On December 18, 2008, the Department of Justice (“DOJ”) filed an antitrust lawsuit against Microsemi Corporation (“Microsemi”) alleging that Microsemi’s acquisition of Semicoa Inc.’s (“Semicoa”) assets has reduced or eliminated competition for the development, manufacture, sale of certain semiconductor devices used by the U.S. military and space programs, resulting in the increase in the price of these products and a potential decline in quality.
Microsemi’s acquisition of Semicoa in July 2008 was not required to be reported to the DOJ and Federal Trade Commission as required for certain transactions under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
The DOJ alleges that the acquisition created a monopoly for small signal transistors certified by the Defense Supply Center Columbus, a component of the DOD, at the Joint Army-Navy Technical Exchange-Visual Inspection (“JANTXV”) and Joint Army-Navy Space (“JANS”) levels of reliability on its qualified manufacturers list or QML. In addition, the DOJ alleges that the acquisition reduced competition from three to two competitors in for JANTXV and JANS certified ultrafast recovery rectifier diodes.
Transistors and diodes are semiconductor devices used to control the flow of electric current. Small signal transistors are a class of transistors commonly used in communications and other signal processing applications that operate at low power levels, amplifying electrical signals. Rectifier diodes also operate at low power levels, converting alternating current to direct current. Ultrafast recovery rectifier diodes are distinguished by extremely high alternating speeds, which minimize power loss and waste heat generation.
Without the competition from Semicoa, Microsemi unilaterally raised the prices of small signal transistors. Before the acquisition, Semicoa was planning on entering into the development, manufacture, and sale of JANTXV and JANS certified ultrafast recovery rectifier diodes. According to the DOJ, Semicoa was poised to compete aggressively with Microsemi.
To remedy the situation, the DOJ is seeking to have Microsemi undo its acquisition of Semicoa by selling off its assets.
The challenge is noteworthy for several reasons. First, the challenge reiterates that the antitrust agencies are serious about enforcing the antitrust laws against small mergers that do not meet the HSR thresholds. Second, it demonstrates that completed deals that slip beneath the DOJ’s radar screen initially are fair game even if the DOJ learns about them later. Third, the fact that a deal is not HSR reportable does not mean that no antitrust issues exist with the combination. Fourth, the DOJ can and will challenge a consummated deal if it determines that the deal is anticompetitive. Fifth, the DOJ has a particular interest in post-acquisition competitive effects of consummated mergers.
Therefore, parties to a consummated deal that raise significant antitrust issues and avoided HSR scrutiny, for whatever reason, should proceed with reasonable caution and closely monitor post-acquisition conduct. Moreover, corporate and private counsel should be aware of the likely consequences and the risks of consummating transactions that raise significant competitive issues. The risks may include: defending against costly and lengthy government investigations; reorganizing to the government’s demands of possible divestitures even after integration has taken place; and disgorging profits gained form the alleged anticompetitive merger.