Just because merging companies escape initial antitrust scrutiny doesn’t mean they won’t get slapped later.
That’s the message sent by the Justice Department last week when it took the unusual step of filing suit against Parker-Hannifin Corp. The decision is remarkable because the same agency, without comment, allowed the aerospace supplier to buy rival Clarcor Inc. less than a year ago, in January. The deal was finalized a month later.
At the time, the DOJ had the opportunity to request more information about the deal and chose not to.
Justice Department officials say they’re acting now because they received a complaint from an unnamed customer related to the Parker Hannifin’s fuel filtration product line, which prompted them to take another look at the deal. The merged entity supplies airlines and the Department of Defense with fuel filtration systems.
Antitrust regulators rarely challenge mergers after the fact because unwinding a completed transaction, suddenly deemed illegal, is tough to pull off. Yet, in this case, a mere seven months after the purchase was completed, the government is seeking a court order requiring Parker-Hannifin to either sell its original fuel-filtration assets or the ones it acquired through Clarcor.
The lesson of the Parker-Hannifin lawsuit is clear. Enforcers give a lot of weight to customer complaints about a closed deal, and the agencies are more likely to bring a suit if companies gripe. The process by which the Parker-Hannifin deal was approved – a by-the-numbers paper shuffle through which most noncontroversial deals are cleared – can’t always ferret out every possible anticompetitive effect. It’s the job of companies doing business in that industry to alert the DOJ when something allegedly goes wrong.
Patricia Brink, director of civil enforcement in the antitrust division, puts the onus on merging businesses, saying company lawyers should be more forthcoming about potential antitrust issues when filing papers to get deals through the DOJ. But even if the deal gets through, that doesn’t mean regulators won’t look back.
“The overall message has to be that the [Hart-Scott-Rodino filing requirement] is a notification process, but it is not in any way jurisdictional in our ability to bring a lawsuit,” said Brink when speaking at a conference in New York Sept. 28. “We really can’t ignore what’s an anticompetitive merger because it already had gotten HSR clearance.”
If the government’s investigation is any indication, litigation in this case will bring a lot of fireworks. The Justice Department in a statement accused Parker-Hannifin of not cooperating with data or document requests during its investigation and refusing to keep the merging businesses separate while waiting for clearance. Brink said the division felt compelled to point out the “difficulties” they had with the companies when filing the lawsuit.
True to the defendant playbook, Parker-Hannifin denied the government’s accusations of not playing by the rules and said it has in fact “cooperated fully with the DOJ throughout this process.”
Not much. Monsanto Co. has an earning call on Wednesday that will offer an update on where things stand with the Justice Department’s antitrust review of its Bayer AG purchase.
“Biosimilars is definitely going to be the next round of a lot of litigation and fights,” said Will Garvin, an attorney at Buchanan, Ingersoll and Rooney, of Pfizer’s lawsuit filed against Johnson & Johnson.
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