Under the antitrust merger guidelines, a maverick is a firm “that plays a disruptive role in the market to the benefit of customers.” In Washington political circles, a maverick often refers to a politician that does not hew faithfully to the party line. On the surface, the Federal Trade Commission’s (“FTC”) 3-1 initial approval of a consent decree, announced right before Christmas, resolving its review of Fidelity National Financial Inc.’s (“Fidelity”) $2.9 billion deal to acquire Lender Processing Services Inc. (“LPS”), looks pretty straightforward. The proposed consent decree would require Fidelity to divest certain title insurance assets in nine Oregon counties to avoid 3-2 and 4-3 reductions in the number of competitors, where there would be no timely entry to replace the lost competition. Yet FTC Commissioner Wright dissented from the issuance of the complaint and consent decree, suggesting that the FTC’s action was “based solely” upon this structural analysis, which he found insufficient.
Fidelity is the largest title insurance provider in the United States and a major mortgage services company. LPS’s underwriting activity is small by comparison, a complementary operation to LPS’s key business as a leading provider of technology solutions, transaction services, and data and analytics to the mortgage and real estate industries. The FTC’s competitive concerns arise from the title plant activities each company uses to support its title insurance underwriting activities in certain Oregon counties. Title insurance underwriters require access to county-level title information contained in title plant databases. In Oregon, state law requires title insurance underwriters or their agents to own a title plant in each county in which they issue policies. In the Oregon counties focused upon by the FTC, the transaction would eliminate one of only a few underwriters available in the relevant market, sometimes reducing the number of competitors from three to two.
Antitrust practitioners have long counselled that transactions that reduce the number of competitors from three to two are provocative, if not problematic. Those who have contested the concentration presumption in such cases by arguing specific market facts have normally failed — for example, the FTC’s successful challenge of the baby food merger over a decade ago. See, e.g. FTC v. H.J. Heinz Co., 246 F3d 708 (D.C. Cir. 2001).
However, Commissioner Wright argues in his dissent that the 2010 revision of the Horizontal Merger Guidelines requires more than simply arithmetic. According to Wright, the Guidelines’ increased focus on “modern coordinated effects analysis is not merely upon the number of firms but rather ‘whether a merger is likely to change the manner in which market participants interact, inducing substantially more coordinated interaction.’” Dissenting Statement of Commissioner Joshua D. Wright, In the Matter of Fidelity National Financial, Inc. and Lender Processing Services, Inc., File No. 131-0159, Dec. 23, 2013 (“Dissenting Statement of Commissioner Wright”). Wright focuses upon the Guidelines’ statement that the antitrust agencies are not likely to challenge a merger unless (1) “the merger would increase concentration and lead to a moderately or highly concentrated market,” (2) “the market shows signs of vulnerability to coordinated conduct,” and (3) “the Agencies have a credible basis on which to conclude that the merger may enhance that vulnerability.” Id. at 3.
According to Commissioner Wright, while market structure may help the assessment of the first two conditions, “the Guidelines require more than the observation that the merger has decreased the number of firms to satisfy the third condition.” Id. Commissioner Wright does not think that there was anything “more” there; the majority in its statement suggests both that the structural presumption is relevant to the third prong, and besides, it did consider other things. But since that review ended with a consent decree, the issue will never be resolved in this case.
What this matter suggests is two things: First, Commissioner Wright continues to stake out a position in many areas, including with respect to merger enforcement, as a maverick. And second, in some future transaction, where the competitive issue is more central to the transaction, Commissioner Wright’s analysis and statement might provide a renewed basis to attempt to successfully defend a 3-2 merger.