The general counsel of the Federal Trade Commission has clarified that “gun jumping” prohibitions in antitrust laws should not prohibit merging parties from engaging in legitimate pre-merger activities.
Blumenthal
“[M]any forms of pre-merger coordination are reasonable and even necessary and … care needs to be taken not unduly to jeopardize the ability of merging firms to implement the transaction and achieve available efficiencies,” FTC General Counsel William Blumenthal said Nov. 10 in a speech to the Association of Corporate Counsel in New York (full text of speech in box at right).
Blumenthal said his goal was to “reset the rhetoric that surrounds the gun-jumping issue and to begin to provide some clearer guidance on what, in our judgment, is and is not permitted.”
He admitted that the message of the antitrust enforcement agencies in recent years, “may have been heard by some . . . to prohibit conduct beyond what the [agencies] intended,” and that companies have been incurring unnecessary transaction costs trying to avoid possible gun-jumping liability.
“[M]erging firms are sometimes requiring substantial guidance from counsel to minimize concern about possible gun-jumping exposure. And … some third-party advisors such as accounting firms and investment banks have begun to market services that permit detailed due diligence and transition planning without gun-jumping exposure,” Blumenthal noted. “Transaction costs of these types may well be unavoidable or advisable in some circumstances, but we want to make sure that the business community is electing to incur them on a considered basis and not out of ignorance or fear.”
‘People Have Overreacted’
Sher
Although the government has brought only a handful of gun-jumping enforcement actions, “a lot of people have had the impression that the agencies were concerned about a broad range of activities,” says Scott Sher, a partner with Wilson, Sonsini Goodrich & Rosati in Reston, Va.
Blumenthal’s remarks “represent the first time that the FTC has looked to relax—rather than ratchet up—the restrictive gun-jumping guidance that previously had been articulated by the antitrust agencies.” says Sher. He also notes that, while the speech is a good start, it doesn't go all the way. What would be helpful, he adds, is further detail about the types of activities that would be permissive—more detailed examples of activities that the FTC would not consider problematic. “The general counsel has laid out several important [details]—but it’s important to get some more specific kinds of activity that the FTC and Department of Justice would no longer be concerned about.”
Grosberg
But Joel Grosberg, a partner with McDermott Will & Emery in Washington, says Blumenthal, “has given as much guidance as he can give,” and notes that the FTC general counsel did provide some helpful examples of permissible conduct. “[Blumenthal] says, for example, that there’s nothing wrong with companies jointly promoting the transaction or jointly meeting with customers to discuss the transaction,” Grosberg says. “The message is that it’s okay to promote the deal and talk about the deal, as long as you have proper guidelines.”
Grosberg notes that Blumenthal recently came to the FTC from private practice and “seems to be saying that his sense from private practice is that people have overacted” to the government’s six gun-jumping enforcement actions over the last decade.
“There’s been a lot of publicity when the government has brought these gun-jumping cases and people are very scared,” Grosberg says. “[Blumenthal’s] trying to say that those six cases were very egregious examples. He’s basically saying that pre-merger transition planning and information sharing is generally going to be permissible, but it’s very fact based. He tries to provide some guidance for what is really a fact-based analysis [which] depends on the specifics of the transaction.”
Sher says that it's important for companies involved in a merger to “make sure [they’re] working in an appropriate framework—and not [taking] a standardless approach.” According to Sher, in the six instances that the FTC brought enforcement actions, the conduct was particularly egregious. “The implication is that, if you follow some sort of regimen, have principled ways of sharing competitively sensitive information and follow those rules consistently, the likelihood of an enforcement action is extraordinary low.”
Two Federal Statutes Implicated
Pre-closing interaction of merging parties can implicate Section 1 of the Sherman
Act and the Hart-Scott-Rodino statute.
KEY PROVISION
The Sherman Antitrust Act
Section One—Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal. Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $10,000,000 if a corporation, or, if any other person, $350,000, or by imprisonment not exceeding three years, or by both said punishments, in the discretion of the court.
The Sherman Act prohibits agreements between independent entities that unreasonably restrain trade. Because merging firms are “independent entities" until closing, Section 1 applies until closing (see box at left).
The gun-jumping issue under the Hart-Scott-Rodino statute is whether beneficial ownership of the acquired company has been transferred to the buyer before the HSR waiting period has expired or been terminated. Whether competition has been adversely affected is not relevant under HSR. The only issue under the statute is whether a transaction has been consummated by the premature transfer of beneficial ownership.
In his speech, Blumenthal discussed ways to minimize concerns over unlawful “spill over”—which occurs when competitors engage in an exchange of information that spills over into competitive activities and could impact ongoing competition between the merging companies.
Blumenthal also addressed “extraordinary matters” in merger planning activities that can raise antitrust concerns and reviewed the factors that regulators analyze to determine whether the need for the parties to realize post-closing efficiencies outweighs any damage to the seller’s competitiveness that would be done if the merger does not take place.
FTC GC Blumenthal's complete speech is available from the box above, right, as is recent M&A coverage.
No comments yet