Corporate & Securities Law

Cautionary Tales to the Merger Review Process

By Matthew S. Wild

Three recent developments serve as cautionary tales to parties to prospective transactions.  These actions serve to remind practitioners that there is a genuine possibility of agency action even in cases where the buyer has only a minority ownership interest in a company that competes with the target; the value of the overlapping assets represent less than one percent of the transaction’s value; and the transaction has closed without any HSR review.  In Bain’s and THL Partner’s (”THL”) bid to acquire acquire Clear Channel, the Antitrust Division required, among other things, divestiture by THL Partners of its passive 14% equity interest in a company that competes with Clear Channel because it was concerned that THL would seek to reduce competition between the two parties post-merger.  (See Post of February 28, 2008 and attached description).  In the Cookson/Foseco transaction,  the Antitrust Division required divestitures worth about $4 million out of a $1 billion transaction.   Although the monetary value of the divestitures was relatively minimal, the Antitrust Division’s HSR review appears to have delayed the closing by nearly five months.  (See Post of March 5, 2008).  Parties should therefore understand that even smallest competitive overlap can trigger serious agency scrutiny and appreciate the attendant cost and delay resulting from a Second Request under the HSR Act.  On January 25, 2008, the U.S. Court of Appeals for the Fifth Circuit denied Chicago Bridge’s Petition for Review of the FTC’s order requiring divestitures after Chicago Bridge acquired Pitts-Des Moines’  (”PDM”).   See Chicago Bridge & Iron Co, N.V. v. FTC, No. 05-60192, 2008 WL 203802  (5th Cir., Jan. 25, 2008).  Merging parties should be particularly concerned that the FTC initiated its investigation of the transaction after the HSR mandatory waiting period had expired.  On September 12, 2000, Chicago Bridge and PDM made their HSR filings and the mandatory waiting expired without any HSR review by the antitrust agencies.  More than 30 days after the filings (and thus after the HSR waiting period expired) but before closing, the FTC informed the parties that it had begun to investigate the potential competitive effects of the transaction.  Nevertheless, in February, 2001, the parties closed the transaction, and in October 2001, the FTC issued its administrative complaint.  Ultimately, Chicago Bridge was required to divest all of PDM’s assets.  Notably, because the transaction closed, the Buyer — Chicago Bridge — assumed all of the antitrust risk in the transaction.  Chicago Bridge paid $84 million for PDM’s assets and will have to sell them at fire sale prices.  Thus, Buyers should be cautious in consummating transactions that may prove anticompetitive particularly during the pendency of an agency investigation.  If the purchase agreement allows them to delay closing, they ought to consider doing so.  ”Buyer Beware: Consummating Non-HSR Reportable Transaction May Prove Costly In the End” (appearing in the Antitrust Litigator; attached) examines the risks that can arise from consummating a merger that turns out to be anticompetitive.  Discussion(Bain&THL/Clear Channel);  Buyer Beware: Consummating Non-HSR Reportable Transactions May Prove Costly in the End”

Full post as published by Antitrust Commentary on March 23, 2008 (boomark / email).