Antitrust Lawyer Blog Commentary on Current Developments

Articles Tagged with hsr

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.

On December 20, 2017, the FTC issued an administrative complaint seeking to unwind a merger between prosthetic knee manufacturers Otto Bock HealthCare North America, Inc. (“Otto Bock”) and FIH Group Holdings, LLC (“Freedom”).

On September 22, 2017, Otto Bock and Freedom simultaneously executed a merger agreement and consummated their merger.  Since closing the acquisition, Otto Bock took steps to integrate Freedom’s business, including personnel, intellectual property, know-how, and other critical assets.

According to the FTC’s administrative complaint, the merging parties are head-to-head competitors in the manufacture of prosthetic knees with microprocessors that adapt the joint to surface conditions and walking rhythm.  Specifically, the FTC alleges that Otto Bock and Freedom engaged in intense price competition as well as offered dueling improvements in innovation.  The deal eliminated head-to-head competition between the two companies, removed a significant and disruptive competitor, and entrenched Otto Bock’s position as the dominant supplier.

The answer is No.  The fact that your deal avoided a second request investigation does not mean that you are in the clear if your deal substantially lessens competition in a relevant antitrust market.

The Department of Justice’s Antitrust Division (“DOJ”) and Federal Trade Commission (“FTC”) have for years emphasized that they will investigate and challenge consummated transactions that were not initially reviewed or slipped through the cracks if those transactions substantially lessen competition.  It does not matter that for one reason or another that merging parties were able to successfully avoid a long drawn out investigation.  The DOJ’s lawsuit to block Parker’Hannifin’s acquisition of CLARCOR, Inc. illustrates that the DOJ may open an investigation and challenge a transaction even after it allowed the Hart-Scott Rodino (“HSR”) waiting period to expire.  The enforcement action also serves as a reminder that if merging parties do not cooperate with a merger investigation, they risk being sued.

DOJ Sues Parker-Hannifin Seven Months After Allowing it to Close its Acquisition of CLARCOR

On August 26, 2016, the Federal Trade Commission (“FTC”) approved final amendments to the Hart-Scott-Rodino Premerger Notification Rules that allow HSR filings to be submitted on DVD and streamline the instructions to the Premerger Notification Form.  These updates will make the process of submitting HSR filings easier, more efficient and less burdensome.

The HSR Act gives the federal government the opportunity to investigate and challenge mergers that are likely to harm consumers before injury occurs.  The HSR Act requires that the parties to certain proposed transactions submit HSR filings to the FTC and Department of Justice. These filings comprise of an HSR Form, which contains information about each company’s business, and relevant business documents regarding competition.

Currently, all HSR filings are submitted in paper form. By allowing HSR filings to be submitted on DVD, the amendments eliminate the expensive and time-consuming printing and duplication of electronically maintained documents that are submitted to the antitrust agencies.

On July 12, 2016, ValueAct agreed to pay a record fine of $11 million to settle the Department of Justice Antitrust Division’s (“DOJ”) allegations that ValueAct violated the reporting requirements under of the Hart-Scott-Rodino Act (“HSR Act”) by improperly relying on the “investment only” exemption.

HSR Exemption

The HSR Act imposes notification and waiting period requirements for transactions meeting certain size thresholds to ensure that such transactions undergo premerger antitrust review by the DOJ and the Federal Trade Commission.  The HSR Act has a narrow exemption for acquisitions of less than 10 percent of a company’s outstanding voting securities if the acquisition is made “solely for the purposes of investment” and the purchaser has no intention of participating in the company’s business decisions.  In other words, if a person or company intends to be a passive investor and the investment in securities is less than 10 percent of a company’s outstanding securities, the exemption may apply.

The key to closing transactions that raise straightforward antitrust concerns in a relatively short time frame is the antitrust counsel’s and the merging parties’ ability to effectively cooperate with the Antitrust Division staff tasked with reviewing the transaction.

A.    Martin Marietta/Texas Industries

On June 26, 2014, the Antitrust Division approved Martin Marietta Materials, Inc.’s $2.7 billion acquisition of Texas Industries on the condition that Martin Marietta divest a quarry in Oklahoma and two Texas rail yards used by it to distribute aggregate in the Dallas area.