On October 7, 2009, the Federal Trade Commission (“FTC”) settled its litigation regarding Carilion Clinic’s (“Carilion”) acquisition of two outpatient clinics.
On July 24, 2009, the FTC issued an administrative complaint challenging Carilion’s August 2008 acquisition of two outpatient clinics in the Roanoke, Virginia area. Prior to the acquisition, the Center for Advanced Imaging (“CAI”) and the Center for Surgical Excellence (“CSE”) had strong reputations for offering high-quality care and convenient services at prices much lower than Carilion’s.
According to the complaint, Carilion’s $20 million acquisition of CAI and CSE reduced the number of outpatient imaging and surgical services providers in the Roanoke area from three to two. Carilion now faces competition for outpatient imaging and surgical services from only one other provider, HCA, the other major hospital system in the Roanoke area.
The consent order requires Carilion to sell the Center for Advanced Imaging and the Center for Surgical Excellence to an FTC-approved buyer within three months. The order also allows for FTC-approved buyer to replace the competition eliminated by the acquisition through the following provisions: prohibiting Carilion, for the first six months, from soliciting for employment any physician or physician practice that has referred patients to the CAI since January 1, 2008 enabling the new owner to develop and reestablish its referral base; prohibiting Carilion, for one year, from making any change that would restrict its own doctors who have referred patients to the CAI from continuing to do so; requiring Carilion to preserve the viability, marketability, and competitiveness of the two clinics’ assets prior to divestiture; requiring Carilion to offer financial incentives to the staff of both clinics to remain during and after their sale to the FTC-approved buyer; and prohibiting Carilion from using or disclosing competitively sensitive information and permitting the FTC to appoint a monitor to ensure Carilion’s compliance with the terms of the order.
The successful challenge is noteworthy for several reasons. First, the challenge reiterates that the FTC is 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 FTC’s radar screen initially are fair game even if the FTC 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 Commission can and will challenge a consummated deal if it determines that the deal is anticompetitive. Fifth, 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.