On February 26, 2009, the Federal Trade Commission (“FTC”) intervened in Lubrizol Corporation’s (“Lubrizol”) 2007 acquisition of oxidate assets from its rival The Lockhart Company (“Lockhart”).
On February 7, 2007, Lubrizol signed an asset purchase agreement with Lockhart to purchase Lockhart’s oxidate assets. Oxidate assets are chemical additives that are used to make rust preventives. This asset purchase agreement violated the FTC Act and the Clayton Act by significantly lessening competition in the oxidates market
According to the FTC, the market for oxidates market is highly concentrated. Lubrizol and Lockhart were the only two significant competitors in the market. The acquisition allowed Lubrizol to effectively remove its only substantial competitor in the market. Before the acquisition, consumers benefitted from the rivalry between the two firms in the form of lower prices, product innovation, and better service and support. The asset purchase prevented new entry into the market by restricting the use of Lockhart’s plant in Flint, Michigan through the non-compete agreement.
The FTC issued a proposed consent agreement to remedy the anticompetitive issues involved in the acquisition. Specifically the consent agreement requires Lubrizol to transfer certain assets to Additives International LLC (“AI”), including a non-exclusive license to manufacture oxidates acquired from Lockhart and the right to use Lockhart trademarks for two years. Lockhart is also required to lease a portion of its Flint plant to AI, while Lubrizol is required to waive its non-compete agreement with Lockhart in order to facilitate AI’s use of the plant. The Commission vote to accept the complaint and proposed consent order was 4-0.
The consent order is noteworthy for several reasons. First, the order reiterates that the FTC is serious about enforcing the antitrust laws against consummated mergers that slipped by the agency initially. Second, the Commission can and will challenge a consummated deal if it determines that the deal is anticompetitive. Third, the FTC 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.