Most recently, on November 6, 2019, the Federal Trade Commission (“FTC”) issued an Opinion and Final Order in which the Commission upheld the Administrative Law Judge’s (“ALJ”) decision that Otto Bock HealthCare North America, Inc.’s (“Otto Bock”) acquisition of FIH Group Holdings, LLC (“Freedom”) was anticompetitive and that Otto Bock must divest Freedom’s entire business with the limited exceptions granted by the ALJ.  The Commission’s order was approved by all five commissioners and continues the trend of unwinding consummated acquisitions that are deemed to be anticompetitive.

Accordingly, buyers must be aware of the risks of closing a non-reportable transaction that eliminates competition.  Here are a couple of points to keep in mind:

First, Non-Reportable Transactions That Eliminate a Competitor May Raise Antitrust Scrutiny

Indeed, corporate executives that enter into non-reportable acquisitions of their competitors must be aware that in some cases these deals entail significant antitrust risk.  Just because the deal is not reportable under the HSR Act does not mean that the federal or state antitrust agencies won’t investigate, challenge, and unwind it.

Second, Size of Transaction Does Not Matter

The antitrust agencies can investigate and unwind a deal, no matter the size of the transaction.  The antitrust agencies have challenged consummated deals valued as low as $3 million (see George’s/Tysons,  Complaint, United States v. George’s Foods, LLC, No. 5:11-cv-00043 (W.D. Va. May 10, 2011).  Other small deals challenged by the agencies include Renown Health’s $3 and $4 million deals; a $5 million transaction (Complaint, United States v. Election Sys. & Software, Inc., No. 1:10-cv-00380 (D.D.C. Mar. 8, 2010); Magnesium Elektron/Revere Graphics, a $15 million deal; Charlotte Pipe/Star Pipe, a $19 million deal; Dun & Bradstreet’s $29 million deal;  BazaarVoice/Power Reviews; and the list goes on.

Third, Length of Transaction Has Been Closed Does Not Matter

The FTC has challenged a consummated transaction more than eight years after the transaction closed (see Complaint, Graco Inc., No. 101 0215 (F.T.C. Apr. 17, 2013).

Fourth, Disgorgement of Profits Is Possible

The agencies have sought disgorgement of profits earned from post-merger price increases to remedy the anti-competitive effects of a consummated merger.  For example, under the terms of the consent order in FTC v. Hearst Trust, Hearst agreed to disgorge $19 million in profits earned from price increases following its acquisition of MediSpan, Inc. (Final Order, FTC v. Hearst Trust, No. 1:01CV00734 (D.D.C. Nov. 20, 2001)).  In another example from the DOJ, U.S. v. Twin America, LLC, et. al, Twin America, Coach, and City Sights together were required to pay $7.5 million in disgorgement to remedy alleged violations of Section 7 of the Clayton Act, Section 1 of the Sherman Act, as well as New York State law, including the Donnelly Act (see Proposed Final Judgment, United States v. Twin America, LLC, Civil Action No. 12-cv-8989 (ALC) (GWG) (March 16, 2015)).  In one case, the DOJ and New York State sought disgorgement of defendants’ illegal profits earned from increased prices charged after the formation of an illegal joint venture that eliminated competition and created a monopoly in “hop-on, hop-off” bus tours in New York City.

How Does the Government Learn of Non-Reportable Anticompetitive Mergers?

In the absence of an HSR notification, the agencies become aware of possibly anticompetitive mergers through the companies own press releases, news reports, complaints from competitors or customers, information from other investigations, or, in some cases, self-reporting by the parties.

Background of Otto Bock/Freedom Deal

On September 22, 2017, Otto Bock and Freedom simultaneously executed a merger agreement and consummated their merger.  The transaction did not require a pre-merger notification filing in the United States so the FTC did not have a chance to evaluate whether the acquisition was anticompetitive prior to the closing.  But, shortly after the deal Otto Bock issued an ill advised press release that highlighted that the deal combined the #1 and #3 players in the field of prosthetics in the United States, led to market share gains and strengthened its leading position.  Believing that “antitrust issues had already been clarified”, they closed the deal and then Otto Bock took steps to integrate Freedom’s business, including personnel, intellectual property, know-how, and other critical assets.

Shortly after the closing, the FTC started an investigation and within three months took action by filing an administrative complaint seeking to unwind the merger.  At the same time, Otto Bock agreed with the FTC to hold the businesses separate during the litigation to preserve the acquired business from Freedom.  According to the FTC’s administrative complaint, the merging parties were head-to-head competitors in the manufacture of microprocessor prosthetic knees (“MPKs”) and the deal eliminated head-to-head price and innovation competition, removed a significant and disruptive competitor, and entrenched Otto Bock’s position as the dominant supplier of MPKs.

Otto Bock made a number of arguments in its defense.  First, it offered a divestiture of Freedom’s MPK assets to an identified buyer, which it argued eliminated the FTC’s allegations of purported harm.  The FTC, however, rejected the remedy as insufficient.  It also argued that the efficiencies would outweigh the procompetitive effects and that Freedom was a failing firm.

ALJ Decision in Otto Bock

On April 29, 2019, the ALJ upheld the FTC’s administrative complaint finding that the transaction substantially lessened competition in the relevant market for the sale of MPKs to prosthetic clinics in the United States.  The deal eliminated competition between Otto Bock and Freedom that spurred innovation and lower prices.  The ALJ found that Otto Bock’s divestiture remedy was insufficient and found that the appropriate remedy was the divestiture of all the assets acquired with the possible exception of certain foot products that are not necessary to competition in the relevant MPK market.  On May 8, 2019, Otto Bock filed a notice of appeal stating that it would appeal the entirety of the ALJ’s initial decision and order. 

Commission Opinion and Order

The Commission found that there was a presumption of harm based on high market shares and concentration levels.  In addition, the Commission found that the record evidence of competitive harm was compelling.  The evidence confirmed that Otto Bock possesses the leading share of U.S. MPK sales with the C-Leg 4 and showed that Otto Bock and Freedom vigorously competed against each other in terms of price and innovation competition.  Internal documents showed that they would respond against each other with price promotions and discounts.  If one came out with a new generation, the other would try to “leap frog” the other.  The evidence further demonstrated that Otto Bock viewed Freedom as a direct competitive threat and demonstrated that one of the reasons for the acquisition was to eliminate the development of Freedom’s new MPK, the Quattro, that had the nickname the “C-Leg Killer”.  Part of the reason for the acquisition was to make sure that no other competitor acquired Freedom’s Quattro.  In summary, the Commission upheld the ALJ’s decision that the acquisition substantially lessened competition and that to fully restore the competition lost from the acquisition, Otto Bock must divest Freedom’s entire business with the limited exceptions granted by the ALJ.

Lessons Learned

The FTC’s investigation, challenge, and successful litigation serve as a reminder to corporate executives and antitrust counsel that antitrust risks do not end once a deal closes, and that a transaction is not free of antitrust risks simply because the transaction is not reportable under the HSR Act.  The Commission’s Opinion and Order unwinding the merger further demonstrates the risks of closing a deal that presents significant antitrust concerns and makes clear that such challenges will continue to be pursued by the FTC.  The Commission’s Opinion and Final Order requiring a complete divestiture of the business that was acquired also makes clear that when the FTC is evaluating a proposed remedy that its goal is to fully restore competition.  When a buyer proposes to sell a carve out of assets instead of a whole business to a divestiture buyer, it must show how the partial divestiture of assets to the divestiture buyer restores competition.

Corporate and private counsel should be aware of the likely consequences and the risks of consummating transactions that raise significant competitive issues.  The risks may include: defending against costly and lengthy government investigations as well as government and private litigation; unwinding the merger through either complete or partial divestitures even after integration has taken place; and disgorging profits gained from the alleged anticompetitive merger.  Accordingly, before competitors execute a transaction agreement, counsel should conduct a preliminary assessment of whether the proposed transaction gives rise to substantive antitrust issues no matter the deal’s size.

Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com

FTC Seeks to Unwind Merger of Prosthetic Knee Manufacturers

On December 20, 2017, the FTC filed an administrative complaint to unwind the merger of Otto Bock HealthCare North America, Inc., (“Otto Bock”) and FIH Group Holdings, LLC (“Freedom”), two manufacturers of prosthetic knees equipped with microprocessors that adapt the joint to surface conditions and walking rhythm.  In September 2017, the parties simultaneously signed a merger agreement and consummated the merger without the FTC having an opportunity to review the deal.  Apparently, the merger was not HSR reportable.  According to the FTC, the merger eliminated direct and substantial competition between head to head competitors that engaged in intense price and innovation competition.  While the litigation is ongoing, the parties agreed to a Hold Separate and Asset Maintenance Agreement, which prevents them from continuing the integration of the two businesses.  The FTC did not allege any violation of the HSR ACT.

DOJ Requires a Divestiture Remedies in Consummated Asset Deal

On December 21, 2017, the DOJ announced a settlement that required TransDigm Group Inc. (“TransDigm”) to divest two airline passenger restraint businesses that it had acquired from Takata Corp. in February of 2017 for $90 million.  Due to the transaction’s structure, it was not HSR reportable so the DOJ did not have the opportunity to review the deal.  Nevertheless, the DOJ investigated the transaction and found that it had eliminated the only meaningful competitor to TransDigm in the market for commercial airplane restraint systems, including traditional two-point lap belts, three-point shoulder belts, technical restraints, and more advanced inflatable restraint systems such as airbags.  According to the DOJ, competition between the two companies led to lower prices and more innovation in the industry.  To resolve the concerns, the DOJ required a structural remedy to an already approved consortium.

DOJ Settles Parker-Hannifin Lawsuit

In September 2017, the DOJ challenged Parker-Hannifin’s consummated acquisition of CLARCOR Inc. alleging that it had eliminated head-to-head competition between the only two domestic manufacturers of fuel filtration systems and filter elements. The DOJ challenged the transaction after it had allowed the initial waiting period under the HSR Act to expire in mid-January 2017.  The HSR was filed during the holidays and expired around the inauguration.  There was no allegation that the parties withheld 4(c) documents or did anything unusual to prevent the DOJ from conducting a thorough review.  The DOJ had everything it needed to make a decision to issue a second request.  Apparently, the DOJ simply missed the overlapping businesses in the initial review period and allowed the waiting period to expire.  In December 2017, the DOJ announced a settlement with Parker-Hannifin that required a structural remedy, the divestiture of the fuel filtration assets.

Lessons Learned

No deal is ever done.  These enforcement actions demonstrate that the antitrust agencies are committed to challenging completed deals that substantially lessen competition.  These enforcement actions by the antitrust agencies send a strong message to corporate executives and antitrust counsel that antitrust risks do not end once a deal is consummated, and that a transaction is not free of antitrust exposure simply because the transaction is not reportable under the HSR Act or that the HSR waiting period was allowed to expire without contact from the antitrust agency.  Corporate and private counsel would like assurances that the HSR waiting period provides closure to the antitrust review.  Apparently, the expiration of the HSR waiting period does not end the antitrust review.  Given these examples, corporate executives must have its antitrust counsel assess the antitrust risk of closing a transaction that has some antitrust exposure for a post-closing investigation and challenge.  These examples show that consummating deals that raise serious antitrust concerns may lead to defending against lengthy and costly investigations; defending against litigation; and reorganizing to the government’s demands of divestitures even after some initial integration has taken place.

Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com

Background

On September 22, 2017, Otto Bock and Freedom simultaneously executed a merger agreement and consummated their merger.  Within four days of the acquisition, Otto Bock publicized to the world in its September 26, 2017 press release that “Otto Bock strengthens the leading position in prosethetics” and that the deal combined the #1 and #3 players in the field of prosethetics in the United States.  It further went on to state that the acquisition expands its market share and “antitrust issues have already been clarified” so they closed the merger and Otto Bock then took steps to integrate Freedom’s business, including personnel, intellectual property, know-how, and other critical assets.

Within three months of the closing, the FTC filed a complaint to unwind the deal.  According to the FTC’s administrative complaint, the merging parties are head-to-head competitors in the manufacture of prosthetic knees with microprocessors that adapt the joint to surface conditions and walking rhythm.  Specifically, the FTC alleges that Otto Bock and Freedom engaged in intense price competition as well as offered dueling improvements in innovation.  The deal eliminated head-to-head competition between the two companies, removed a significant and disruptive competitor, and entrenched Otto Bock’s position as the dominant supplier.

Microprocessor knees, which use microprocessors to adjust the stiffness and positioning of the joint in response to variations in walking rhythm and ground conditions, provide a stable platform for amputees. Prosthetists and doctors typically prescribe microprocessor knees to patients with above-the-knee amputations who have a relatively high degree of mobility. Compared to other products, microprocessor prosthetic knees reduce the risk of falling, cause less pain, and promote the health and function of the sound limb.

New entry or expansion by other manufacturers of microprocessor knees is not likely to be timely or sufficient to offset the anticompetitive effects of the merger. The complaint notes that it routinely takes firms more than two years just to develop a microprocessor knee, even when they are building on existing microprocessor knee technology.

Lessons Learned

The FTC’s administrative complaint serves as a reminder to corporate executives that antitrust risks do not end once a deal closes, and that a transaction is not free of antitrust risks simply because the transaction is not reportable under the HSR Act.  The complaint also demonstrates the risks of closing a deal that presents antitrust concerns and makes clear that such challenges will be pursued by the FTC.  The parties to the deal now are involved in costly litigation.  Accordingly, corporate and private counsel must be aware of the likely consequences and risks of consummating deals that raise significant antitrust concerns but for one reason or another avoided an antitrust review.  In strategic transactions, corporate counsel must reach out to experienced antitrust counsel for an antitrust assessment.

Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com

Background

In March of 2009, Twin America, LLC was formed by Coach USA, Inc. and City Sights, LLC.  Coach USA and City Sights were operators of double-decker tour buses that had aggressively competed against each other to attract customers, which were and are for the most part, visitors/sightseers in New York city.  Indeed, the Antitrust Division’s complaint alleged that prior to the formation of Twin America, LLC, Coach USA, the long-standing market leader through its “Gray Line New York” brand, and City Sights, a firm that launched the “City Sights NY” brand in 2005, accounted for approximately 99 percent of the hop-on, hop-off bus tour market in New York City.  Between 2005 and early 2009, the two companies engaged in vigorous head-to-head competition on price and product offerings that directly benefited consumers.

According to the complaint, Coach and its corporate parent, Stagecoach Group PLC, knew that combining with Coach’s only meaningful competitor would allow the merged firm to raise prices and communicated this idea to City Sights during joint venture negotiations.  Therefore, the purpose of the joint venture was to end that head to head competition and to become the sole provider of hop-on, hop-off bus tours in the New York city market, which allowed the joint venture to immediately raise prices by 10%.  The transaction that formed Twin America LLC and monopolized the New York city hop-on, hop-off bus tour market was not required to be reported under the Hart-Scott-Rodino (“HSR”) Act.  Because it was a non-reportable transaction and no one alerted the Antitrust Division of any competition concerns, the Division did not learn about the joint venture until after its consummation.  Similarly, the State of New York did not learn of the illegal combination that resulted in Twin America, LLC until after it was formed.  The State of New York, however, learned of the illegal transaction and began an investigation and issued subpoenas in the summer of 2009.

After receiving the subpoenas, the Coach USA and City Sights delayed the State of New York’s antitrust investigation by belatedly filing the transaction with the federal Surface Transportation Board (“STB”) and asserting that the STB had exclusive jurisdiction.  The STB rejected the joint venture in early 2011 as not in the “public interest” and affirmed its ruling in early 2012, directing Coach USA and City Sights to either dissolve Twin America, LLC or terminate minimal interstate operations that provided the basis for STB jurisdiction.  Coach USA and City Sights removed the matter from STB jurisdiction and continued to operate the joint venture.

From 2009 to 2012, there was no new entry or expansion in the market, and Coach USA and City Sights were able to sustain the 2009 price increases.  Any new competitors must obtain bus stop authorizations from the New York City Department of Transportation (“NYCDOT”) at or sufficiently close to top attractions and neighborhoods to meaningfully compete with Twin America, LLC.  Apparently, NYCDOT is the city agency in charge of managing bus stop authorizations, which are required for hop-on, hop-off operators to load and unload passengers.  Both Coach and City Sights hold large portfolios of bus stop authorizations covering virtually all of Manhattan’s key attractions that they received from the NYCDOT years ago before many locations were at capacity so new entrants cannot obtain any competitively-meaningful bus stop authorizations in Manhattan.

On December 11, 2012, the Antitrust Division and the NY State AG filed a complaint in the U.S. District Court of the Southern District of New York alleging that the March 2009 joint venture that formed Twin America violated the antitrust laws and allowed the parties to raise prices to consumers.  The trial was set for February 23, 2015, however, Coach USA and City Sights adjourned the trial date to facilitate settlement discussions with the Antitrust Division and the NY State AG.

Settlement

The settlement resolves the Antitrust Division’s and NY State AG’s competitive concerns as it requires Twin America, LLC to relinquish all of City Sights’s Manhattan bus stop authorizations to the NYCDOT and disgorge $7.5 million in ill-gotten profits that Coach USA and City Sights obtained by operating Twin America, LLC, the illegally consummated joint venture, in violation of the antitrust laws.

The relinquished bus stop authorizations include highly-coveted locations such as the areas surrounding Times Square, the Empire State Building and Battery Park, where rival firms have been chronically unable to obtain competitive bus stop authorizations.  By increasing the NYCDOT’s inventory of bus stops and freeing up capacity at approximately 50 locations throughout Manhattan, the settlement will significantly ease the barrier to new rivals being able to meaningfully compete with Twin America.  Twin America will continue to hold Gray Line New York’s bus stop authorizations for its own hop-on, hop-off service.

The disgorgement of $7.5 million in profits that Coach USA and City Sights obtained from the operation of their illegal joint venture was in addition to $19 million that they already agreed to pay to a class of consumers to settle related private litigation brought after the filing of the Antitrust Division’s complaint.  The Antitrust Division and the New York State AG, however, believed that disgorgement was appropriate because the facts of this case relate to a consummated merger involving an anticompetitive price increase and deliberate attempts to evade antitrust enforcement.  The Antitrust Division and the State AG believe that the payment of $7.5 million in disgorgement will deprive the defendants of ill-gotten profits they retained even after the class settlement and deter future antitrust law violations.  In addition to disgorgement, Coach USA further agreed to reimburse the United States $250,000 in attorney’s fees and costs to resolve claims that Coach failed to meet its document preservation obligations.

The settlement of the lawsuit also requires Coach and Twin America to establish antitrust training programs and that they provide the government with advance notice of any future acquisition in the New York City hop-on hop-off bus tour market that is not otherwise reportable under the HSR Act.

Antitrust Division’s Previous Use of Disgorgement

In 2010, the DOJ obtained disgorgement related to a financial derivative contract entered into between KeySpan Corporation and Morgan Stanley, a financial services company, that gave KeySpan a financial interest in the electricity capacity sales of its largest competitor, Astoria, and incentivized KeySpan withhold capacity to increase prices in the electricity capacity market in New York.  The anticompetitive effects of the agreement lasted from January of 2006 until March 2008, when regulatory conditions eliminated KeySpan’s ability to affect the market price of electricity capacity.

At the time, the settlement was noteworthy because it was the first time in history that the Antitrust Division sought disgorgement of profits as a remedy for a civil antitrust violation of the Sherman Act.  The Antitrust Division traditionally sought only injunctive relief in the civil cases that it brought. Normally, the Division seeks to rescind the anticompetitive arrangement or enjoin the anticompetitive conduct. The injured parties usually must recover damages through private, civil actions. In its Competitive Impact Statement, the Division indicated that it sought disgorgement because it believed the filed rate doctrine would have limited consumers ability to recover antitrust damages.  That being said, the Sherman Act expressly authorizes the DOJ only to “prevent and restrain” violations of the Sherman Act, in addition to bringing criminal prosecutions. 15 U.S.C. §§ 1, 4. The Division’s approach in the KeySpan case reflected a shift in the DOJ’s policy with the aggressive interpretation of the DOJ’s civil enforcement authority. In Twin America, however, a class of consumers actually sued and settled for $19 million.  The DOJ and the New York State AG, however, believed that the parties’ ill-gotten gains were above the $19 million settlement so they pursued an additional disgorgement of profits.

Lessons Learned

The Antitrust Division’s challenge and settlement is noteworthy for several reasons. First, the challenge reiterates that the Antitrust Division is serious about enforcing the antitrust laws against small mergers that do not meet the HSR thresholds. Second, it demonstrates that completed deals that slip beneath the Antitrust Division’s radar screen initially are fair game even if the Antitrust Division learns about them later. Third, the fact that a deal is not HSR reportable does not mean that no antitrust issues exist with the combination. Fourth, the Antitrust Division can and will challenge a consummated deal if it determines that the deal is anticompetitive. Fifth, the Antitrust Division has a particular interest in post-acquisition competitive effects of consummated mergers.  Finally, and most importantly, the Antitrust Division, for the first  time, sought and obtained disgorgement of ill-gotten profits, required the parties to introduce antitrust training programs, and obtained attorneys fees and costs related to a consummated merger.

Therefore, parties to a consummated deal that raise significant antitrust issues and avoided HSR scrutiny, for whatever reason, should proceed with reasonable caution and closely monitor post-acquisition conduct.  Moreover, corporate and private counsel should be aware of the likely consequences and the risks of consummating transactions that raise significant competitive issues.  The risks may include: defending against costly and lengthy government investigations as well as government and private litigation; reorganizing to the government’s demands of possible divestitures even after integration has taken place; paying off private plaintiffs for their injuries; and disgorging profits gained from the alleged anticompetitive merger.

Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com

According to Commissioner Swindle’s thorough and well-reasoned ruling, on behalf of a unanimous Commission, the acquisition provided CB&I with a monopoly or near-monopoly position in each of four relevant markets and violated Section 7 of the Clayton Act and Section 5 of the FTC Act. To restore competition as it existed prior to the merger, the Commission ordered CB&I to create two separate, stand-alone divisions capable of competing in the relevant markets and to divest one of those divisions within six months. The Commission’s goal is to restore competition as it existed prior to the merger.

Background

CB&I completed the acquisition of PDM assets on February 7, 2001. On October 25, 2001, the Commission filed a complaint challenging the acquisition. The complaint alleged, among other things, that the consummated merger significantly reduced competition in four separate markets involving the design and construction of various types of field-erected specialty and industrial storage tanks in the United States: liquefied natural gas storage tanks; liquefied petroleum gas storage tanks; liquid atmospheric gas storage tanks; and thermal vacuum chambers. On June 12, 2003, the initial decision by the ALJ held that the deal was anticompetitive and ordered CB&I to divest all assets obtained in the acquisition. Both CB&I and counsel supporting the complaint appealed the initial decision, and the case was reviewed by the full Commission. The Commission upheld the initial decision’s finding that the acquisition was illegal, but differed with that decision’s analysis and with the decision’s final relief.

At the time and prior to the 2001 transaction, CB&I and PDM competed against each other as the two leading U.S. producers of large, field-erected industrial and water storage tanks and other specialized steel-plate structures. According to the Commission’s opinion, the acquisition substantially lessened competition in four relevant product markets in the United States. The Commission held that the consummated merger significantly reduced competition in four separate markets involving the design and construction of various types of field-erected specialty and industrial storage tanks in the United States: liquefied natural gas storage tanks; liquefied petroleum gas storage tanks; liquid atmospheric gas storage tanks; and thermal vacuum chambers.

Opinion

According to the unanimous opinion of the Commission, this case involves the acquisition of a company by its closest competitor in four relevant markets in the United States. CB&I and PDM were the dominant suppliers in each of the four relevant markets prior to the acquisition. The Commission stated that the acquisition provided CB&I with a monopoly or near-monopoly position in each of the markets. It also ruled that entry into each of the relevant markets is not only difficult, but is also unlikely to happen within a timely manner to restore the competition lost from the acquisition. The Commission stated that the size of the commerce affected by an acquisition is not a factor in determining the legality of a merger. Moreover, the FTC found that the customer testimony demonstrated that customers could not constrain a price increase despite the parties’ claims that the customers were sophisticated and powerful enough to constrain prices.

As did the ALJ’s initial decision, the Commission’s order requires a divestiture to restore competition as it existed prior to the merger. The order differs from the relief proposed in the ALJ’s initial decision because the Commission believed that the relief sought in the initial decision was unlikely to restore a viable competitor to the market. Specifically, the Commission ordered CB&I to reorganize its business unit related to the relevant products into two separate, stand-alone subsidiaries, and to divest one of those subsidiaries within six months. Rather than giving the responsibility to a third party trustee, who would have to learn the business, the Commission explains that CB&I is in the best position to know how to create two viable entities from its current business.

The order also requires CB&I to divide its current customer contracts between the two newly-created subsidiaries, and to facilitate the transfer of employees so that each subsidiary has the technical expertise to complete the customer contracts assigned to it and to bid on and complete new customer contracts. In particular, CB&I must provide incentives for employees to accept offers of employment from the acquirer and remove contractual impediments that would prohibit employees from accepting such offers. The Commission appointed a monitor trustee to oversee the divestiture and, among other things, to assess the need for CB&I to provide technical assistance and administrative services to the acquirer. The Commission also reserved the right to appoint a divestiture trustee in the event that CB&I does not accomplish the divestiture in six months.

Conclusion

The decision is noteworthy for several reasons. First, it demonstrates that the expiration of the HSR waiting period should not be interpreted to mean that the Commission has approved the deal. Second, the Commission can and will challenge a consummated deal if it determines that the deal is anticompetitive. Third, the FTC has a particular interest in post-acquisition competitive effects of consummated mergers. Fourth, the FTC will seek a complete divestiture to remedy an anticompetitive merger, whether it is integrated or not. Therefore, parties to a consummated deal, particularly transactions that avoided HSR scrutiny, for whatever reason, should proceed with reasonable caution and monitor closely post-acquisition conduct.

Andre Barlow