Historically, the FTC and DOJ have sought to unwind consummated mergers that are deemed to be anticompetitive. During Trump’s first year in office, the FTC and DOJ have demonstrated their willingness to unwind anticompetitive mergers that somehow sneaked by the regulators.
FTC Seeks to Unwind Merger of Prosthetic Knee Manufacturers
On December 20, 2017, the FTC filed an administrative complaint to unwind the merger of Otto Bock HealthCare North America, Inc., (“Otto Bock”) and FIH Group Holdings, LLC (“Freedom”), two manufacturers of prosthetic knees equipped with microprocessors that adapt the joint to surface conditions and walking rhythm. In September 2017, the parties simultaneously signed a merger agreement and consummated the merger without the FTC having an opportunity to review the deal. Apparently, the merger was not HSR reportable. According to the FTC, the merger eliminated direct and substantial competition between head to head competitors that engaged in intense price and innovation competition. While the litigation is ongoing, the parties agreed to a Hold Separate and Asset Maintenance Agreement, which prevents them from continuing the integration of the two businesses. The FTC did not allege any violation of the HSR ACT.
DOJ Requires a Divestiture Remedies in Consummated Asset Deal
On December 21, 2017, the DOJ announced a settlement that required TransDigm Group Inc. (“TransDigm”) to divest two airline passenger restraint businesses that it had acquired from Takata Corp. in February of 2017 for $90 million. Due to the transaction’s structure, it was not HSR reportable so the DOJ did not have the opportunity to review the deal. Nevertheless, the DOJ investigated the transaction and found that it had eliminated the only meaningful competitor to TransDigm in the market for commercial airplane restraint systems, including traditional two-point lap belts, three-point shoulder belts, technical restraints, and more advanced inflatable restraint systems such as airbags. According to the DOJ, competition between the two companies led to lower prices and more innovation in the industry. To resolve the concerns, the DOJ required a structural remedy to an already approved consortium.
DOJ Settles Parker-Hannifin Lawsuit
In September 2017, the DOJ challenged Parker-Hannifin’s consummated acquisition of CLARCOR Inc. alleging that it had eliminated head-to-head competition between the only two domestic manufacturers of fuel filtration systems and filter elements. The DOJ challenged the transaction after it had allowed the initial waiting period under the HSR Act to expire in mid-January 2017. The HSR was filed during the holidays and expired around the inauguration. There was no allegation that the parties withheld 4(c) documents or did anything unusual to prevent the DOJ from conducting a thorough review. The DOJ had everything it needed to make a decision to issue a second request. Apparently, the DOJ simply missed the overlapping businesses in the initial review period and allowed the waiting period to expire. In December 2017, the DOJ announced a settlement with Parker-Hannifin that required a structural remedy, the divestiture of the fuel filtration assets.
No deal is ever done. These enforcement actions demonstrate that the antitrust agencies are committed to challenging completed deals that substantially lessen competition. These enforcement actions by the antitrust agencies send a strong message to corporate executives and antitrust counsel that antitrust risks do not end once a deal is consummated, and that a transaction is not free of antitrust exposure simply because the transaction is not reportable under the HSR Act or that the HSR waiting period was allowed to expire without contact from the antitrust agency. Corporate and private counsel would like assurances that the HSR waiting period provides closure to the antitrust review. Apparently, the expiration of the HSR waiting period does not end the antitrust review. Given these examples, antitrust counsel and executives must assess the antitrust risk of closing a transaction that has some antitrust exposure for a post-closing investigation and challenge. These examples show that consummating deals that raise serious antitrust concerns may lead to defending against lengthy and costly investigations; defending against litigation; and reorganizing to the government’s demands of divestitures even after some initial integration has taken place.