Department of Justice

State Attorneys General Ramping up Merger Enforcement

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Last month, Colorado Governor Jared Polis signed a law repealing a provision of the Colorado Antitrust Act that prohibited challenging a merger under state law where the federal antitrust agencies did not also challenge the merger. This action is another sign that state Attorneys General are prepared to more aggressively enforce state antitrust laws, increasing the likelihood of divergent federal and state merger enforcement priorities and outcomes.

There are two complementary merger enforcement regimes. The federal regime, enforced by the Department of Justice (DOJ) and Federal Trade Commission (FTC), and the state regime which the state Attorneys General enforce. The Hart-Scott-Rodino Act’s pre-merger notification and waiting period requirements apply to the federal merger enforcement regime but do not apply to a state merger challenge. Generally, states may investigate a merger at any time, even after it has been consummated.

Historically, federal and state antitrust authorities have taken a cooperative approach to merger enforcement, working together to investigate and litigate proposed mergers. Playing more of a supporting role, the states typically deferred to the federal agencies’ enforcement decisions. For example, the DOJ and various states jointly investigated and successfully litigated the Anthem/Cigna merger. More recently, however, federal and state merger enforcement has diverged, most notably when several states filed an action challenging the T-Mobile/Sprint merger before the DOJ had completed its investigation. Anecdotally, line attorneys in state antitrust units have reported rising tensions with DOJ.

This recent divergence has been driven in part by a perception among many state AGs that DOJ and FTC have been under-enforcing federal antitrust law, particularly in the high-tech sector. Colorado and other states that have a record of more aggressive antitrust enforcement include New York, California, Texas and Washington. They and other states may be more willing to fill the void when they believe federal agencies have failed to act.

Given the increasing independence and assertiveness of state Attorneys General, merging parties cannot ignore their concerns. The strategic and practical considerations of state antitrust review should be on every checklist for a merger or major acquisition.

No HSR Filing Means No Antitrust Issues? Think Again!

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My transaction does not require an HSR filing. That means we don’t have to worry about potential antitrust issues, right? WRONG.

The HSR Act requires that parties to certain transactions submit a premerger notification filing to the Department of Justice Antitrust Division (DOJ) and Federal Trade Commission (FTC), and then observe a waiting period before closing. Any transaction valued in excess of the HSR threshold – currently $90 million – may require an HSR filing and expiration of the HSR waiting period as conditions to closing. An HSR filing may not be required where the transaction does not meet the minimum jurisdictional thresholds or an exemption to filing is available. Parties, however, should not equate “no HSR filing” with “no antitrust issues.”

The FTC just ordered the unwinding of a 2017 merger that was not HSR-reportable. German company Otto Bock HealthCare acquired private equity-backed Freedom Innovations; both companies supplied prosthetics and were the #1 and #3 manufacturers of microprocessor-equipped prosthetic knees. Otto Bock and Freedom confused “no HSR filing” with “no antitrust issues,” stating in the press release that “Anti-trust matters have already been clarified and a ‘simultaneous signing and closing’ was carried out.”

DOJ and FTC History of Investigating HSR Non-Reportable Deals – Even Very Small Deals

The DOJ and FTC have a history of launching investigations into transactions that did not require an HSR filing – including very small deals. Two examples are the DOJ’s post-consummation challenge of George’s $3 million acquisition of a chicken plant from Tyson Foods Inc., and the FTC’s challenge of American Renal’s $4.4 million acquisition of Fresenius dialysis clinics.

Even HSR-Cleared Deals Can Be Challenged Later

Parties also should not confuse HSR “clearance” with substantive “antitrust clearance.” While rarely used, the DOJ and FTC have the ability to later challenge transactions that were HSR-reportable and cleared. Recently, DOJ allowed the HSR waiting period to expire for Parker-Hannifin’s $4.3 billion acquisition of CLARCOR, Inc., and then challenged the consummated merger nine months later.

When the Federal Antitrust Agencies Pass, Others May Step Up to Investigate

The DOJ and FTC are not the only antitrust enforcers who can investigate a deal, and State Attorneys General (AGs) are becoming more active in merger investigations. For example, when the FTC decided against challenging Valero’s proposed acquisition of two Plains All American petroleum terminals in California, the California AG filed suit to block the deal.

All Deals Can Raise Concerns about Sharing Competitively Sensitive Information

Even after Valero abandoned the Plains All American terminal acquisition, the FTC continued to investigate if Plains improperly shared competitively sensitive information with prospective bidders, which could have been used to harm competition during or after the sale process.

Takeaways

Regardless of whether an HSR filing will be required:

  • Parties should always consider the antitrust risk of a transaction, no matter how big or small the deal or competitive overlap. Antitrust concerns can emerge from potential competition, too, in which case there may be no directly competing sales at the time the deal documents are executed. Before or after closing, filing HSR or not, the deal could face questions or a challenge from the federal antitrust agencies, State AGs or others.
  • Parties should always practice good document hygiene, bearing in mind that anything could be produced to the government or come to their attention. For example, Freedom’s own press release flagged that the merger combined the “number one and the number three” players.
  • Parties should implement practices to safeguard any competitively sensitive information that is shared through due diligence or otherwise during the bid/sale process. They also should ensure they do not violate anti-gun jumping laws that prohibit a buyer from taking control of a target or its operations pre-close.

 

DOJ and FTC Stand Their Ground on Comity Policy Despite Second Circuit’s Decision in Vitamin C Case

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International Flags on poles DOJ and FTC Stand Their Ground on Comity Policy Despite 2d Circuit’s Decision in Vitamin C Case

Last September, we discussed the U.S. Court of Appeals for the Second Circuit’s opinion in In re Vitamin C Antitrust Litigation vacating a $147 million judgment against Chinese vitamin C manufacturers based on the doctrine of international comity.  That case stemmed from allegations that the defendants illegally fixed the price and output levels of vitamin C that they exported to the United States.  In reversing the district court’s decision to deny the defendants’ motion to dismiss, the Second Circuit held that the district court should have deferred to the Chinese government’s explanation that Chinese law compelled the defendants to coordinate the price and output of vitamin C.

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DOJ Attorney Outlines Considerations in Evaluating Vertical Mergers

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DOJ Attorney Outlines Considerations in Evaluating Vertical Mergers Wordcloud Illustration of Merger Acquisition

On November 17, 2016, Jon Sallet, DOJ’s Deputy Assistant Attorney General for litigation, presented a speech at the American Bar Association Antitrust Section’s Fall Forum in which he outlined his views regarding the DOJ’s approach to vertical mergers and other transactions that raise the potential for vertical restraints on competition.  After recapping some of the history regarding the DOJ’s treatment of vertical restraints, Mr. Sallet commented on issues such as merger-related efficiencies, competitive effects, input foreclosure and raising rivals costs, innovation effects, the exchange of competitively sensitive information that could harm interbrand competition, and potential anticompetitive effects in transactions that do not involve a combination of vertically related assets.  Finally, he noted that if the DOJ has concerns regarding anticompetitive effects, it might feel that conduct remedies are insufficient and may require structural remedies or even try to block the transaction.  Any company considering a vertical merger or a transaction that may raise the potential for vertical restraints on competition will benefit from reviewing Mr. Sallet’s speech.  The speech is available here.

 

ValueAct Settlement Marks Record Penalty in Heightened Agency Efforts Against HSR Act Violations

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Where is the line drawn between acquisitions of securities made “solely for the purpose of investment” on one hand, and influencing control, thereby requiring regulatory approval, on the other hand? That is the central cautionary question that was reinforced by the July 12, 2016, Department of Justice (“DOJ”) settlement with ValueAct Capital.  The well-known activist investment firm agreed to pay $11 million to settle a suit alleging that it violated the premerger reporting and waiting period requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (“HSR Act”).  ValueAct purchased more than $2.5 billion of shares in two oil companies, Baker Hughes Inc. and Halliburton Co., after they announced they would merge.  The DOJ alleged that ValueAct used its ownership position to influence the proposed merger and other aspects of Baker Hughes and Halliburton, and thus could not rely on the exemption.

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