For many deal makers, clearing HSR review is a milestone that means that the government has concluded that their deal doesn’t raise any antitrust issues. A recent DOJ lawsuit challenging Parker-Hannifin’s acquisition of Clarcor is a reminder that this isn’t necessarily the case.
The $4.3 billion deal cleared HSR review without a second request, and closed in February 2017. Post-closing customer complaints led the DOJ to open an investigation, and that culminated in the lawsuit. This Wachtell memo says that these post-closing challenges to HSR-reportable deals are extremely rare – and since the DOJ hasn’t called into question any aspect of the HSR filing, this one may be almost one of a kind:
The Parker-Hannifin suit is only the third such challenge brought by the federal antitrust agencies in the past 25 years, and the first in more than 15 years. In at least one of those cases, the FTC claimed the merging parties had also violated the HSR Act by failing to include required deal-related documents in their notifications that would have revealed the transaction’s anticompetitive effects. Significantly, the DOJ made no such a claim in last week’s complaint.
The combined companies have revenues of more than $12 billion. However, the business that prompted customer complaints & the DOJ’s action represents less than $20 million in revenue. The memo points out that the relatively small size of the business may have hindered the DOJ’s ability to detect the overlap during the HSR waiting period.
This excerpt from the memo provides an assessment of the key takeaways from the DOJ’s action:
The Parker-Hannifin complaint highlights the important distinction between an antitrust clearance process (such as the HSR Act’s notification and waiting regime) and an antitrust approval process (such as that of the European Commission and other foreign jurisdictions). While clearance under the HSR Act nearly always conveys the antitrust agencies’ intent not to challenge a deal, it does not immunize the transaction from further investigation or challenge. Because of this unique legal feature, merged companies’ post-closing conduct may attract the unwanted scrutiny of customers and the antitrust agencies.
We’re posting memos in our “Antitrust” Practice Area.
– John Jenkins