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From Antitrust Law Daily, September 24, 2015

FTC’s effort to halt Steris, Synergy deal falls flat

By Greg Hammond, J.D.

The federal district court in Cleveland has denied the FTC’s motion for preliminary injunction, which would have prevented the second and third largest sterilization companies in the world from merging, pending administrative trial. The court concluded that the Commission failed to meet its burden to demonstrate that, absent the acquisition, Synergy Health plc would have entered the U.S. contract sterilization market by building one or more x-ray facilities within a reasonable time period (FTC v. Steris Corp., September 24, 2015, Polster, D.).

In May 2015, the FTC issued an administrative complaint (File No. 151 0032), charging that Steris Corp.’s proposed $1.9 billion acquisition of Synergy Health would violate the antitrust laws by significantly reducing future competition in regional markets for sterilization of products using radiation, particularly gamma or x-ray radiation. The Commission filed its complaint for temporary restraining order and preliminary injunction in June 2015, in order to maintain the status quo pending the administrative trial.

The court previously instructed counsel to focus their attention at the August 2015 hearing on the second prong of the actual potential entrant doctrine—whether, absent the acquisition, the evidence shows that Synergy probably would have entered the U.S. contract sterilization market by building one or more x-ray facilities within a reasonable period of time.

In support of its motion, the FTC claimed that Synergy was poised to enter the U.S. market in Fall 2014 by constructing one or more x-ray facilities, and that the merger caused Synergy to abandon its effort. The court disagreed, finding 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.

According to the court, evidence at the hearing demonstrated that most significant reason Synergy opted to discontinue the U.S. x-ray project was lack of customer commitment. Specifically, Synergy could not obtain a single customer to provide the financial commitment necessary to build x-ray sterilization facilities in the United States. Emails from customers cited reasons for not signing up for the project, including that there was no significant benefit in x-ray sterilization over the other sterilization modalities; the risk-to-reward ratio favored the other modalities; and the cost of transitioning multiple products from gamma to x-ray was staggering.

Evidence also demonstrated that Synergy was unable to harness the capital costs to build x-ray facilities in the United States.

Lastly, the court concluded that the FTC’s investigation did not cause Synergy to “kill” the U.S. x-ray project. Rather, the evidence demonstrated that the problems plaguing the development of x-ray sterilization as a viable alternative to gamma sterilization in 2012 were the same problems that justified termination of the project in 2015—the failure to obtain customer commitments and the inability to lower capital costs.

The case is No. 1:15-cv-01080-DAP.

Attorneys: Amy Posner, 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

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