Court: District Court, N.D. Ohio; September 24, 2015; Federal District Court
On May 29, 2015, the FTC filed a complaint seeking a Temporary Restraining Order and Preliminary Injunction against Steris Corporation and Synergy Health pic to prevent Steris from acquiring Synergy. The FTC aimed for immediate injunctive relief under Section 13(b) of the Clayton Act, citing concerns over competition. Both parties agreed to maintain the status quo until an expedited hearing, with an administrative proceeding set for October 26, 2015. Steris and Synergy are the second- and third-largest sterilization companies globally, with Sterigenics being the largest. Sterilization, essential for healthcare products, is mandated by the FDA and foreign regulators. Most sterilization is contracted out, with gamma radiation, e-beam radiation, and ethylene oxide gas being the primary methods used. Gamma sterilization, using Cobalt-60, is the most effective for dense products and accounts for a significant portion of U.S. sterilization services, with Steris and Sterigenics providing 85% of these services. Synergy, while primarily focused on e-beam services in the U.S., operates numerous gamma facilities abroad and has plans to introduce an x-ray sterilization technology in the U.S. that could challenge the current market leaders. The FTC asserts that x-ray sterilization could significantly compete with existing gamma services due to its comparable effectiveness.
The FTC alleges that the merger between Steris and Synergy would reduce competition by allowing Steris to shield itself from market pressures in the gamma sterilization sector. Synergy's proposed x-ray sterilization facilities were intended to compete for Steris and Sterigenics' gamma sterilization clients, potentially resulting in lower prices and better quality for consumers. Following an extensive investigation, the FTC filed a complaint shortly before the merger's planned closure, asserting that the acquisition would breach Section 7 of the Clayton Act, which prohibits mergers that significantly lessen competition or create monopolies. The FTC requested injunctive relief under Section 13(b), which permits preliminary relief if the FTC demonstrates a strong likelihood of success and public interest justification.
On June 1, 2015, a teleconference was held to streamline proceedings, leading to an agreement that the merger would not be finalized until at least four business days after the Court's ruling on the FTC's motion for a preliminary injunction. Additionally, a joint expedited litigation schedule was established. A three-day hearing commenced on August 17, 2015, featuring testimonies from multiple witnesses, including executives from Steris and Synergy. Post-hearing briefs were submitted by both parties. The Court is now tasked with ruling on the matter.
Section 7 of the Clayton Act prohibits acquisitions that may significantly diminish competition, while Section 13(b) allows for preliminary injunctions if the FTC presents a compelling case that weighs public interest. The intent of Section 7 is to prevent early-stage reductions in competition due to corporate acquisitions.
Congress enacted the statute with a focus on probabilities rather than certainties, as noted in the case of Brown Shoe Co. v. United States. The purpose of proceedings under Section 13(b) is to maintain the status quo while the FTC investigates, as explained by District Judge David A. Katz in FTC v. Food Town Stores, Inc. The FTC holds the responsibility for proving a violation of Section 7 of the Clayton Act by a preponderance of the evidence and has the authority to seek injunctions under 15 U.S.C. 25. To establish a likelihood of success under Section 13(b), the FTC must demonstrate serious and substantial questions regarding the merits, warranting thorough investigation by both the FTC and the Court of Appeals.
The FTC's "actual potential entrant" doctrine applies to situations where a potential competitor, such as Synergy, merges with an existing competitor, like Steris, potentially reducing future competition. The FTC contends that acquiring an actual potential competitor violates Section 7 if the market is concentrated, the competitor likely would have entered the market, its entry would have been beneficial to competition, and there are minimal other potential entrants.
Defendants dispute the validity of the actual potential entrant doctrine, claiming it has been disfavored by various courts, including the Supreme Court. However, the FTC has adopted this theory in its case, which will be used by the administrative law judge in the forthcoming proceedings. The Court has instructed that the focus should be on whether Synergy would have likely entered the U.S. contract sterilization market absent the acquisition.
The Court ultimately found that the FTC did not meet its burden of proof. Dr. Richard M. Steeves, who founded Synergy after acquiring a medical device sterilization business, initially encountered x-ray sterilization technology at a 2011 conference but dismissed it as impractical. In 2012, he considered acquiring Daniken, the sole provider of commercial x-ray sterilization services, through due diligence by a senior director.
Daniken comprises a gamma facility operating at 75% capacity and an x-ray facility at 22% capacity. Synergy's valuation was influenced by the expectation that the gamma facility would support the x-ray business and a predicted rise in x-ray interest, particularly due to J.J. transitioning its Surgicel product from gamma to x-ray sterilization at Daniken, which Dr. Steeves anticipated would initiate an industry shift. However, the directors acknowledged three main challenges: reducing capital costs, navigating regulatory issues in the transition to x-ray sterilization, and persuading existing gamma customers to adopt the new technology. Forecasts indicated the x-ray facility could reach 52% capacity by 2015 and 64% by 2016, prompting Synergy's decision to acquire Daniken.
Synergy's management structure features two boards: the Senior Executive Board (SEB), which oversees daily operations and investment decisions below £10 million, and the PLC Board of Directors, which represents shareholders and governs overall strategy and investments over that amount. The PLC Board consists of four outside and three inside directors. At a joint board meeting in October 2012, Dr. Steeves presented on x-ray technology and the Daniken acquisition, highlighting that Synergy could not compete in the U.S. sterilization market without x-ray technology due to Steris and Sterigenics' dominant market shares. He proposed establishing facilities in five U.S. hubs to capture over $120 million in revenue from competitors and recommended pursuing an exclusivity agreement with IBA, the sole manufacturer capable of producing powerful x-ray sterilization machines. Dr. Steeves reiterated these points in a subsequent presentation in April 2013 and shortly thereafter hired Andrew McLean to lead the AST division's design and project teams.
Dr. Steeves expressed concerns regarding slow customer conversions for x-ray technology at Daniken but viewed it as a potential breakthrough in the U.S. contract sterilization market, believing it could offer lower costs than gamma radiation with superior operational metrics. Despite lacking specific financial analyses, he emphasized the importance of advancing x-ray projects. In April 2014, McLean, now CEO of AST and Laboratories, was expected to present the U.S. x-ray strategy to boards but did not due to the emergence of Nordion, a key supplier of Cobalt-60 for gamma sterilization, which became available for acquisition. This led to a bidding war involving Steris and Sterigenics, with Sterigenics ultimately securing Nordion.
Concerned about Sterigenics controlling Cobalt-60 and motivated by the potential of x-ray technology, Dr. Steeves directed McLean to intensify efforts on commercial x-ray sterilization in the U.S. and elsewhere. Key challenges identified included reducing the capital expenditure below the €18 million spent on Daniken, addressing customer hesitance to switch sterilization methods, and securing revenue commitments through take-or-pay contracts.
Synergy, which encompasses three business sectors including AST, has a $40 million annual maintenance budget and a discretionary investment budget of $25 to $40 million. A formal project funding process was established to evaluate capital project ideas, starting with an aspirational phase where the business proposes a project and conducts research to support its viability. This research is documented in a template created by CFO Gavin Hill, generating metrics for investment decisions. The project team must present the business case to the Senior Executive Board (SEB) for approval and may need to revise it multiple times. Once approved, a thorough "black hat" review by Hill's finance team is conducted to ensure the business model's robustness before submission to the PLC Board.
The black hat process involves a two-part review of business projects. The first part is a financial review focusing on the assumptions behind the business case, where the project team assesses revenue sources, benchmarks costs against similar facilities, and ensures a comprehensive business model. The second part is a commercial review that examines contracts related to revenues, including take-or-pay agreements and risk factors such as pensions and insurance. Approval from the Senior Executive Board (SEB) is required before presenting the business model to the PLC Board.
Key metrics used in evaluating proposed capital projects include the internal rate of return (IRR), targeted at 15%, which reflects the expected growth rate after accounting for taxes and operating costs. This metric is assessed over a seven to ten-year period, aligning with investors' short-term perspectives. However, a 15% IRR does not guarantee board approval, as the risk profile of the project is also crucial, especially for significant capital expenditures that affect the company's annual budget and earnings.
Another important metric is the return on capital employed (ROCE), also targeted at 15%, which measures how effectively the company converts invested capital into profit. Gavin Hill, leading Synergy, has seen ROCE increase from 10% to 12.4% and aims for 15% and later 20%. Achieving 15% ROCE requires certain businesses to deliver an 80% ROCE.
Cash payback, defined as the time taken for operating cash flows to repay the initial investment, is targeted at five years. Additionally, Synergy mandates revenue commitments from customers through take-or-pay contracts, ensuring future product volumes for sterilization.
If the customer fails to provide necessary products, they are still obligated to pay for services rendered. Agreements in place demonstrate demand for these services and support business cases for PLC Board approval, although meeting all metrics does not guarantee approval. Financial considerations are weighed alongside overall strategy and shareholder expectations. The PLC Board may struggle to reach a consensus on project approvals. Testimonies highlight the preference for projects with guaranteed outcomes over those with speculative high returns, especially for large-scale projects like the U.S. x-ray business where minimal risk is preferred.
In May 2014, McLean updated the SEB on the U.S. x-ray project, continuing to assess the feasibility of combined e-beam and x-ray facilities. He expressed concerns about securing take-or-pay contracts essential for the project's financial viability. In a subsequent letter, he reiterated that building an x-ray facility would not ensure future customer conversions, citing low capacity utilization at existing facilities as a cautionary example. Despite interest from potential customers, none had committed to long-term contracts, with one notable company declining despite significant cost savings due to perceived risks. Concerns were raised about the potential impacts of x-ray treatment on medical devices. A more detailed strategy presentation was planned for September 2014.
McLean instructed Gaet Tyranski to prepare a presentation for September 2014, focusing on generating customer interest letters, identifying potential U.S. building sites for x-ray sterilization, and detailing products manufactured by major medical device companies. Despite receiving letters of interest from several manufacturers, McLean faced challenges in securing commitments due to the newness of x-ray technology in the U.S. Two days before the SEB meeting, he reported an oral agreement with IBA for exclusive provision of dual x-ray/e-beam sterilization equipment for ten years, contingent upon Synergy making down payments for two facilities by October 2014.
Tyranski's presentation proposed a strategy for dual x-ray/e-beam sterilization across four to five U.S. facilities, with an initial investment of over $40 million required for two plants located in Indiana and Texas, expected to be operational by fiscal year 2016. The business plan projected an IRR of 6.51% and a cash payback period of 7.7 years, with revenue assumptions based on capturing 15% of the U.S. gamma market by fiscal year 2018. However, it was discovered that revenue from an existing e-beam plant was double-counted, reducing the IRR to 3%. McLean recognized that even with the original IRR, the SEB would likely not approve the model due to insufficient customer commitments and the inherent risks of the unproven technology, leading him to refrain from seeking further review. Although the SEB approved the strategy, minutes from the meeting indicated significant concerns regarding the financial model's assumptions and projections, particularly regarding its risk compared to traditional gamma facilities.
Dr. Steeves expressed concerns about the economic viability of a strategy, suggesting that a reevaluation was necessary. Chris Fry noted that some financial figures in the model were speculative. Dr. Coward called for urgent development of a cost base from scratch, while McLean highlighted the difficulty in securing a base load customer willing to assume risks associated with unproven x-ray technology in the U.S. During a PLC Board meeting, Constance Baroudel sought updates on AST’s U.S. strategy. Dr. Coward reported that Daniken was increasing capacity but focusing more on industrial clients as the regulatory approval for sterilizing medical devices via x-ray was delayed. Dr. Steeves mentioned McLean's efforts to secure an exclusivity agreement with IBA, requiring $300,000 deposits for two x-ray facilities. The PLC Board approved these down payments, with Dr. Coward clarifying that formal approval for the broader plan involving four facilities was not sought at that time.
On October 7, 2014, a kickoff meeting for "Project Endurance" was held, wherein it was stated that the U.S. x-ray strategy had received SEB approval. Key actions included reducing capital expenditure by $1.5 million and finalizing the exclusivity agreement with IBA. Tyranski acknowledged that while customer commitments were essential for advancing the project, this was implicitly understood. Despite the announcement of Steris's merger with Synergy on October 13, work on the x-ray project continued. Tyranski communicated that the project was on track, aside from market development expenses. McLean reported on October 30 that he had secured an option contract with IBA, allowing Synergy until March 31, 2015, to finalize purchase agreements. He maintained regular meetings with J.J. regarding a potential contract for x-ray sterilization, although progress was slow. Nonetheless, he remained optimistic due to J.J.'s continued interest and industry concerns regarding alternative sterilization methods and Cobalt-60 supply challenges. Synergy published its interim results on November 4, 2014.
An agreement has been signed between AST and IBA for the deployment of X-ray technology in the U.S., leveraging AST's expertise. X-ray services are identified as the fastest-growing segment of AST's technologies, attributed to improved quality, favorable economics, and quicker processing speeds that aid customers in inventory reduction. The first FDA approval of a Class III medical device by a key global partner was noted as a significant milestone for further developments.
In an earnings call, Dr. Steeves highlighted strong growth in the Americas and Europe, supported by new facilities in France and Switzerland and a recent acquisition. Plans for expanding the U.S. network and increasing capacity globally were outlined, along with the initiation of X-ray operations in the U.S. by the agreement with IBA.
Tyranski is focused on finalizing the U.S. X-ray business model, with plans to present it to the new Steris/Synergy SEB post-merger. A business plan discussed in September 2014 indicated that Synergy's e-beam facility in Lima, Ohio was to be closed, transitioning operations to a new dual X-ray/e-beam facility. An email from Tyranski requested a lease extension for Lima to secure revenue during the development of X-ray customers, which was granted by Hill.
In November 2014, Tyranski sent staff to explore potential X-ray facility sites in the Dallas/Fort Worth area, while also negotiating economic incentives to reduce construction costs. Ongoing discussions regarding incentives and grants in Dayton, Ohio, continued into February 2015. Tyranski emphasized the need to present a solid business case to the board before making lease commitments.
On October 9, 2014, Tyranski reminded his sales team to gather customer letters of interest for X-ray testing, incentivizing them with bonuses, and later extended the deadline. Despite these efforts, economic conditions deteriorated, affecting the foundational equipment for the business plan, specifically IBA’s Rhodotron TT300.
IBA initially assured Synergy that its Rhodotron TT300 could fulfill their requirements as a dual x-ray/e-beam machine. However, by late 2014, IBA expressed doubts about the TT300's capabilities and suggested reconfiguring the TT1000 model at an increased cost of $250,000. While the TT300 had greater e-beam capacity, the business model established in September 2014 emphasized the necessity for a machine with more x-ray capability, ultimately requiring 400 kW and 7 MeV for x-ray and 100 kW and 10 MeV for e-beam. The TT300 failed to meet the required 400 kW power level, and no existing dual-purpose machine could achieve such specifications. Evidence indicated that a 300 kW machine would generate 25% less revenue than the desired TT1000 setup.
In January 2015, during a meeting between Synergy and IBA, IBA announced an increase in system prices, with the TT1000 at $5.304 million, comprising over 25% of the capital costs for a facility. McLean expressed frustration over the project's lack of progress and questioned the wisdom of being a trial customer for an untested machine. By February 2015, Tyranski conveyed skepticism about IBA’s ability to deliver the required machine, citing inconsistent information from IBA and his own diminished confidence. Ultimately, it was established that no machine capable of providing both x-ray and e-beam sterilization at the necessary power level existed. On February 24, 2015, McLean informed the FTC of the termination of Synergy’s U.S. x-ray project, citing a lack of customer commitments despite extensive efforts.
Synergy initiated its sales and marketing strategy in July 2013 by identifying 185 leading medical device and pharmaceutical manufacturers as prospects for x-ray sterilization. Their approach included sales calls, brochures, webinars, seminars, and plant tours. From this pool, 84 companies were selected as prime candidates to generate sufficient processing volume for the x-ray strategy, necessary to secure revenue for the business model and obtain SEB and PLC Board approval. Documentation of these efforts was maintained by McLean.
In preparation for a September 2014 presentation to the SEB, the project team sought customer commitments but only received six nonbinding letters of interest. Following the SEB meeting, attempts to secure further commitments were unsuccessful, leading McLean to conclude there was no reasonable prospect for customer acceptance of the x-ray project. Correspondence from five top customers indicated a lack of intention to use x-ray sterilization, citing either no significant advantages over existing methods or prohibitive costs associated with switching.
After a meeting with the FTC in February 2015, McLean sought written evidence of customer commitments, which ultimately led to the decision to terminate the project. Gaet Tyranski noted that the FTC inquiry was becoming burdensome and suggested halting further investments in the x-ray initiative.
Tyranski, President of AST for the Americas since August 2014, was simultaneously managing several capital projects, including the U.S. x-ray project. He allocated only 30% of his time to this project due to competing priorities, including facility planning in Pennsylvania and Northern California, and potential greenfield sites in the Caribbean. Discussions with McLean about potentially terminating the U.S. x-ray project arose as they anticipated needing to finalize the fiscal year 2016 budget. Concerns included limited customer interest, with minimal testing activity at Daniken, and the financial burden of a $40 million phase 1 investment, which would consume Synergy’s entire discretionary budget.
Currently, Daniken’s x-ray facility operates at just 25% capacity, and no existing dual x-ray/e-beam sterilization machine functions at 400kW. The FTC argues that Synergy was ready to enter the U.S. market in Fall 2014 but abandoned this effort post-merger with Steris, suggesting skepticism toward post-merger documents and testimony. If the FTC's position holds, Synergy might renew its U.S. x-ray facility plans if the merger fails.
Contrary to the FTC's assertions, evidence indicates three points: first, while Synergy's PLC Board endorsed the U.S. x-ray concept in September 2014, the business plan remained unapproved due to significant hurdles. Second, the merger with Steris did not alter Synergy's U.S. x-ray initiatives, as McLean and Tyranski continued to pursue customer engagement and cost reduction. Third, it was McLean, not CEO Steeves, who decided to halt the project in February 2015 due to low prospects for SEB approval and combined board consensus. The SEB approved the U.S. x-ray strategy but lacked authority to endorse discretionary expenditures over £10 million, and no formal business plan was presented to the PLC Board for approval, which only authorized £300,000 for initial facility down payments required by IBA for exclusivity.
To obtain injunctive relief, the FTC must demonstrate a likelihood that, without the merger, Synergy would have successfully entered the U.S. contract sterilization market by establishing x-ray facilities within a reasonable timeframe. The Court finds that the FTC has failed to meet this burden for several reasons.
Firstly, the primary reason for Synergy's decision to halt its U.S. x-ray project was the lack of customer commitment. The FTC claims that there is no evidence of Synergy soliciting customer interest during 2014, despite ongoing customer interest in x-ray sterilization. The Court disagrees, noting that Synergy traditionally secures take-or-pay contracts from customers before making substantial capital investments, which in this case would require an expenditure of Synergy’s entire annual discretionary budget of $40 million for the initial project phase.
Evidence presented indicates that, despite Synergy's efforts, no medical device customer was willing to sign a take-or-pay contract, and only six out of 185 targeted customers expressed even nonbinding interest. Testimony and documentation reveal that McLean, a key figure in Synergy, recognized the necessity of securing financial commitments to support the business model for U.S. x-ray operations. He consistently raised concerns regarding the lack of financial backing at meetings, knowing that without demonstrated demand, the business model would not gain approval from Synergy’s senior management.
Furthermore, McLean did not pursue a formal review of the business model due to its reliance on unproven assumptions regarding pricing, revenues, and market share. Testimonies from the FTC's witnesses indicate that their interest in x-ray sterilization was largely theoretical, contingent upon various unresolved factors such as facility location, equipment selection, potential product volumes, completion of studies, and regulatory approvals in relevant markets.
After McLean requested written support for the business model to be presented to the SEB in September 2014, Hansen provided a letter indicating only tepid interest in x-ray sterilization. Hansen noted that while x-ray sterilization was of some interest, significant barriers existed, such as the extensive work required for physical and functional product testing, regulatory submissions, and the allocation of personnel resources. The letter clarified that it was intended to express interest without committing J. J to processing product volumes at a facility with Synergy Health.
Hansen acknowledged understanding take-or-pay contracts and the necessity of volume commitments prior to constructing new facilities. During discussions about J. J's gamma sterilization facility in Albuquerque, Hansen agreed that evaluating potential volume throughput was essential in determining the feasibility of new facilities. J. J had previously suffered a financial loss from a $2.8 million take-or-pay contract with Synergy for an e-beam sterilization facility in Ireland, which was rendered obsolete by a competitor’s superior product, leading to a total write-off of the investment.
David Silor from Zimmer highlighted ongoing discussions about x-ray sterilization with Synergy but noted that Zimmer's resources were redirected to a major quality remediation project at the FDA's request, preventing any feasibility studies on x-ray sterilization.
The difficulties in securing customer commitments for x-ray sterilization were not due to its advantages but rather the high costs associated with the conversion process. While sterilization costs represent only 3% of a medical device’s total cost, conversion expenses ranged from $250,000 to $500,000 per product. The process involved extensive testing, FDA approvals, and facility validation, which could take several years. Manufacturers with long-standing products faced increasingly stringent regulatory standards, complicating compliance.
X-ray facilities established in the U.S. must have contingency sterilization options due to the absence of existing facilities, as Synergy’s would be the first. A malfunction at Synergy could leave customers without alternative sterilization solutions, risking their business reputations. Despite efforts by McLean and his team, no customers supported the U.S. x-ray business model as of February 24, 2015. Leading manufacturers, including Covidien/Medtronics and Boston Scientific, cited lack of significant benefits from x-ray sterilization, unfavorable risk-to-reward ratios, and high transition costs from gamma to x-ray. The FTC hearing revealed McLean solicited customer emails but did not challenge the evidence showing industry reluctance. Historically, Synergy had attempted to build an x-ray facility in Bradford, U.K., but ultimately chose to expand its gamma facility due to superior financial projections and lack of customer backing for the x-ray model. Concerns were exacerbated by Daniken's x-ray facility, which operated at only 25% capacity and processed primarily non-medical products, contrary to Synergy’s preference for medical business. Daniken's x-ray revenue from medical devices was minimal, constituting only 2% of its overall x-ray business, further illustrating the challenges in attracting existing gamma customers to x-ray sterilization.
Synergy faced significant challenges in its attempts to convert its gamma facility operations, with customers threatening to shift to competitors due to claims of limited capacity. Testimony indicated that operations included sterilizing soil to meet production demands, which was not the preferred method for Synergy. Any price reductions to retain customers would adversely affect profit margins and internal rate of return (IRR).
Capital costs presented a major barrier for Synergy, which had a limited annual budget of $25 to $40 million for capital projects. The projected cost for constructing two x-ray facilities exceeded this budget, making it a high-risk investment. Despite efforts to refine the financial model, cost estimates increased by $2.5 million from September 2014 to February 2015, leading to the project's abandonment.
By early 2015, confidence waned in the TT300 machine's ability to meet capacity requirements, and the TT1000 had not been developed, tested, or priced. The September 2014 business model underperformed across all key investment metrics, including a projected IRR of 6.51%, which was later found to be artificially inflated due to an accounting error that further reduced it to 3. The model also failed to meet the required 15% return on capital employed (ROCE) target, only reaching it in year seven, and projected a cash payback period of 7.7 years, exceeding the target of five years.
The FTC argues that recent customer interest in x-ray technology and product testing by manufacturers indicate Synergy's imminent plans to establish x-ray sterilization facilities in the U.S. However, evidence from FTC witnesses contradicts this claim. Hansen testified that if Synergy were to open such a facility, J. J would need to navigate multiple regulatory steps before using it for Surgicel sterilization, including site approval and product validation testing. Additionally, Silor stated that Zimmer had not assessed x-ray as a sterilization method, had not conducted feasibility studies, nor discussed pricing with Synergy. He detailed the extensive steps required to implement x-ray sterilization, acknowledging that evaluating new sterilization methods is a long-term endeavor.
The accuracy of the September 2014 SEB meeting minutes came under scrutiny, particularly the delayed transcription of the x-ray presentation section by Jonathan Turner. Although the FTC challenged the credibility of these minutes due to their non-verbatim nature, Dr. Steeves affirmed their validity, noting that the presentation and discussions were confirmed by the presence of the SEB board and corroborative testimony.
In November 2014, Synergy's earnings call included statements suggesting a commitment to developing two x-ray facilities in the U.S., including an agreement with IBA for x-ray technology deployment, which the FTC interprets as public intent to proceed with these plans.
The first FDA approval of a Class III medical device was secured by a major global customer partner, facilitating the transition of products from gamma sterilization to x-ray. X-ray services are now the fastest-growing segment of AST technologies, attributed to superior quality, cost-effectiveness, and quicker processing times. Despite the merger announcement with Steris, Synergy did not perceive it as a barrier to its x-ray strategy in the U.S.; efforts to support the x-ray team continued post-announcement. The FTC argued that its investigation prompted Synergy to abandon the U.S. x-ray project, but the Court disagreed, asserting that the timing of the decision indicates it was based on legitimate business reasons rather than anti-competitive motives. Synergy's continued engagement in the x-ray project, including courting customers and negotiating with IBA for appropriate machinery, demonstrates genuine intent to pursue the market. The decision to terminate the project in February 2015, four months after the merger announcement, suggests careful consideration by project managers of business factors rather than external pressures. If the merger had indeed influenced their strategy, immediate cessation of the x-ray efforts would have been expected after the merger announcement, rather than maintaining momentum until early 2015. The evidence indicates that the negotiations with Steris did not impede Synergy's x-ray team, which actively sought contracts and financially incentivized its initiatives.
Evidence indicates that the challenges faced in developing x-ray sterilization as an alternative to gamma sterilization were consistent from 2012, when Dr. Steeves acquired Daniken, through the project's termination in 2015. These challenges included a lack of customer commitments and difficulties in reducing capital costs. The court determined that the FTC did not demonstrate a likelihood of success on the merits for the upcoming administrative trial, resulting in the denial of the FTC's Motion for Preliminary Injunction.
The document references Steris's acquisition of Isomedix in 1997 and notes that Steris's contract sterilization business is now often referred to as Steris Isomedix. Additionally, Synergy acquired U.S. contract sterilization facilities from BeamOne LLC in April 2011. Without take-or-pay contracts, the team could only estimate potential volumes of medical devices processed at the facility. An arbitrary 15% market share was projected over a seven-to-ten year span, with expectations of reaching full capacity utilization around year seven.
The Rhodotron TT1000, used for x-ray at Daniken, was specifically designed for x-ray sterilization. Testimony indicated that board approval for down payments was unnecessary due to the expenditure being under 10 million pounds. The FTC contested the effectiveness of a "black hat" review of the business model from September 2014, questioning whether Synergy genuinely employed such a review process. However, witnesses consistently described the corporate finance team's evaluation procedures for capital projects, supported by documentary evidence acknowledged by the FTC. While the process was scrutinized, it was recognized that the financial review standards applied could be adjusted for health, safety, regulatory compliance, or customer retention.
