On May 16, 2018, the Department of Justice (“DOJ”) announced that a federal grand jury returned an indictment against Christopher Lischewski, the President and CEO of Bumble Bee Foods LLC (“Bumble Bee”), for participating in a conspiracy to fix prices for packaged seafood sold in the United States.

The indictment, filed in the U.S. District Court for the Northern District of California in San Francisco, charges Lischewski with participating in a conspiracy to fix prices of packaged seafood beginning in or about November 2010 until December 2013.  The one-count felony indictment charges that Lischewski carried out the conspiracy by agreeing to fix the prices of packaged seafood during meetings and other communications.  The co-conspirators issued price announcements and pricing guidance in accordance with these agreements.

Bumble Bee has already pleaded guilty and been sentenced to pay a criminal fine of at least $25 million as a result of the government’s ongoing investigation.

Bumble Bee CEO Indicted After Merger Review Debacle

The indictment of the Bumble CEO serves as a reminder to corporate executives and antitrust counsel that merger investigations can lead to serious trouble and even criminal prosecution.  In 2015, the DOJ informed Thai Union Group P.C.L., owner of Tri-Union Seafoods LLC, doing business as Chicken of the Sea International, and Bumble Bee that it had serious concerns about their deal.  The parties ended up abandoning the transaction but not until after providing the government with a lot of documents and information that the civil lawyers passed on to the criminal section.

Thai Union’s proposed acquisition of Bumble Bee would have combined the second and third largest sellers of shelf-stable tuna in the United States in a market long dominated by three major brands.  Reducing competition from three to two always draws scrutiny so it should have been no surprise that the parties received second requests for information.  When the DOJ completed the merger investigation, the DOJ said it was convinced that the parties knew or should have known from the get go that the market was not functioning competitively so further consolidation would only have made things worse.  Indeed, this deal should not have ever made it out of the boardroom.

Observations

Corporate executives and antitrust counsel must be mindful of the risks of turning over ordinary business documents and information to civil antitrust lawyers in a merger investigation.  Part of the company’s review is to determine whether the documents tell a competitive story so turning over documents demonstrate the merging parties and the industry is acting anticompetitively is certainly counterproductive.  While the government’s antitrust lawyers might be tasked with a merger review, merging parties should understand that they do not operate in a silo.  Civil antitrust lawyers at the DOJ and the Federal Trade Commission closely review the documents and if they spot anticompetitive activity within an industry, merging parties can expect an industry wide criminal or civil investigation into the conduct uncovered.  This is not the first time a merger review has resulted in an industry wide investigation, and it likely won’t be the last.  One thing is for sure, it is hard to imagine a worse-case scenario resulting from a failed merger.

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

The DOJ said that Thai Union’s proposed acquisition of Bumble Bee would have combined the second and third largest sellers of shelf-stable tuna in the United States in a market long dominated by three major brands, as well as combined the first and second largest domestic sellers of other shelf-stable seafood products.

Bill Baer, head of the Antitrust Division, had some strong words saying that “consumers are better off without this deal.” He added that “our investigation convinced us – and the parties knew or should have known from the get go – that the market is not functioning competitively today, and further consolidation would only make things worse.”

Clearly, the DOJ’s tough stance against this merger demonstrates that it was willing to file a complaint to block the transaction.  Merger enforcement continues to be a priority for the Antitrust Division, but does this support the notion that the DOJ is more aggressive and more willing to litigate anticomopetitive mergers than in the past?  I don’t believe so.  While we do not have a complaint to review because the parties walked away, it appears that the market for shelf stable seafood products is highly concentrated as the market is dominated by only three players.  Therefore, the merger would have reduced competition from three competitors to two.  Here, there was a structural presumption of harm.  In such a situation, the DOJ is unlikely to approve a transaction without a credible defense.  Moreover, recent merger enforcement efforts by the DOJ suggest that this transaction was dead on arrival yet the parties attempted to do this deal anyway.  Because of the merger wave, companies are proposing more strategic deals that raise significant antitrust concerns.  This appears to be another example of a situation where  deal makers have become more aggressive and that the Antitrust Division was being put to the test.  The Division, however, has shown again that it will not shy away from anticompetitive mergers.

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