Leslie Overton, Deputy Assistant Attorney General for Civil Enforcement in the DOJ's Antitrust Division, vowed in a recent speech in Chicago that the DOJ will enforce transactions not subject to the HSR Act, both before and after these deals are consummated. Ms. Overton reported that between 2009 and 2013 the Antitrust Division initiated 73 preliminary inquiries into transactions that were not reportable under the HSR Act. Ms. Overton said that these investigations, which included both consummated transactions and non-reportable deals that were brought to the DOJ's attention before they closed, represented close to 20% of all the merger investigations opened by the Antitrust Division during that period. Significantly, more than one in four of the DOJ's investigations into these non-reportable deals resulted in a challenge.
Ms. Overton said that this "record of careful scrutiny is warranted" because "[p]otential harm to consumers can't be measured just in terms of the size of a transaction or the balance sheets of the merging parties." Ms. Overton pointed to U.S. v. Blue Cross and Blue Shield of Montana, No. 1:11-cv-00123 (D. Mont. March 15, 2012) as an example of a non-reportable merger challenged by the DOJ because it allegedly posed a significant risk of antitrust harm to consumers in local or regional markets. Similarly, Ms. Overton said the DOJ's challenge to a consummated merger in U.S. v. Election Systems and Software, Inc., No. 1:10-cv-00380 (D.DE.C. June 30, 2010), was an example of loss of competition in a narrow product market -- the two largest providers of voting equipment systems in the U.S. -- that may have a broad impact on consumers. Similarly, the DOJ recently challenged Heraeus' consummated acquisition of Minco because, while that deal was only valued at $42 million, "it significantly reduced competition in the sale and service of single-use sensors and instruments, which are essential to the manufacture of millions of tons of steel annually."
Ms. Overton warned companies that, even if no HSR filing is required, the DOJ will likely learn of potentially problematic non-reportable transactions in a number of ways, including the active monitoring of certain sets of industries or commodities by DOJ attorneys and economists, by aggrieved consumers concerned about the impact of the deal on their bottom line, and even from the merging parties themselves. Ms. Overton encouraged such voluntary reporting by companies before closing for several reasons. First, "in a post-acquisition challenge, the acquirer may bear the risk of the remedy along, rather than sharing it with the sellers." Second, "where assets have become scrambled, an effective remedy to an unlawful transaction may well necessitate disruption of the combined company's operations, might require divestiture of assets beyond those acquired in the underlying deal, and could even potentially entail disgorgement." And finally, "delay does not correlate with quicker or more favorable outcomes for the merging parties. ... For example, in Blue Cross and Blue Shield of Montana, the division, along with the Montana Attorney General's office, obtained a settlement that preserved competition, while enabling the deal to close in November 2011, just a few months after the parties' August 2011 letter of intent."
The take-aways here for your company? Make sure that antitrust counsel is involved in any deal at the outset to evaluate the risks presented by a transaction that, while not subject to the HSR Act, may nevertheless present antitrust concerns. And if antitrust risk is likely, consider engaging with the DOJ early in the process to start a dialogue designed to prevent outcomes -- like divestiture and disgorgement -- that your business will certainly not want to happen.