November 7, 2019
Antitrust: FTC Orders 2017 Merger Unwound!
Earlier this month, the FTC unanimously ordered the unwinding of a merger involving two microprocessor prosthetic knee (MPK) companies that was completed in 2017. (h/t Prof. Brian Quinn). The transaction, which was not subject to the HSR Act’s pre-merger notification requirements, involved the acquisition of Freedom Innovations by Otto Bock. Here’s an excerpt from the FTC’s press release announcing the Commission’s order:
The Commission’s Opinion and Final Order states, “Based on our de novo review of the facts and law in this matter, we find that the Acquisition is likely to, and indeed already has, substantially lessened competition in the relevant market for MPKs… We hold that, to fully restore the competition lost from the Acquisition, [Otto Bock] must divest Freedom’s entire business with the limited exceptions granted by the [Administrative Law Judge].”
The Commission’s order represents the first time that the current Commission ordered that a consummated acquisition be unwound.
“The Commission is committed to ensuring competitive markets for the benefit of consumers, and there will be times when it has to act after a merger has been consummated,” said FTC Chairman Joseph J Simons. “The goal is always to restore the lost competition.”
This deal may be the first that the current Commission has ordered to be completely unwound, but post-closing challenges seeking structural remedies such as partial divestitures have become more common, and demands from regulators to unwind entire deals are not unprecedented. For example, in 2017, the DOJ required TransDigm to agree to unwind its acquisition of Schroth Safety Products as part of a negotiated settlement of the Antitrust Division’s challenge to that transaction.
Being required to “unscramble the eggs” in a completed merger is one of those nightmare scenarios that nobody wants to have to deal with. The parties did enter into a “hold separate agreement” with the FTC at the time the agency initiated its challenge in 2017, which may make the deal at least a little easier to unwind.
It’s worth noting that both the Otto Block & TransDigm cases involved deals that were below the HSR radar screen, and they once again illustrate the point that just because your deal may be on the smaller side, it’s not going to get a free pass when it comes to antitrust concerns.
– John Jenkins