurance (cont’d)

• Bank One/Zurich Life (2003)

In July 2003, FTC closed its investigation of Bank One’s $500 million acquisition of the U.S. life insurance business of Zurich Life.

• St. Paul/Travelers (2003)

FTC granted announced early termination in December 2003 of the HSR waiting period. St. Paul/Travelers announced completion of the merger on April 1, creating the second largest US commercial insurer.


Disability Insurance MergersDisability Insurance MergersInvestigated By FTC/DOJInvestigated By FTC/DOJ

• Provident Cos., Inc. / The Paul Revere Corp. (1996)

FTC granted early termination.

• Provident Cos., Inc. / UNUM Corp. (1998)

Consent decree resolved concerns regarding the sale of disability insurance sold to individuals in the U.S.


Restructuring to AlleviateRestructuring to AlleviateFTC/DOJ ConcernsFTC/DOJ Concerns

• FTC divestiture study and growth of big foot print mergers have changed the restructuring rules.

• Consent decree terms and conditions are much stricter (e.g., fix-it-first, clean sweep, monitor trustees, technical assistance).

• Licensing is disfavored.

Goodwin Procter LLP © Keith D. Shugarman, Chair J. Todd Hahn, Senior Counsel Domestic & Foreign...

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