Counsel's Opinion on Antitrust Issues in Mergers and Acquisitions
When a merger or acquisition has been proposed, corporate counsel should analyze the deal for its antitrust implications. This should be done without delay because of the need to pre-notify the federal government of certain mergers.
Familiarity with the DOJ and FTC Merger Guidelines will be required, as these are what the agencies use to scrutinize the deal, and are the best indicator of potential problems. In most cases, getting the merger through the notification process removes most of the possible risks. But to be prudent, you should also determine if there are any submarkets in a particular state or foreign country that might cause the states or foreign authorities to challenge the merger. And at the risk of being overly cautious, you should find out if there are any private parties that might challenge the merger, and if so, how the merger would fare under applicable case law.
The information-gathering part of the analysis starts with an analysis of the merging companies' market shares. If you have a good working knowledge of antitrust law and past experience using the formulas in the Merger Guidelines, you may be able to do this alone. Often, however, counsel will find it necessary or helpful to hire an economist to help determine the competitive effects of the proposed merger.
Next, you have to search for other factors that can either make permissible an acquisition that would otherwise clearly violate the Guidelines, or make risky a deal that satisfies the market share tests. Keep in mind that each industry has its own peculiar factors and history, such that specific applications of merger law may need to be taken into account.
Management typically requests a preliminary analysis to determine whether there is any obvious antitrust problem in an acquisition. For this purpose, they often make available less than a full amount of information. Counsel should use best efforts to accommodate management in rendering a judgment on the basis of this information, but you'll want to make clear that no formal antitrust opinion can be based upon such a limited review.
Once a letter of intent is signed and a legal opinion is called for, you'll need access to a great deal of additional information. You should develop and furnish to company executives and employees a checklist of required information. Keep copies of all documents and interview notes that you gather and that form the basis of your legal opinion.
An important part of counsel's job is to remind management of the legal and business risks inherent in the merger or acquisition, including an injunction, order of divestiture, order preventing any other acquisition in the industry for ten years without prior approval, or if a private suit is filed, the possibility of treble damages.
The risk of a merger not being approved depends to some extent on whether the deal is hostile or friendly. In a friendly deal, the companies will work together on the premerger notification and on getting the government to approve the deal. In a hostile deal, on the other hand, one company will be trying to show potential problems and otherwise aiding to the government's investigation. Another important difference is in the applicable law: the government relies on its Merger Guidelines, but private plaintiffs are not bound by that document.
As a risk mitigation measure, both parties should consider retaining the right to get out of the deal if the government challenges the merger. A so-called "kick out" clause may be drafted broadly to include any threatened litigation, but a Clayton Act section 7 action is by far the biggest risk.
Form of Counsel's Opinion
The manner in which you report to management the results of your analysis is a matter for your discretion. Corporate counsel do this in a variety of ways, and there appears to be no standard practice.
Some counsel limit their report to an oral discussion. When the report is made to the board of directors, the minutes reflect simply that counsel briefed the board on the legal and antitrust aspects of the deal. Another possibility is to require a formal opinion letter from outside counsel. The opinion can be brief, stating simply that outside counsel has examined the merger and believes that it does not violate the antitrust laws.
Alternatively, such a letter can come from inside counsel. Other counsel incorporate a fairly extensive memo analyzing all of the aspects of the deal into an opinion letter.
At the other end of the spectrum, some counsel do not make any formal presentations or write any formal memos. This is done in anticipation of a future acquisition about which counsel cannot give a clean opinion, to prevent having clean opinions in all the company's acquisitions up until the troublesome one. The worry is that the anomaly will increase the exposure of the board of directors if the government forces a divestiture, the company loses money, and a shareholder sues.