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The possibility that merging firms share data before regulators clear their deal is so strong that U.S. and EU regulators joined efforts to force Bayer AG and Monsanto Co. to impose safeguards, a Justice Department official said June 6.
To approve the Bayer-Monsanto merger, the DOJ worked with the European Commission (EC) to require a firewall preventing sensitive information exchanges between the companies, Deputy Assistant Attorney General Barry Nigro said at an International Bar Association conference in New York.
The Bayer-Monsanto firewall is designed to “facilitate the divestiture” of Bayer’s assets, Nigro said. “It’s narrowly tailored, it’s just for the hand-off period.”
Bayer and Monsanto received clearance from the DOJ May 30 after two years of review, the last major regulator to approve it. Canada and Mexico followed suit a few days later.
The U.S., EU, and other regulators have conditioned their approval of the deal on the sale of $9 billion in assets to BASF SE. Company officials say they expect those divestitures to be complete in a few months.
Companies that “jump the gun” on their mergers improperly share confidential information with one another before their deal is finalized and run the risk of jeopardizing the entire merger, antitrust lawyers said.
Enforcers see discussions about future pricing models or marketing strategies between merging parties as cartel-like behavior, but companies engaged in the practice often are unaware of that.
“Gun jumping is becoming more and more serious,” Janet Hui, an antitrust attorney at JunHe LLP in Beijing.
European authorities have made headlines in the past over gun jumping. In 2016, the French Competition Authority imposed a $146 million dollar fine on Altice Co. a Netherlands-based telecom operator, for sharing information with Portugal Telecom, the company to be acquired, before the deal closed.
Firewalls are one solution, Nigro said, but the remedy should not be viewed as a long-term structural fix. If applied permanently, “that’s something we would look closely at, and we would have skepticism of it.”
If a firewall is imposed permanently — for example, to stop an acquired supplier from revealing information about its buyer’s competitor — it typically requires an outside monitor, according to the DOJ.
When a merger is on the verge of closing, there is tremendous pressure on companies to “deliver on the commercial and economic promises of the deal,” Stacy Frazier, executive counsel of competition law and policy at General Electric Co., said at the event.
Once conversations detailing sensitive company information start occurring “it’s really hard to reign in,” she said. “You can’t put the genie back in the bottle.”
Frazier advises companies to think of about gun jumping from the outset and draft merger contracts with data-sharing prohibitions in mind. “The consequences of gun jumping are very severe,” she said, “and I don’t think that is always recognized.”
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