On my desk at the moment is an issue of the Practical Law Journal with a cover story about third-party challenges to mergers, which seems like a good topic, so I’m going to steal it.
Let’s get the legal basics out of that way first. The Clayton Act provides for private actions to challenge mergers. If you believe that a planned merger is going to substantially lessen competition, you can bring your own case for an injunction. But really, you don’t want to and you shouldn’t have to. It’s expensive and you’re probably not going to win. Only in fairly unique circumstances is filing your own case going to be worthwhile. Even better, you have the government to do your dirty work for you.
A smart opposition strategy, not unlike a smart approval strategy, depends on knowing your audience and properly framing your argument.
Who Might Challenge?
The first step is to understand your concerns and then identify who might be best suited to do something about them. Are you concerned that your competitor is adding a new product to its portfolio, which will make it harder for you to compete? That concern probably won’t gain a ton of traction with U.S. regulators, but you might float it in Germany if the deal has effects there. Despite (or perhaps because of) my occasional parochial biases, Europe overall can be a fruitful place for complaints in general, as at times both the EC and member state antitrust authorities can seem more aggressive than U.S. enforcers.
Even for most deals, which will primarily have domestic effects, there is some choice of audience. The place to start will almost always be either the Antitrust Division of the Department of Justice or the Federal Trade Commission, depending on which agency is assigned the case or generally handles cases in that industry. But some states have attorneys general that have active antitrust enforcers whose attention you might want as well. State AGs may have a narrower geographic focus, but are sometimes willing to be more aggressive and have not infrequently played a key role in expanding a settlement remedy.
Are You Well Placed to Complain?
If you’re a competitor of the merging parties, you may not want to make yourself the face of antitrust opposition to the deal. Smart regulators (which is the rule rather than the exception) will be skeptical that your complaints arise out of concern that the merged entity will be a stronger competitor, rather than out of concern about competition. After all, if the transaction is going to lead to coordinated effects, or maybe even if it leads to higher market prices from unilateral effects, you stand to gain as an industry participant. But if the transaction is going to lead to real efficiencies and reduced market prices, you are likely to be unhappy about the new, stronger, merged competitor potentially taking your business.
But all is not lost. If you are a competitor that is sincerely concerned about lost competition, you might be able to find allies to bolster your case. There might be trade groups or downstream distributors who may share your concerns. Or even better, you might find that your customers share your concern and are willing to speak up.
It’s Really All About Customers
When it comes to complaining about transactions, customers are king. The single biggest factor that is likely to attract antitrust attention to the deal is customers who are unhappy about the transaction and can articulate how the combination will hurt them via lost competition.
While there has been some recent academic debate about the purposes of antitrust enforcement (see, e.g., this and Prof. Sokol’s Antitrust & Competition Policy Blog generally), the Merger Guidelines are clear that the motivating concern is protecting consumer welfare. The agencies are going to be most motivated to investigate and litigate a transaction when customers express concern.
What If the Deal Isn’t Reportable?
Substantive complaints are one of the best ways to bring attention to potentially problematic transactions that fall below the pre-notification thresholds of the HSR Act.
What Are Your Goals?
The answer might be “stop the transaction,” but it’s important to stay in touch with reality. Few transactions get blocked outright and if you are the only one complaining, it’s even more unlikely. A more realistic goal is to highlight a particular aspect of lost competition that may not be obvious to the agency. Doing so might help shape a settlement remedy, for example by forcing a divestiture in a different geographic or product area. If you’re a competitor, one area you may actually have credibility on is the adequacy of a proposed divestiture if you can use your own experience to show that the parties’ proposal will not be a viable business. Of course, you may also be interested in being the purchaser of the divested assets too.
Are There Bad Reasons To Oppose?
Well, that really depends on your goals. Personally, I’m skeptical about trying to raise questions merely to increase your competitors costs or delay the transaction. That may seem competitively attractive, but may not be worth the risks involved. Worse, it may undermine your credibility if you ever find yourself back in front of the agency trying to get your own deal done.
Obviously, it’s ultimately a business decision whether the risks are worth the benefits, but complaining only for the sake of delay would not be my first recommendation and may raise tricky ethical issues.
What Does It Mean to Complain?
Well, it depends. Things generally start with the antitrust lawyers reaching out to their contacts at the agencies to express concern. After that, the investigating staff member may want an informational interview with a knowledgeable business person, and then perhaps a signed affidavit that helps support their case. Meanwhile, the agency may ask for (or send a Civil Investigative Demand for) information and data like bidding databases, pricing data, competitive proposals and the like.
If things get really hairy, and the case makes it all the way to litigation, you may end up testifying in court.
Are There Risks Involved?
All things in life involve risk. What more do you need to know?
Oh, so you want more than that? Okay. There are number of important risks to consider. If you’re an entity that engages in acquisitions too, the first thing to keep in mind is whether you will regret making certain arguments when the agency is looking at your deal in the future. If you’re arguing that a particular competitor can’t expand or that the market shouldn’t include certain fringe products, you may be tying your own hands for your next deal. Obviously, perfect foresight is impossible, but it’s important to weigh be value of preventing the deal under review against your own future transactions.
Next, keep in mind confidentiality. If you’re providing information to the regulators, no matter now careful they are, there is some risk of your sensitive data and/or opinions about the marketplace becoming known. Even if there is no explicit data breach, the questions asked by a government lawyer during the investigative process can reveal a lot about what that lawyer has been hearing from market participants.
If you’re a customer, and the transaction really does create a player with market power, there’s an unfortunately risk that you may face an unhappy monopolist if you’re unsuccessful at blocking the transaction. Or, in the immortal words of Omar from the HBO program, The Wire, “If you come at the king, you best not miss.” Okay, so I’ve blown that concern a bit out of proportion to work in that Omar quote, but companies do consider this risk when deciding whether to complain.
Finally, as you may have been able to tell, there is some risk in whether your efforts will lead to unwanted distraction. The agencies will want to hear from business people and see pre-existing business documents, and that means time that executives will have to spend not focusing on their jobs. Is it worth it?
Should We Ring K Street?
In their Practical Law article, Aimee Goldstein and Paul Sirkis of Simpson Thatcher also mention the possibility of lobbying Congress to bring attention to the transaction you would like challenged. They are certainly right that it’s an option, but to be frank, the type of transaction that is likely to interest a member of Congress is also likely already on the agencies’ radar. A particularly motivated member of Congress might, however, put some pressure on the agencies to be a bit more aggressive, but is nonetheless likely to be less focused than the agency staff who are dedicated to these investigations. As Goldstein and Sirkis note, lobbying may not be a particularly effective strategy.
If an announced transaction, even one that does not require premerger notification under the HSR Act, makes you concerned about your competitive options, experienced antitrust counsel can do a lot to protect your interests through advocacy in opposition to the transaction.