On November 7, 2014, the U.S. Department of Justice Antitrust Division announced a settlement to resolve charges that SierraPine Ltd. and Flakeboard America Limited violated the Hart-Scott-Rodino Antitrust Improvements Act (HSR Act) by improperly coordinating their businesses prior to the expiration of the HSR waiting period.
The HSR Act requires parties to mergers or acquisitions that meet certain minimum thresholds to submit formal notification and to remain separate and independent until the expiration of any applicable waiting periods.
Flakeboard and SierraPine each own and operate mills that produce particle board and medium-density fiberboard. In January 2014, SierraPine agreed to sell three of its mills to Flakeboard. While the proposed merger was under review, however, the parties engaged in conduct that, according to the Antitrust Division, constituted a failure to remain separate and independent during the HSR waiting period.
Specifically, the DOJ alleged that the parties coordinated with one another to shut down one of SierraPine’s mills and transfer those customers and certain competitively sensitive information to Flakeboard. The HSR waiting period for this transaction had been extended for several months while the DOJ conducted its investigation into the proposed transaction. Indeed, the parties ultimately abandoned the proposed transaction because of concerns expressed by the DOJ that the deal potentially would have anticompetitive effects.
As part of the settlement, SierraPine and Flakeboard each must pay $1.9 million in civil penalties, Flakeboard must disgorge $1.15 million in profits obtained as a result of the premerger coordination, and both companies must establish antitrust compliance programs. Notably, this is the first time the DOJ has ordered disgorgement of profits as a penalty for violating the HSR Act.
The Flakeboard-SierraPine settlement serves as a reminder that parties must be careful to limit their integration activities until after any premerger waiting periods have expired.