DealLawyers.com Blog

June 8, 2017

That Escalated Quickly: HSR Review Leads to Guilty Plea

This Fredrikson & Byron memo points out that a decision to block your proposed deal isn’t always the biggest risk of DOJ & FTC antitrust review.  As this excerpt demonstrates, sometimes that process opens up a completely different bag of snakes:

Thai Union Group P.C.L., owner of Chicken of the Sea, announced its acquisition of Bumble Bee in December 2014. A year later, under scrutiny from the Department of Justice, the deal was called off. In an ominous press release, the government stated, “Our investigation convinced us—and the parties knew or should have known from the get go—that the market is not functioning competitively today, and further consolidation would only make things worse.”

Though the deal was off, the government’s investigation was not. On December 7, 2016, the Department of Justice announced that a Bumble Bee executive had agreed to plead guilty to fixing prices for packaged seafood. According to the Department of Justice, the plea was “the first to be filed in the Antitrust Division’s ongoing investigation into price fixing” in the industry. Two weeks later, another Bumble Bee executive agreed to plead guilty to similar charges.

The lesson for transaction planners is to keep a broad perspective – most dealmakers looking at antitrust issues look at market shares and overlapping industries in order to assess potential areas of concern.  That focus may turn out to be too narrow:

As Bumble Bee’s experience highlights, antitrust risk in mergers and acquisitions can take other forms. As part of merger investigations, government enforcers at both the Department of Justice and the Federal Trade Commission regularly solicit millions of documents from the merging parties and their customers and competitors. The attorneys and staff who review those documents are antitrust specialists. Agreements not to compete—whether for prices to end customers, bids for projects or hiring of employees—are bound to trigger concern.

Agreements like these are likely to constitute “red flags” to regulators & should be identified before a merger is signed.  As the Bumble Bee situation shows, there’s potentially a lot more than a deal at stake.

John Jenkins