- FTC and DOJ-Antitrust Division have enforcement authority, and the DOJ can kind of do what it wants, when it wants
- The Sherman Act prohibits combinations in "unreasonable" restraint of trade; the FTC Act protects against deceptive business tactics, and there's usually overlap in violations with the Sherman Act; finally, the Clayton Act, as amended by Hart-Scott-Rodino, specifically addresses mergers and acquisitions that may lessen competition or create a monopoly. Anyone trying to block a merger with an antitrust suit will usually throw the kitchen sink at it though, and allege violations of all the above.
In terms of automatic triggers, I don't think there's a % threshold short of 100% that is per se anticompetitive, but as Alyssa mentioned, the courts test anticompetitive behavior by looking at harm to consumers on a regional basis. I read this article on the Southern/Glazer merger, and it looks like a) they were the 1st and 4th largest by revenue, b) they'll operate in 45 states, c) BUT they only overlap in 7 states. So, in the other 38 states they'll now cover, there's no change for the consumer. That bodes well for passing antitrust scrutiny. There's definitely an environment change for wineries and the like, but antitrust law is set up with an eye towards the consumer. And, suppliers are likely wary of poking a bear in the eye with a lawsuit. Hart-Scott-Rodino triggers automatic antitrust scrutiny for transactions greater than ~$75mm (yes, very small), so the companies will have filed something with the FTC and the DOJ, but since they're private companies I don't think that filing will be made public. Probably worst case scenario for them is that they have to divest some aspect of their business in the 7 states in which they overlap. But, the merger doesn't look as egregious as it sounds just on market share percentages.
Hope that is right, and if so, hope that helps.
Requisite legal disclaimer: The above is in no way meant to be construed as legal advice, but rather is legal information for academic purposes. ;)
Thanks, Thomas!!
ReplyDeleteI'm going to give the same disclaimer Thomas gave, and the general caveat that I've tried to stay out of this discussion since I'm still a practicing attorney (not admitted in CA) and as the class knows previously represented a number of producers in this industry. Two additional notes that might be useful:
Delete1. The FTC and DOJ-AT have a somewhat different range of enforcement powers, but practically speaking, they will coordinate on which agency leads the initial antitrust investigation. The DOJ has statutory jurisdiction over a specific set of industries such as airline mergers, but in beverages/wine you will typically see the FTC get involved first. This matters to any of you who may participate in a merger process down the road as (1) it means the agencies generally avoid duplicating efforts and (2) the two agencies, depending on who's in charge at both the AG/commissioner and senior staff level, may differ in any number of ways in which they approach the challenged deal.
2. Without opining on the merits of Southern/Glazer or any other specific deal, I recall a mention in class of waiting for post-deal challenges by antitrust authorities. That can result in one of two things: action against the specific anticompetitive behavior itself, or a reversal of the corporate combination itself. Your typical M&A deal will be structured so that it can only close after all requisite antitrust approvals have been obtained. I've seen a lot of principals and advisers mistakenly think that they are in the clear once they've passed the review period without a challenge and have closed the merger. That's not the case: U.S. antitrust regulators can investigate consummated deals years after the fact and even reverse a merger--the term of art is actually called "unscrambling the eggs." You can imagine how painful this is to undertake with a fully integrated post-merger company, but it has happened and sometimes the action is more severe than if the merger had simply been blocked in the first place (e.g., instead of preventing A + B before the fact, you split the combined A/B, then take out assets from B and add to A in order to make it a legitimate competitor). Also, conventional wisdom these days seems to be that size doesn't matter: while the FTC releases yearly HSR reporting thresholds that we use as a benchmark for determining which mergers will undergo greater regulatory scrutiny, they've shown no hesitation in recent years to target far smaller companies than some of those coming out of Stanford lately.
RE: HSR notification threshold being $75mm in Thomas's post, the FTC updates the threshold every January to account for inflation. The new HSR thresholds just came out this week and we are at $78.2 mm for a combined "size of transaction." There are other thresholds they look at as well, including "size of parties" ($15.6 mm this year). Again, this doesn't mean you are off the hook if you're doing a business combination under all these thresholds.
Also, note that HSR filings (i.e. the oftentimes-substantial amounts of information merger parties have to provide to antitrust authorities) are generally confidential and even exempted from FOIA requests, subject to certain exceptions.
Jeff