Waste Control Specialists and EnergySolutions Inc. engaged in a single-bidder sale process that boxed out other potential buyers and torpedoed the market-leading nuclear waste disposal companies’ defense of a planned $367 million merger that was nixed last month on antitrust grounds, a Delaware judge said in a just-unsealed opinion.
The details surrounding EnergySolutions’ proposed acquisition of its Utah-based competitor came to light Thursday, three weeks after U.S. District Judge Sue L. Robinson of the District of Delaware sided with government attorneys, who argued the deal would illegally create a monopoly in a market that is already difficult to enter. The companies have since cancelled the merger.
EnergySolutions and WCS had asked that the June 21 decision be filed under seal in order to protect their private information.
The companies had asserted the “failing firm” defense to rebut the U.S. Department of Justice’s assertion that the deal was presumptively illegal under Section 7 of the Clayton Act, arguing that WCS was in such bad shape by late 2015 that it risked going out of business if the deal was not consummated by its July 31 closing date.
However, Robinson never reached the question of whether WCS faced imminent collapse. The failing firm defense, she said, rests on a company’s good faith effort to elicit alternative offers from other buyers when pursuing a sale.
In a 53-page redacted opinion, Robinson said WCS’s parent company, Valhi Inc., did not look seriously beyond EnergySolutions’ proposal and then adopted deal measures that prevented it from fielding other offers.
“Thus, Valhi essentially engaged in a single bidder process and then agreed to several deal protection devices that have made it impossible to entertain other offers once it became known that Valhi was finally serious about selling all of WCS,” Robinson wrote.
Court documents detail negotiations that followed a years-long pricing war and litigation between EnergySolutions and WCS over contracts to dispose of low-level radioactive waste, or LLRW, from nuclear power plants, hospitals and research facilities. The companies finally agreed in November 2015 to have EnergySolutions acquire WCS for $270 million in cash, $20 million in preferred stock and $77 million in assumed debt.
But according to the opinion, WCS and Valhi only engaged one other potential bidder, which was later left in the dark before Valhi abruptly cut off discussions without obtaining a bid. Robinson attributed the silence to no-talk and no-shop provisions in the merger agreement, which prevented WCS from negotiating with other firms and soliciting alternative offers.
“Under the facts presented here, defendants have not shown that Valhi/WCS made good faith efforts to elicit reasonable alternative offers that would pose a less severe danger to competition,” Robinson said.
Van H. Beckwith, an attorney for WCS who argued the seller’s side at trial, said the companies disagreed with Robinson’s findings as to the sale process. A “number of different companies” had approached WCS over the year but never submitted offers to buy the firm, he said, signaling the weakness of WCS’s business.
“We thought we had presented overwhelming evidence of the failing-firm defense,” he said.
EnergySolutions has also said it was disappointed with Robinson’s ruling, but a spokesman did not immediately provide any additional comment on Thursday.
The DOJ’s Antitrust Division sued to halt the merger in November 2016, saying the proposed transaction would create a “near-monopoly” in 36 states at a time when utilities are preparing to bid out decommissioning projects worth billions of dollars.
The companies responded that there was only a small overlap in their product offerings and that WCS was not an effective competitor because it did not have the ability to provide the kinds of services that EnergySolutions does.
But Robinson, however, noted that antitrust law does not distinguish between effective and ineffective competitors, and she credited government assessments that a combined company would hold a nearly 100 percent share in two of its proposed markets.
While there is no established threshold, Robinson said that the U.S. Supreme Court has held that a post-merger market share of 30 percent is enough to trigger a presumption of anticompetitive effects.
“The defendants’ pre- and post-merger market shares spectacularly exceed those percentages, making it difficult to show under any measure that the merger would not result in EnergySolutions holding an undue percentage of the relevant product markets,” she said.
According to the DOJ’s complaint, EnergySolutions, based in Utah, brings in $1 billion a year in revenue, including approximately $112 million in LLRW disposal. Dallas-based WCS earned about $45 million in revenue in 2015, the DOJ said. Both companies are incorporated in Delaware.
ES was represented by Steven C. Sunshine, Paul J. Lockwood, Joseph O. Larkin, Robert S. Saunders, Tara Reinhart and Veronica B. Bartholomew of Skadden, Arps, Slate, Meagher & Flom. WCS was represented by Donald E. Reid and William M. Lafferty of Morris, Nichols, Arsht & Tunnell and Hugh M. Hollman and Joseph Ostoyich of Baker Botts.
The DOJ was represented by Jennifer Lynne Hall in the Wilmington office and Julie S. Elmer, Aaron Comenetz, Aaron D. Hoag, Adam Severt, Anurag Maheshwary, Bindi R. Bhagat, Brian Hanna, Catherine S. Wright, Danielle G. Hauck, David J. Shaw, David L. Snyder, Eric J. Mahr, Eric D. Welsh, Erin L. Craig, Ian D. Hoffman, Ihan Kim, Janet J. Brody, Jennifer A. Wamsley, John D. Lindermuth, Richard C. Gower, Shobitha Bhat, Travis R. Chapman and Vittorio E. Cottafavi of the DOJ’s Antitrust Division in Washington, D.C.
The case was captioned United States v. Energy Solutions.