DealLawyers.com Blog

This Perkins Coie memo lays out some of the highlights from the ABA Antitrust Law Section’s spring meeting.  One of the topics addressed was the ever-popular issue of defining the appropriate “market” in an any merger analysis. This excerpt discusses the increasing emphasis on “price discrimination markets” in that analysis – and the resulting importance of customer support for the deal:

Recent market definition cases have focused on “price discrimination markets,” which consist of a set of customers who for reasons other than differences in vendor cost, are charged prices different from those charged typical customers. In these cases, the merger parties were vendors to large “national footprint” customers (like hotel and restaurant chains) that purchase goods and services on a centralized basis. Such customers typically prefer dealing with a single vendor who is able to service all of the customer’s units. Because sales to such customers require delivery and service on a national scale, few vendors may be able to compete. Ironically, because the alleged “victims” in such cases are typically power buyers, they already enjoy prices lower than the vendor’s typical customers.

The panelists observed that focusing on price discrimination obscures the real question: whether there are sets of customers, who, because of their purchasing requirements, have fewer vendor options than other customers. The best evidence will be found in the customer’s own purchasing records, which presumably identify the firms that have submitted bids. Second best evidence may consist of the competing vendors’ win/loss bid records. Do they suggest the merging companies are among a very small number of vendors for such national contracts?

In these cases, the extent to which customers complain about a deal plays a big role in the government’s decision about whether to challenge it.  Customers may complain on their own initiative or in response to questions from governmental investigators. That reality underscores how essential it is that parties planning a merger “develop a plan for the care and feeding of the parties’ customers.” A big part of that plan is post-announcement outreach out to key customers in order to explain the reasons for the deal and the benefits it will provide customers.

– John Jenkins