The Federal Trade Commission (“FTC”) continues its emphasis on investigating and challenging small consummated transactions that were not initially reviewed. Corporate executives that enter into deals that raise competitive concerns must be aware that deals that appear to be done may not be. This is the case, even if the deal is not reportable under the Hart-Scott-Rodino rules.
On September 10, 2010, the Dun & Bradstreet Corporation agreed to divest certain key assets as part of a settlement with the FTC that is designed to resolve the FTC’s concerns that Dun & Bradstreet’s February 2009 acquisition through its subsidiary Market Data Retrieval (“MDR”), of Quality Educational Data (“QED”), its closest rival in the education marketing business, was anticompetitive.
In May 2010, the FTC sued Dun & Bradstreet, alleging that the February 2009 deal harmed consumers by eliminating nearly all competition in the market for kindergarten through twelfth-grade educational marketing databases. The data sold by these companies is used to sell books, education materials, and other products to teachers and other educators nationwide. The combination of MDR and QED created a near monopoly as MDR acquired more than 90 percent of the market for kindergarten through twelfth grade marketing data. Two other firms were in the market; however, the FTC did not believe that they were of any competitive significance. The vote to sue in administrative court was 4-1 with Commissioner Rosch voting no.
Prior to the acquisition in February of 2009, QED was a division of Scholastic, Inc. The FTC did not have a chance to review the transaction because the $29 million acquisition was below the threshold that would have triggered pre-merger filing requirements, and therefore the companies were not required to notify the FTC and Department of Justice. Nevertheless, the FTC learned of the anticompetitive transaction, opened and investigation, and challenged the deal in administrative court.
The FTC settlement, which resolves the litigation, requires Dun & Bradstreet to divest certain assets to MCH Inc., an institutional and educational data company active in the K-12 data market, to restore competition that was eliminated as a result of the transaction. Under the terms of the settlement, Dun & Bradstreet will be required to sell MCH an updated K-12 database, the QED name, and certain associated intellectual property. The settlement also includes additional terms to ensure that the divestiture restores competition. For example, certain Dun & Bradstreet customers will have the option to terminate their contracts with the firm without penalty so that they can consider doing business with MCH. The order also releases certain Dun & Bradstreet employees from restrictions on their ability to work for MCH. In addition, Dun & Bradstreet will be required to provide MCH with technical assistance for up to one year. Finally, the consent order calls for the appointment of a Commission-designated monitor to ensure compliance with its terms.
The FTC’s willingness to file a complaint in administrative court challenging the deal along with the recent settlement with Dun & Bradstreet reiterates that the FTC is serious about enforcing the antitrust laws against small mergers that are not HSR reportable. It also demonstrates that completed deals that slipped beneath the agency’s radar screen initially are fair game even if the FTC learns about them later. It also demonstrates that 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 disgorgement of profits gained from the alleged anticompetitive merger.