Antitrust Alert: First Successful Private Antitrust Merger Challenge Leads to Divestiture Order

A federal district court has ordered a defendant in private antitrust litigation to divest a manufacturing plant following a competitor's merger challenge. Although the decision is certain to be appealed, it may embolden customers or competitors wishing to challenge a transaction and create new risks for merging parties.

In 2012, Jeld-Wen acquired Craftmaster International, a competing manufacturer of household door components. In 2016, just before the four-year statute of limitations had run, Steves & Sons ("S&S") sued Jeld-Wen, its competitor and supplier, and alleged that the Craftmaster acquisition violated the Clayton Act. S&S sought treble damages and equitable relief.

Although the Justice Department had twice investigated and twice declined to challenge the acquisition, the court permitted S&S to proceed to trial and prohibited both parties from telling the jury about DOJ's investigations.

Following a verdict in its favor, S&S asked the court to require Jeld-Wen to divest one of its factories. Though DOJ filed a statement of interest expressing reservations about the divestiture process, the court ordered Jeld-Wen to sell the plant under a special master's supervision and pay $185 million in antitrust and contract damages.

It is not uncommon for customers and shareholders to challenge transactions as a means to extract settlements. But S&S marks the first time a private plaintiff has successfully tried a merger challenge after the government has conducted a Hart-Scott-Rodino Act investigation and declined to challenge a transaction.

While the government's decision not to contest a merger does not foreclose subsequent investigations or litigation, the court's decision in S&S to exclude evidence of DOJ's investigations and order a divestiture notwithstanding the agency's concerns may undermine any comfort that premerger clearance provides to merging parties.