October 19, 2017

MONTH-IN-BRIEF: Mergers & Acquisitions

Ryan Thomas, Chauncey Lane

International Law

Bayer Agrees to Sell Selected Crop Science Businesses to BASF in Hopes of Easing Regulatory Concerns Surrounding Bayer’s Planned Acquisition of Monsanto

By Tyler Huseman and Talley Wood, Bass, Berry & Sims PLC

On October 13, 2017, Bayer AG announced the signing of an agreement to sell selected Crop Science businesses to BASF for €5.9 billion as part of the company’s plan to complete the acquisition of Monsanto. The assets to be sold to BASF include “Bayer’s global glufosinate-ammonium business and the related LibertyLink™ technology for herbicide tolerance, essentially all of the company’s field crop seeds businesses, as well as respective research and development capabilities.” The sale of Crop Science assets to BASF is contingent on regulatory approval as well as the successful completion of the previously announced acquisition of Monsanto, which has been subject to extensive European regulatory concerns due to the size and scope of the transaction. Werner Baumann, the Chairman of the Board of Management of Bayer AG, explained that the sale of the Crop Science assets to BASF is an attempt to take “an active approach to address potential regulatory concerns, with the goal of facilitating a successful close of the Monsanto transaction.” Bayer hopes to obtain approval for the Monsanto transaction by the end of 2017, but it is not yet clear whether this divesture will placate the European Commission’s concerns regarding the impact of the proposed merger. Commissioner Margrethe Vestager of the European Commission stated: “Seeds and pesticide products are essential for farmers and ultimately consumers. We need to ensure effective competition so that farmers can have access to innovative products, better quality, and also purchase products at competitive prices. And at the same time maintain an environment where companies can innovate and invest in improved products.” The divesture to BASF does, however, show a willingness to work with the European Commission and a commitment to get the proposed acquisition of Monsanto closed. The impact of the divesture on Bayer should be mitigated by the fact that Bayer will continue to be active in the areas divested to BASF after the closing as a result of the acquisition of Monsanto’s current programs, products, and offerings. 

Valeo Gains Approval of FTE Acquisition

By W. Benjamin Tarpley and Talley Wood, Bass, Berry & Sims PLC

On October 13, 2017, the European Commission, which administers the European Union’s antitrust policy, approved Valeo SA’s $985.4 million acquisition of FTE Automotive Group from Bain Capital Private Equity. Valeo is an automotive parts manufacturer and supplier based in France, and FTE is a German automotive manufacturer specializing in drive train and brake system applications. Valeo initially announced its plan to acquire FTE on June 2, 2016, but was forced to abandon the acquisition after the Commission expressed concern over potential antitrust law violations. Such concerns included high market shares for the surviving entity, customer difficulty in switching to other potential suppliers, and the lack of sufficient buyer power to offset the surviving entity’s power after the close of the transaction. To address the concerns of the Commission, Valeo committed to sell a significant portion of its passive hydraulic actuator business, excluding its Korean activities, to Raicam Industrie SRL, its Italian competition, in order to maintain the same number of suppliers in the affected markets both before and after the completion of the transaction. Valeo’s acquisition of FTE is expected to be completed by the end of October 2017.

Mergers & Acquisitions Law

SJI to Acquire Natural Gas Assets

By W. Benjamin Tarpley, Bass, Berry & Sims PLC

On October 16, 2017, South Jersey Industries (SJI), a publicly traded New Jersey energy services company, announced its $1.7 billion acquisition of the assets of Elizabethtown Gas and Elkton Gas from Pivotal Utility Holdings, Inc., a subsidiary of Southern Company Gas (Southern). As a result of the transaction, SJI will become the second-largest provider of natural gas in New Jersey. The deal is subject to the antitrust regulations imposed by the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as well as approval by several regulatory agencies, including the Federal Communications Commission and the Federal Energy Regulatory Commission (FERC). The transaction comes soon after the Senate restored a quorum at FERC by confirming Commissioners Neil Chatterjee and Robert Powelson, appointees of President Trump. FERC will decide upon SJI’s asset acquisition after it passes upon several other previously stagnant proposals, including the $1 billion PennEast Pipeline, in which both SJI and Southern have an interest. The acquisition is expected to be completed in the middle of 2018.

Anticipated Merger Announcement between T-Mobile and Sprint

By Ericka Simpson Conner, Husch Blackwell

On October 6, 2017, eight senators wrote letters to the Department of Justice (DOJ) and the Federal Communications Commission (FCC) urging the agencies to begin an investigation into a merger between T-Mobile and Sprint. Although a deal between the two companies has been under consideration since 2014, the letters arrived amid a number of reports indicating that T-Mobile and Sprint could announce a deal as early as late October or early November. A merger between the two companies would result in a wireless service provider with more than 130 million subscribers in the United States or a little over 31 percent of the entire market. Approval for the deal is more likely now that the new head of the Department of Justice Antitrust Division, Makan Delrahim, has been confirmed. In considering the ramifications of this deal, the DOJ and the FCC will likely take into account the declining prices for wireless services and the reduction of the wireless market from four major players down to three. In such a market, participants may have less incentive to innovate or competitively price their services.

Express Scripts Announces Deal to Acquire eviCore

By Ericka Simpson Conner, Husch Blackwell  

In its largest deal since purchasing rival pharmacy benefit manager Medco Health Solutions in 2012, Missouri-based Express Scripts announced on October 10, 2017, its plan to purchase eviCore of South Carolina. Express Scripts will purchase the privately held medical benefits management company from investors General Atlantic Partners LLC, TA Associates Inc., and Ridgemont Equity Partners for $3.6 billion. This move allows Express Scripts to enter the medical benefit management arena, which has a $300 billion market in the areas that eviCore currently manages. eviCore currently employs 4,000 and will continue to operate as a stand-alone business unit with, Express Scripts selling services to eviCore’s client base. Express Scripts must report this acquisition to the Federal Trade Commission and the Department of Justice prior to consummation to ensure that the transaction does not violate any antitrust laws per the Clayton Antitrust Act and the Hart-Scott-Rodino Antitrust Improvements Act of 1976. Pending those regulatory approvals and closing conditions, the transaction is expected to close in the fourth quarter of 2017. Express Scripts will provide additional details about the proposed acquisition during its earnings call scheduled for October 25, 2017.

Joint Ventures

Carlyle Group and OppenheimerFunds Announce Joint Venture Targeted at High Net Worth Investors

By Tyler Huseman and Talley Wood, Bass, Berry & Sims PLC

On October 16, 2017, OppenheimerFunds and the Carlyle Group announced a new joint venture which seeks to “provide global private credit opportunities for high net worth (HNW) investors and advisors primarily focused on the U.S. Market.” The joint venture aims to “deliver long-term income solutions not generally available to accredited investors” and will allow non-institutional investors who have not historically been able to access the market premium of non-public investment strategies, adding a layer of diversification for non-institutional investors aiming to adjust to today’s high-rate, low-yield environment. Regarding the venture, Art Steinmetz, the Chairman and CEO of OppenheimerFunds, stated,  “This venture joins two marquee names in the industry to provide access to a private credit solution for HNW clients and is a great complement to our active mutual funds and beta solutions strategies.” Non-public investing strategies have traditionally been limited to institutional investors, and the access provided by the joint venture seeks to allow HNW individuals to capitalize on that same market premium. The impact that providing these opportunities to a wider base of people will have on the traditional expectations of institutional investors and other stakeholders is not immediately apparent. The joint venture will begin operating in 2018, and is anticipated to combine “Carlyle’s core global credit expertise with OppenheimerFunds’ extensive product structuring and distribution capabilities to build an alternative credit platform for HNW clients and advisors.”

European Commission Announces In-Depth Investigation into Proposed Joint Venture Over Antitrust Concerns

By David R. Venturella, Bass, Berry & Sims PLC

Citing antitrust concerns, the European Commission announced on October 17, 2017, that it had opened up an in-depth investigation into the proposed joint venture between Celanese Corporation and the Blackstone Group under the EU Merger Regulation. The proposed joint venture would combine the acetate flake and tow activities of Celanese with Blackstone’s recently acquired portfolio company Acetow, which operates in the same areas. Acetate flake is a chemical derivative of wood pulp used primarily in the manufacture of acetate tow. Acetate tow is used to manufacture cigarette filters. The proposed joint venture would result in the combination of the second- and third-largest manufacturers of acetate tow at a global level excluding China, and the Commission is concerned that Eastman Chemical Co. and Daicel Corp., the two remaining competitors, would not exert sufficient competitive pressure on the joint venture. The Commission is also concerned that the transaction would make tacit coordination between tow suppliers more likely. The Commission has until March 5, 2018, to make a decision on the proposed transaction.

Ryan Thomas

Counsel, Bass Berry & Sims PLC

As mergers and acquisitions (M&A) and securities counsel to numerous national companies and private equity firms, Ryan Thomas has closed more than $50 billion in M&A transactions, and more than $60 billion in overall transactions, including both the largest domestic LBO, and the largest private equity-backed IPO at the time. Ryan’s practice focuses on public and private companies within the healthcare, media, retail, government services, life sciences and technology industries, among others.

Chauncey Lane

Counsel; Husch Blackwell, LLP

Boards and senior executives of public and private companies and investment management firms call on Chauncey for his knowledge and experience in mergers and acquisitions and capital market transactions. In this role, Chauncey regularly assists domestic and international clients with buy-side and sell-side mergers, divestitures, asset acquisitions, going-private transactions, debt and equity offerings, corporate governance and corporate restructurings. Chauncey is an active member of the Business Law Section’s Mergers and Acquisitions Committee and Federal Regulation of Securities Committee.