Antitrust Alert: DOJ Imposes Civil Penalties for Premerger "Gun Jumping"
On January 21, 2010, the Department of Justice Antitrust Division ("DOJ") announced a consent agreement with Smithfield Foods and Premium Standard Farms requiring the companies to pay $900,000 for violating Hart-Scott-Rodino ("HSR") Act premerger waiting period requirements. The DOJ alleged that after the parties announced this proposed merger in September 2006, Smithfield engaged in "gun jumping" by exercising operational control over a significant aspect of Premium Standard's business prior to the expiration of the HSR waiting period.
According to the DOJ complaint:
"After executing the Merger Agreement, Premium Standard stopped exercising independent business judgment in its hog purchases. Instead, beginning on or about September 20, 2006, Premium Standard submitted for Smithfield's consent each of the three contracts for hog purchases from an independent hog producer that arose during the Section 7A waiting period, including one contract accounting for less than one percent of Premium Standard's annual slaughter capacity. Together, the three multi-year contracts obligated Premium Standard to purchase, on an annual basis, between 400,000 to 475,000 hogs at a total cost ranging from approximately $57 million to $67 million. These hog procurement contracts were necessary to Premium Standard's ongoing business and entered into in the ordinary course. Each time Premium Standard sought consent, it provided Smithfield with the proposed contract terms, including the price to be paid, quantity to be purchased, and length of the contract."
Commenting on the settlement, Assistant Attorney General Christine Varney stated: "Merging companies must remain independent in their ordinary business operations, including purchasing decisions, until the end of the premerger waiting period."
This settlement is a reminder of the consequences of engaging in unlawful premerger coordination in jurisdictions with merger notification requirements. This is increasing an issue not just in the United States, but also in other countries. Germany, for example, has brought a number of recent cases attacking gun-jumping activities.
For more information, please contact your principal Jones Day representative or either of the lawyers listed below.
Kathryn M. Fenton
J. Bruce McDonald
Bevin M.B. Newman
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