A Delaware federal judge blocked a proposed $367 million merger between two rival nuclear waste disposal companies.
Retained by U.S. Department of Justice Antitrust Division
The DOJ retained Dr. Greg Eastman of Cornerstone Research in a matter involving a proposed $367 million merger of EnergySolutions Inc. and Waste Control Specialists LLC (WCS). The agency sought to enjoin the deal, arguing that the merger would harm competition in the market for commercial disposal of low-level radioactive waste in 36 states.
Dr. Eastman’s trial testimony focused on the defendants’ claimed efficiencies and failing firm defense.
EnergySolutions and WCS disputed the DOJ’s characterization of the relevant product market and the deal’s likely anticompetitive effects. The defendants claimed that the proposed merger would result in greater operational efficiencies, and also asserted that WCS was a “failing firm” whose assets would exit the market absent the merger.
Dr. Eastman testified that the defendants had not provided sufficient information to reliably quantify the claimed efficiencies. He also testified that WCS was not facing imminent failure and that its key assets were not at risk of leaving the market absent the proposed merger. He opined that WCS’s parent, Valhi Inc., had not undertaken good faith efforts to elicit reasonable alternative offers for WCS’s assets, as required by the DOJ/FTC’s Horizontal Merger Guidelines. He further opined that Valhi’s efforts focused on maximizing the company’s value, rather than on eliciting alternative offers above WCS’s liquidation value.
After a 10-day trial, the court ruled in favor of the DOJ and prohibited the companies from proceeding with the deal. Judge Robinson’s ruling was consistent with Dr. Eastman’s analysis in several key areas:
“In closing argument, defendants represented that they were ‘not standing on an efficiencies defense.’ Therefore, the court will not address the substantial evidence presented by the government to show that defendants could not establish an efficiencies rebuttal.”
Good faith efforts and sales process
“Defendants have not shown that WCS’s parent, Valhi, made a good faith effort as part of its 2015 sale process to elicit reasonable alternative offers. Valhi engaged with one other potential bidder . . . and left it in the dark about the sale process before abruptly ending discussions without obtaining a bid.”
Reasonable alternative offer
“Finally, under the horizontal merger guidelines, a reasonable alternative offer is ‘[a]ny offer to purchase the assets of the failing firm for a price above the liquidation value of those assets.’ Valhi was clearly focused on obtaining what it perceived to be WCS’s fair value, not an offer above the liquidation value, which is likely to be less.”