A recent complaint filed by the Department of Justice (“DOJ”), challenging the acquisition of PowerReviews, Inc. by Bazaarvoice, Inc., should serve as a cautionary tale for all parties contemplating a transaction, regardless of the size of the transaction and the reporting thresholds set in the Hart-Scott-Rodino Antitrust Improvements Act (“HSR”).
On January 10, 2013, the DOJ filed a civil antitrust lawsuit against Bazaarvoice, a social media marketing company.1 The lawsuit challenges Bazaarvoice's acquisition of its competitor, PowerReviews, which supplies product ratings and reviews platforms, as an anticompetitive transaction under Section 7 of the Clayton Act.2 Bazaarvoice did not report the June 2012 transaction to the government because the transaction did not satisfy reporting thresholds.3
Section 7of the Clayton Act prohibits mergers and acquisitions where the effect “may be substantially to lessen competition, or to tend to create a monopoly.”7HSR amended the Clayton Act in 1976 and requires all persons contemplating certain mergers or acquisitions, which meet or exceed certain thresholds, to file notifications with the Federal Trade Commission and the Department of Justice.8Specifically, the government must be notified of any pending transaction where the parties meet the “size-of-person” test and the transaction itself meets the “size of transaction” test, if no exemptions are applicable.9The thresholds for the tests are adjusted annually, based on changes to the gross national product.
Effective February 11, 2013, the “size of transaction” threshold has been increased to $70.9 million.10Thus, except in very unique circumstances, any transactions valued below $70.9 million need not be reported to the government.11For transactions between $70.9 million and $283.6 million, the “size of person” test further determines whether a filing need be made. For an HSR filing to be required in this range, one party to the transaction must have annual net sales or total assets of at least $141.8 million and another party must have annual net sales or total assets of at least $14.2 million (and PowerReviews' revenues were below those levels).12Provided no exemption applies, if the transaction is valued above $283.6 million, there is no “size of person” test and it must be reported to the government before completion, unless an exemption applies.13
The DOJ's lawsuit demonstrates a risk that should be considered by those seeking to enter transactions below the reporting thresholds required by HSR. HSR is mainly a logistical statute designed to facilitate review of larger transactions prior to consummation. The DOJ, as well as the Federal Trade Commission (“FTC”), have recently confirmed that below-threshold transactions may be scrutinized as a matter of policy.14There are other recent examples of transactions falling below the HSR thresholds being challenged. In early 2011, the DOJ challenged George's Inc.’s acquisition of Tyson Foods' chicken processing plant, which at a value of $3 million, fell well below the HSR reporting threshold.15The court entered a consent decree in November 2011 that required George's to make capital improvements to the chicken plant, thereby increasing the demand for local poultry and reducing the merger's likely anticompetitive effects.16
In 2009, Election Systems & Software acquired Premier Election Services at a transaction valued at $5 million. The DOJ filed suit later that same year, claiming that the deal combined the two largest companies that tallied votes in U.S. elections, thereby substantially reducing competition.17In 2010, Election Systems & Software was ordered to divest the majority of the assets of the acquisition.18
The FTC has also challenged non-HSR reportable transactions in the last few years, particularly healthcare mergers. In 2010, ProMedica Health Systems, Inc. purchased St. Luke's Hospital in a transaction that fell below HSR reporting thresholds. In 2011, the FTC challenged the transaction, alleging that the merger created a company with a disproportionate market share. In March 2012, the FTC held that the merger violated the Clayton Act and ordered ProMedica to divest the hospital.19
The FTC was poised to challenge another below-threshold transaction in 2010, Scott & White Healthcare's acquisition of King's Daughters Hospital in Texas.20The FTC claimed that this transaction would eliminate Scott & White's only competitor. The parties agreed that Scott & White would offer to sell King's Daughters to another buyer on specified terms to avoid litigation, although when the sale fell through, the FTC closed its investigation.21
Seeking out government scrutiny of a proposed transaction that is not HSR reportable seems counterintuitive, and we are by no mean suggesting it as a blanket approach. However, parties to a transaction must be keenly aware that the lack of an HSR filing does not mean the transaction will necessarily escape government review and perhaps be challenged in court. Thus, parties contemplating a non-reportable transaction should at minimum evaluate the potential antitrust enforcement exposure and consider whether to allocate risk of such exposure in the purchase or merger agreement.
Elizabeth Cate is a litigation associate in the New York City office of Winston & Strawn LLP. She focuses her practice on complex commercial litigation, antitrust litigation, and internal investigations. She has represented clients in a variety of industries in criminal antitrust investigations before the DOJ as well as in class actions.
Brandon Duke is a litigation associate in the New York City office of Winston & Strawn LLP. His practice focuses on antitrust litigation. He has represented clients involved in anticompetitive merger litigation and in criminal antitrust investigations before the DOJ.
Copyright © 2013 by Winston & Strawn LLP
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