Antitrust Alert: U.S. DOJ Files Antitrust Challenge to Consummated Transaction

In another reminder that U.S. antitrust enforcers can challenge mergers even after closing, and even for deals not subject to premerger notification under the HSR Act, on December 18, 2008, the Department of Justice Antitrust Division filed a civil antitrust lawsuit challenging the July 2008 acquisition by Microsemi Corporation of Semicoa Inc.

The lawsuit alleges that the acquisition lessened competition in the development, manufacture and sale of certain specialized electronic components used in military and space programs essential to U.S. national security. The DOJ alleges this violated Section 7 of the Clayton Act, which deals with mergers, and Section 2 of the Sherman Act, which deals with monopolization.

According to DOJ’s complaint, the acquisition reduced the number of suppliers of certain signal transistors from two to one – a "merger to monopoly" – and reduced the number of suppliers of a certain diode from three to two. The customers for these electronic devices include the U.S. military and national security agencies, which use them in critical applications ranging from satellites to submarines. The complaint alleges that the strict specifications required for such government applications, which are certified by the Department of Defense, distinguish the relevant products from commercial grade components, which lack the same performance characteristics.

The complaint specifically alleges that, without Semicoa as a competitor in signal transistors, Microsemi has been able to selectively raise prices to customers it is aware cannot substitute to lower grade components. For diodes, the complaint alleges that Semicoa was close to entering the market and would have been a significant competitor. The DOJ asks the court to require Microsemi to undo the transaction by selling off the Semicoa assets it acquired in July 2008.

DOJ's Microsemi/Semicoa case is the latest in a string of recent antitrust challenges to already-consummated transactions by the U.S. federal antitrust agencies. For example:

This week, on December 16, 2008, the Federal Trade Commission filed a federal court challenge to Ovation Pharmaceuticals' January 2006 acquisition of the drug NeoProfen. The FTC alleges that the acquisition eliminated Ovation's only competition for the treatment of a serious congenital heart defect affecting premature babies.

In September 2008, the FTC brought an administrative complaint challenging Polypore International's consummated acquisition of rival battery separator manufacturer Microporous Products.

In August 2008, the DOJ filed a complaint in connection with the April 2008 acquisition by Raycom Media Inc. of three broadcast television stations. Before closing the transaction, Raycom had agreed with the DOJ that, within 90 days of closing, it would sell one of two television stations in Richmond, Virginia. Raycom having failed to do so, the DOJ filed suit and, on the same day, announced a proposed consent decree that would require Raycom to divest one of the stations.

In June 2007, the FTC challenged Whole Foods Market's acquisition of its chief rival, Wild Oats Markets. After the federal district court rejected the FTC's motion for a preliminary injunction, Whole Foods acquired Wild Oats in August 2007. Nearly a year later, in June 2008, the D.C. Circuit reversed the lower court and remanded the case for a balancing of the equities and a determination of whether injunctive relief was plausible and warranted. This high profile contest continues today. Earlier this month, Whole Foods filed a complaint against the FTC for declaratory and injunctive relief that would order the FTC to halt its administrative trial of the merger, currently scheduled for February 2009, and move all future proceedings into federal court.

These cases demonstrate that, where they believe there has been harm to competition, the U.S. antitrust agencies will not hesitate to challenge consummated transactions – and confront all the difficulties of "unscrambling the eggs" after parties have begun integrating their operations.

The DOJ's Microsemi/Semicoa complaint and press release are attached.

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