- M&A Filing Thresholds Increase; Recent Enforcement Action Highlights Importance of Pre-Transaction Antitrust Review for Certain Smaller Transactions
- February 26, 2009 | Authors: Brian D. Winters; Matthew C. Vogel
- Law Firm: Quarles & Brady LLP - Milwaukee Office
The Federal Trade Commission (“FTC”) has announced its annual update to the pre-merger notification thresholds under the Hart-Scott-Rodino (“HSR Act”). The new thresholds, which go into effect on February 12, 2009, reflect growth in the gross domestic product since the last update of the thresholds. Also of importance, the U.S. government antitrust agencies — the FTC and the Department of Justice (“DOJ”) — have in recent months begun a number of enforcement actions against companies involved in mergers and acquisitions even in situations where a transaction had already closed and where the transaction was not large enough to trigger an HSR filing. The clear message is that companies must be diligent in assessing whether proposed transactions raise any anticompetitive concerns regardless of whether the transaction or the parties are large enough to trigger an HSR filing.
Revised Hart-Scott-Rodino Act Thresholds for 2009
The HSR Act requires parties involved in transactions meeting a certain size threshold to file a pre-merger notification with the FTC. For 2009, under the “size of transaction” test all transactions valued at more than $260.7 million will require a filing. In addition, under the “size of person” test all transactions valued at $65.2 million or more will generally require a filing so long as one of the parties has annual net sales or total assets of at least $13.0 million and the other party has annual net sales or total assets of at least $130.3 million.
The filing fees required to be submitted with an HSR filing will not change for 2009.
Recent Enforcement Actions
Failing to make timely HSR filings can have serious consequences, as illustrated by a recent agency enforcement action. On December 15, 2008, the FTC filed a complaint against two investment funds for failing in 2004 to make timely HSR filings prior to acquiring blocks of shares of AutoZone, Inc. ESL Partners, L.P. has agreed to pay a $525,000 civil penalty and ZAM Holdings, L.P. has agreed to pay a $275,000 civil penalty to settle the charges. The complaint makes clear that parties are expected to comply with the HSR Act filing requirement even in situations where a transaction does not appear to raise any substantive antitrust issues.
Furthermore, if the enforcement agencies believe that a transaction may have or has had anticompetitive effects, they have the authority to challenge it even if the transaction did not require an HSR filing. This has always been the law, but agency interest in non-HSR reportable transactions seems to be increasing. Over the last two months, the FTC and DOJ have filed at least three complaints to undo completed transactions even though all three of these transactions were exempt from the HSR Act’s pre-merger notification requirements.
On December 16, 2008, the FTC filed a complaint against Ovation Pharmaceuticals, Inc. (“Ovation”), claiming that Ovation’s January 2006 acquisition of the U.S. rights to NeoProfen, the only other drug used to treat patent ductus arteriosus (“PDA”), a heart condition that affects premature babies, had seriously reduced competition in violation of Section 7 of the Clayton Act and Section 5 of the FTC Act. The FTC has alleged that, following the acquisition, Ovation increased the price of its drug Indocin by almost 1,300 percent, from $36 to almost $500 per vial. Shortly after increasing the price of Indocin, it also set the price of NeoProfen at nearly the same level as that of Indocin. The FTC is seeking divestiture, rescission, and any further actions needed to establish the competition that would have existed but for the acquisition of NeoProfen, as well as divestiture of all unlawfully obtained profits and a permanent injunction that would prevent Ovation from acquiring or maintaining any simultaneous legal or beneficial interest in NeoProfen and Indocin.
Two days later, on December 18, 2008, the Justice Department filed a lawsuit against Microsemi Corporation (“Microsemi”) alleging that Microsemi’s acquisition of Semicoa, Inc. for $25 million in July of 2008 had created a monopoly in certain transistor and diode markets in the United States and had led to significantly higher prices since the acquisition. The Justice Department claimed that the merger was also likely to lead to longer delivery times, thereby imposing large risks and delays on critical military and space-related programs that rely heavily on the transistors and diodes that Microsemi produces. The DOJ is seeking Microsemi’s divestiture of all Semicoa, Inc. assets related to the relevant products and any further actions necessary to restore the markets to the competitive position that existed before the acquisition.
On December 23, 2008 the FTC announced the filing of a proposed complaint against Inverness Medical Innovations, Inc. (“Inverness”). The FTC claimed Inverness violated Section 5 of the FTC Act when it acquired assets related to a competing pregnancy-test technology from ACON Laboratories, Inc. (“ACON”) in 2006. The acquisition also included a covenant not to compete with respect to ACON that limited the term and scope of a joint venture between ACON and a competitor to develop digital pregnancy tests. In the Consent Agreement entered into by Inverness with the FTC, which is subject to final approval, Inverness agreed to sell the technology it had acquired from ACON, stop blocking ACON’s supply of digital pregnancy test to an Inverness competitor, and disclaim ownership of intellectual property rights, which the FTC believes will limit Inverness’ ability to interfere with the development and supply of digital pregnancy tests in the future.
These recent enforcement actions show that the FTC and Department of Justice will take enforcement action against acquisitions that the agencies believe have unacceptable anticompetitive effects even where the transaction was too small to require an HSR filing and even after the transaction has closed. The message is clear: companies must evaluate how proposed transactions — even those that fall below the HSR thresholds — will affect competition to avoid the risk that the transaction may be partially or fully unwound.