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What’s holding up the Omnicare Inc.-NeighborCare Inc. deal? The protracted antitrust review of Omnicare’s hostile bid for NeighborCare has confounded many people and prompted speculation as to what concerns the Federal Trade Commission might have with it. But according to sources familiar with the review, the delay owes less to antitrust issues than to poor advice by Omnicare’s counsel, Dewey Ballantine, and foot-dragging by staffers at the FTC’s San Francisco office, which is handling the case. It’s unclear how FTC staffers might have dropped the ball, but observers say their taking depositions — most likely to update data collected when the review began nearly a year ago and since grown stale — suggests to many observers some sort of procedural snafu. Depositions are usually an early step in merger review, which in this case was expected to take about six months. Covington, Ky.-based Omnicare, a provider of pharmaceutical services to assisted-living facilities and other senior-care facilities in 47 states, announced a year ago that it was making a hostile bid for NeighborCare, a Baltimore-based provider of pharmaceuticals and other medical supplies through a range of outlets. The $1.3 billion deal is far from the biggest the FTC has reviewed in the past year, but it’s becoming one of the oldest cases in the queue. Lawyers who are following the case and who practice before the FTC and its sister agency, the Department of Justice Antitrust Division, are unwilling to discuss Omnicare’s review on the record. That would put them at odds with FTC regulators, who expect discretion on what is officially a “nonpublic” review, as the Hart-Scott-Rodino Act mandates. Even the FTC itself does not publicly acknowledge the review is under way. These people say privately, however, the Omnicare review has dragged on far longer than is normal for a deal of this size, even if it has raised competition concerns that needed resolving. Omnicare — or at least Dewey Ballantine, made the first misstep, they say. Early in the review, the FTC issued a “second request” for information from Omnicare, a much-dreaded step that can saddle a merger applicant with burdensome disclosure obligations. But the FTC also offered — and Omnicare accepted, on the advice of Dewey Ballantine partners Alison Smith and John Collins — the option of a “quick look” review. As the phrase suggests, that entails a speedy examination of its operations for anti-competitive problems. Once these are resolved, the deal is allowed to close. Quick looks are a bad idea, say antitrust experts, unless the FTC officials conducting them are experienced, competent and well connected with Washington headquarters. “Quick look is fact-specific and staff-specific,” said a lawyer who regularly deals with antitrust regulators. “You have to be working with staff that has the ability to get the facts right, and who has the wherewithal in the agency to get it through [the approval process].” That apparently was not the case with the FTC’s San Francisco staff. People familiar with regulatory process say regional offices such as San Francisco’s often lack the expertise of their Washington counterparts and sometimes are without critical oversight from headquarters. (This may be one reason why only two of the FTC’s seven regional offices, New York and San Francisco, handle antitrust matters at all.) The FTC would not comment. Lawyers not involved in the case questioned Omnicare’s strategy and said they would have advised it to go with a conventional second-request review, which is expensive and imposing but at least limits the review once the parties certify their compliance with the second request. The average second request takes about six months. Dewey Ballantine, Omnicare’s antitrust counsel early in the case, has a large antitrust practice but does not specialize in shepherding deals through the review process. “This is not their playground,” said a former FTC official. Morton A. Pierce, a Dewey Ballantine partner who heads the firm’s M&A group and with partner Michael Aiello advised Omnicare on structuring the deal, said he could not comment on the reason for recommending a quick-look approach. But he also disputed the characterization of the firm’s antitrust practice. “We don’t have antitrust lawyers in Washington,” he said, “but we do have people who regularly do that work,” meaning shuttling companies through the review process. Pierce said the Omnicare deal is a “significant transaction” for the health care industry that can understandably lead to heightened government scrutiny. Arbitrageurs who complain the deal hasn’t gotten regulatory approval yet “are looking for a reason this deal is taking so long,” Pierce said. But, he said, the process is on track. “It’s going at the government pace.” It’s unclear what specific competition issues may be holding up the case. But people familiar with the review process say Omnicare’s case could well be undergoing what sometimes happens in the unlimited quick-look process when a particular competition question raises some ancillary issues, which in turn begets its own subsidiary issues, ad infinitum. Without careful management, staff can quickly get bogged down in details without actually resolving any problems. Moreover, turnover in the top ranks of the FTC since this review started may also have impeded matters. Because the Senate held up appointment of FTC Chairman Deborah Platt Majoras last year, for a time there was only one deputy director, rather than the usual two, at the Bureau of Competition, which handles all merger reviews. When the deputy slot was filled in late February, so was the associate director for competition matters arising from the regional offices. Majoras appointed the former head of the health care shop, Jeffrey Brennan, to the post. Whatever the delays, it looks as though Omnicare and the FTC have taken steps to clear the logjam. In March, Omnicare hired Stephen Axinn, of Axinn Veltrop & Harkrider, an antitrust lawyer with extensive litigation experience. “Steve is a serious antitrust player,” said a Washington lawyer. Said another: “Steve’s someone you hire when you need to throw a bomb.” It’s unclear whether Omnicare hired Axinn because it feared an FTC effort to block the deal or simply because it wanted to move the case along. Either way, progress resumed. On April 4, Omnicare announced that it had substantially complied with the second request and set a closing date of May 27 — an unusually long, 55-day extension of the HSR review period. Axinn declined to comment on the matter. In late April, the FTC sent Brennan out to San Francisco, by all appearances to shake things up. Soon after he returned to Washington, there were staffing changes on the Omnicare case that included putting senior lawyers on it. Brennan declined to comment. People involved in the deal confirmed that FTC staff are now taking depositions — possibly from competitors, customers and people opposed to the deal, a routine part of the review process. Washington lawyers say deposition-taking is highly unusual for a case this old. Arbitrageurs who are following the review and are in close touch with Omnicare’s lawyers say the FTC has decided to revisit competition issues that were discussed early on, because relevant data collected nearly a year ago has gone stale, given the quickly changing character of the business. Antitrust lawyers say the deal is still likely to close, but they are watching closely to see whether the case produces procedural changes at the FTC that might affect other deals. Copyright �2005 TDD, LLC. All rights reserved.

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