It doesn't happen often. But, that
doesn't mean it doesn't happen. The FTC is now suing Dun & Bradstreet (H/T Main Justice) to unwind
a transaction D&B closed last year. According to the complaint, D&B acquired the Quality Education Data
(QED), a division of Scholastic, Inc., in an asset purchase and integrated QED
with its own Market Data Retrieval unit in February 2009. The FTC sums up
the transaction this way:
Data Retrieval ("MDR"), a company of D&B, is the leading provider
of data for marketing to kindergarten through twelfth-grade teachers,
administrators, schools and school districts ("K-12 data") in the United
States. K-12 data includes but is not limited
to contact, demographic and other information relating to K-12 educators. K-12
data is sold or leased to customers that use the data to market products and
services to educators. In early 2009, D&B acquired the assets of QED, MDR's
primary competitor. As a result of the acquisition, MDR now holds over 90% of
the relevant market, with only a small fringe consisting of two firms
accounting for the remainder. This transaction is in practical effect a merger-to-monopoly and,
if allowed to remain, would likely allow MDR unilaterally to exercise market
power in various ways, including increasing prices and reducing product
quality and services to K-12 data customers.
Acquiring your "primary competitor"? Neither of those sound good.
In fact, they're not. So, why didn't the [Hart-Scott-Rodino Antitrust Improvement Acts pre-merger notification (HSR)] process catch this
transaction? Simply put, the deal was too small to trigger a required HSR
filing. The transaction was valued at $29 million, well below the $69 million
trigger at the time. It was probably unwise not to file anyway.
Certainly, in antitrust sensitive transactions the FTC will accept a voluntary
filing. Here it looks like the parties decided against such a filing.
They either neglected to consult antitrust counsel on the transaction, or
they did, and then took a shot (in Feb 2009) that the somnolent attitude
towards enforcement that was a hallmark of the previous administration would
continue going forward. And anyway ... unscrambling the eggs post closing
is so expensive and time-consuming, the FTC wouldn't waste their time on such a
small market. Would they?
They would. Here's a little
advice from the FTC's Richard Feinstein, Director of the Bureau of Competition:
relatively low dollar value, this transaction dramatically decreased
competition in the marketplace. When Dun & Bradstreet acquired QED,
it bought its closest competitor and created a monopoly. That's going to get
the FTC's attention every time.
While a voluntary HSR filing would
not have created an absolute safe harbor from a subsequent antitrust suit, it
might have cleared the ground and allowed the parties to address the
government's antitrust concerns earlier on in the process - before there had
been any integration work, before there had been any joint marketing, etc.
True, making such a filing might have added additional costs and added
time to an otherwise small transaction. These are common cost/benefit
questions that parties have to consider with antitrust counsel in these kinds
of transactions. They can be close calls. In this case, it looks
like the parties may have made the wrong call. By avoiding a voluntary
pre-closing process, the parties have apparently triggered a worse fate - the
potential that the government will come in ex post and undo a deal that closed
more than a year ago.
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Blog, hosted by Brian JM Quinn, for blogs on legal developments in
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