By Jeffrey May, J.D.
The federal district court in Wilmington, Delaware, today released a redacted version of its opinion, explaining the reasons for enjoining Energy Solutions’ $367 million acquisition of rival Waste Control Specialists (WCS) at the request of the Department of Justice Antitrust Division. In November 2016, the Antitrust Division challenged the deal, contending that the planned combination of two of the most significant competitors for the disposal of low level radioactive waste (LLRW) was anticompetitive. After a ten-day bench trial that commenced in late April, the district court on June 21 issued an order enjoining the transaction. At that time, it sealed the opinion to provide the parties with an opportunity to redact confidential information. The opinion has now been released (U.S. v. Energy Solutions, Inc., July 12, 2017, Robinson, S.).
In its complaint, the government alleged that the proposed transaction would combine the two most significant competitors for the disposal of LLRW available to commercial customers in 36 states, the District of Columbia, and Puerto Rico. LLRW is the radioactive byproduct of nuclear power generation, scientific research, and certain medical treatments. The complaint identified four relevant product markets: (1) commercial disposal of Lower Activity operational LLRW, which includes the disposal of Lower Activity LLRW generated by operational commercial nuclear reactors, hospitals, and research facilities; (2) commercial disposal of Lower Activity Decommissioning LLRW, which includes the disposal of Lower Activity LLRW associated with the decommissioning of commercial nuclear reactors; (3) commercial dispositioning of Higher Activity Operational LLRW, which includes the dispositioning of Higher Activity LLRW generated by operating commercial nuclear reactors, hospitals, and research facilities; and (4) commercial dispositioning of Higher Activity Decommissioning LLRW, which includes the dispositioning of Higher Activity LLRW associated with the decommissioning of commercial nuclear reactors.
The government established that the merger was substantially likely to lessen competition in the two markets identified by the court: disposal of "higher-activity LLRW" and disposal of "lower-activity LLRW." Thus, the requested injunction blocking the deal was warranted.
Relevant market. Although the court rejected the government's decision to treat decommissioning and operational waste as separate markets, it concluded that the government produced sufficient evidence establishing that higher-activity and lower-activity LLRW were relevant product markets. There were natural and indisputable barriers between the disposal options for higher-activity and lower-activity waste. Among other arguments, the court rejected the defendants’ assertion that they did not offer reasonably interchangeable products for disposal of either higher-activity LLRW or lower-activity LLRW, because there was not complete overlap between their product offerings.
Anticompetitive effects. The government made a prima facie case that the increase in market concentration from the transaction would result in anticompetitive effects, even though the government’s expert did not present statistics measuring the entirety of the two product markets adopted by the court. The court concluded that the defendants’ pre- and post-merger market shares "spectacularly exceed" the shares creating a presumption of anticompetitive effects. According to the court, it was "difficult to show under any measure that the merger would not result in Energy Solutions holding an undue percentage of the relevant product markets." With respect to the market for the disposal of higher-activity LLRW, the transaction resulted in a merger to monopoly, it was noted.
Rebuttal. The defendants failed to rebut the presumption. Among other things, they argued that there was an ease of entry and expansion into the market. They also raised a failing firm defense. Both of these arguments were rejected.
The court noted that barriers to entry in LLRW disposal were incredibly high. Further, existing firms were highly unlikely to expand in a manner sufficient to offset the anticompetitive effects of the merger. Rather, the government bolstered its prima facie case by demonstrating the opposite, in the court’s view.
As for the failing firm defense, the court noted that there was evidence to support the argument that WCS was in imminent failure. However, the court did not need to address that issue because the defendants failed to demonstrate that Energy Solutions was the "only available purchaser," which was necessary for asserting the defense.
The case is No. 1:16-cv-01056-SLR.
Attorneys: Jennifer Lynne Hall, Julie Elmer, and Cameron Gower for U.S. Department of Justice. Paul J. Lockwood, Joseph O. Larkin, and Veronica B. Bartholomew (Skadden, Arps, Slate, Meagher & Flom LLP) and Brian E. Farnan (Farnan LLP) for Energy Solutions, Inc. and Rockwell Holdco, Inc. Donald E. Reid and William M. Lafferty(Morris, Nichols, Arsht & Tunnell LLP) for Andrews County Holdings, Inc. and Waste Control Specialists LLC.
Companies: Energy Solutions, Inc.; Rockwell Holdco, Inc.; Andrews County Holdings, Inc.; Waste Control Specialists LLC
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