On April 25, Deputy Assistant Attorney General of Civil Enforcement Leslie Overton gave a speech focused entirely on the Antitrust Division’s enforcement activities related to transactions that do not trigger a filing under the Hart-Scott-Rodino Antitrust Improvements Act. Generally, if no exemptions apply, transactions valued in excess of $75.9 million are reportable.

Some of the key points in her remarks are set forth below.

• Since 2009, the Antitrust Division initiated at least 73 preliminary inquiries into transactions that were not reportable, including both consummated transactions and non-reportable deals that were brought to the division’s attention before they closed. Those investigations represented almost 20 percent of all the merger investigations opened by the Antitrust Division during that period.
• Smaller transactions can cause significant harm to consumers. Some examples of non-reportable transactions that the agency has challenged include those affecting: (1) local or regional markets (e.g., hospital mergers); (2) narrow product markets (e.g., voting equipment mergers); (3) relevant products that are used in the production of a downstream product; and (4) relevant products that might affect national security.
• The Antitrust Division learns about non-reportable transactions a number of ways: (1) division lawyers and economists actively monitor developments in assigned areas of commerce; (2) notice from other market participants, such as customers and competitors; and (3) disclosure by parties to the transaction which sought agency guidance.
• The standard of review applied is the same in consummated and non-consummated transactions.
  • For example, post-merger evidence that is subject to “manipulation,” such as price competition, continued innovation and lack of customer complaints did not prevent the Antitrust Division from succeeding in its challenge of the Bazaarvoice transaction.
  • “On the other hand, post-acquisition evidence of anticompetitive effects – such as price increases or output reductions – is not subject to the same concerns about manipulation. For this reason, the division gives substantial weight to evidence of observed post-merger price increases or other changes adverse to customers.”
• Documents created in the ordinary course of the pre-merger business are persuasive to the agency.
  • Specific examples of ordinary-course documents that support a merger challenge include those stating that the parties to a transaction are each other’s only significant competition, that the Buyer is forced to reduce its prices in response to the Target, that significant barriers to entry exist, and that the goal of the transaction is to eliminate competition.
  • Specific examples of ordinary-course documents that might undercut a merger challenge include internal bidding records showing that pre-merger, one of the merging firms routinely cut prices in response to aggressive bidding by other competitors (a/k/a “win/loss records or reports”) and documents establishing that a company sought unsuccessfully to achieve certain efficiencies that it anticipates achieving through the transaction at issue. 
• Regarding remedies, the Antitrust Division seeks to apply the same remedial principles to consummated transactions as it does to non-consummated transactions, though the speech acknowledges that “unique remedy challenges” can exist in deals that have closed.
• The Antitrust Division encourages parties to advise it of non-reportable transactions that raise antitrust concerns and to constructively engage with the agency when it decides to review a transaction.

While the speech was not ground-breaking, it should serve as a reminder to parties contemplating non-reportable transactions: deals involving significant competitors are subject to agency scrutiny before and after consummation. Further, the Federal Trade Commission (FTC) also aggressively reviews non-reportable transactions. For example, during 2013 the FTC filed five suits challenging non-reportable mergers, including one challenging an acquisition consummated in 2005.

The parties should consult with counsel in order to get a clear explanation of the risk of agency review of even non-reportable transactions, including the risk posed by ordinary-course business documents. If competing firms are considering a merger, acquisition or joint venture, it is incumbent upon their counsel to examine the characteristics of the market, the business rationale for the deal, the significance of the competition between the merging firms, the likely reaction of the customers, and the efficiencies that would be achievable through the specific transaction at issue. Only through such an analysis can the risks, if any, be accurately assessed and only through counsel can the analysis be protected by the attorney-client privilege or work product doctrine.

Finally, care must be taken when drafting deal-related and ordinary-course business documents describing competition or the effect of a contemplated transaction on competition post-closing. In their zeal to garner the highest valuation and convince the decision-makers, third-party investment advisors and internal business personnel often exaggerate the effect of a transaction on competition and the potential “barriers to entry.” Such overstatements are extremely costly and sometimes insurmountable in the time available to the parties. Every effort should be made to educate and remind both the deal advisors and the business team of these risks.