On May 9, the Federal Trade Commission (FTC) posted an article summarizing recent developments and areas of competitive sensitivity in the acquisition of partial equity interests. Most antitrust challenges to mergers or acquisitions involve situations in which an acquiror takes control of the target company. However, substantive antitrust issues also can arise from acquisitions of less than controlling interests. The FTC has previously sought substantial remedies in acquisitions of minority interests in a competitor. These remedies have included imposing firewalls, altering companies’ ownership interests to become passive investors, or seeking divestitures.
The FTC’s post, which can be found here, outlines three ways in which partial-interest acquisitions in a competitor could lessen competition. First, an entity could use its interest—through representatives on a competitor’s board, for example—to affect decisions of the target. Second, an acquiring company’s partial ownership in its competitor could reduce the acquiring company’s incentives to compete aggressively. This feature arises because, by virtue of holding an interest in its rival, a company can still achieve an economic gain even if it does not win a competition or make a sale if the company in which it holds an equity interest obtains that business. Third, an entity could gain access to non-public, competitively sensitive information of its competitor, increasing the risk of coordinated conduct.
None of these theories are new, and they are contained in the 2010 FTC / DOJ Horizontal Merger Guidelines. Nevertheless, the FTC’s posting provides a helpful reminder for companies contemplating transactions that they need to evaluate not only the obvious anticompetitive effects raised by acquisitions of control, but also the less obvious theories of competitive harm.
