Harm To Potential Competition Triggers FTC Merger Challenge

The Federal Trade Commission ("FTC" or "Commission") filed an administrative complaint last week challenging the proposed $1.9 billion merger of Steris Corporation ("Steris") and Synergy Health plc ("Synergy"), charging that the transaction would significantly reduce future competition in regional markets for radiation sterilization services. FTC v. Steris Corporation, File No. 1510032 (May 29, 2015). The Commission also authorized the agency to seek a temporary restraining order and preliminary injunction in federal court pending the results of the administrative trial. Importantly, the FTC's concern here is not about a current overlap or direct competition between the parties in the United States. Instead, the Commission is concerned that the transaction will harm likely future competition.

Last October, Steris, an Ohio-based maker of hospital sterilization products, agreed to buy Synergy, a provider of sterilization services for medical-device manufacturers, hospitals and other industries based in England. The parties plan for the merged company to be incorporated in the U.K., while maintaining operational and U.S. headquarters in Ohio. In trying to offset its use of the controversial tax-inversion structure, Steris has stressed that the transaction will increase its revenues, broaden its global reach, and result in synergies. In January, the FTC issued a Second Request to the parties seeking additional information and material regarding the transaction pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

According to the FTC's press release, the complaint describes both companies as providing contract sterilization services for companies that need to ensure their products are free of unwanted microorganisms before they reach customers, such as implanted medical devices. The complaint also states that most companies needing such sterilization services cannot do it in-house, and instead contract with facilities within 500 miles. Sterilization of large volumes of dense and heterogeneously packaged products is only feasible with gamma radiation generated by Cobalt 60, according to the complaint. In the U.S., only Steris and one other company currently provide contract gamma sterilization services. The FTC alleged that at the time the merger was announced, Synergy was implementing a plan to open new facilities that would provide x-ray sterilization services. The FTC further claimed that the x-ray services offered...