Merger and acquisition transactions involving competitors present special challenges. While the exchange of commercially sensitive information and other forms of collaboration are commonplace in the context of noncompetitor M&A, there are certain types of information that should not be exchanged between competitors until the transaction is complete.
Competing companies that are considering a merger must continue to conduct business as competitors until the merger/acquisition is complete. So, while information sharing between competitors is not illegal per se, there are specific limitations on information exchange that must be observed in both the pre-signing diligence phase and the post-signing integration planning stage.
What kinds of information present antitrust issues?
Customer information. Prices (current and proposed) and sales to individual customers almost always present a problem, and exchange of this kind of disaggregated information can rarely be justified, even on a need-to-know basis.
Cost information. Detailed cost inputs for particular products also present antitrust concerns. Disclosure should be limited to aggregated cost information, absent a compelling, need-to-know rationale for product-level disclosure.
Confidential product designs. Proprietary product designs and formulae should not ordinarily be shared between competitors, at least in the preliminary stages of negotiation. Should disclosure be necessary, the information should be vetted though third-party consultants or nonoperational members of the acquirer’s M&A team.
Plans and strategies. The strategic plans of competitors, such as future product offerings and expansion plans, should also be guarded. If a product is under development, it is preferable that disclosure of the details of this product be limited to nonoperational members of the acquirer’s M&A team.
Salaries and other terms of employment. The exchange of salaries and other employment terms between competitors presents antitrust concerns, and employment information should ordinarily not be shared on a non-aggregated basis.
Does timing of disclosure make a difference?
Timing can play a role in disclosure of competitively sensitive information.
Proximity to signing. At a certain point before the execution of a merger agreement, operational personnel may need to access information that is competitively sensitive in order to decide whether the transaction should proceed. If so, access should be given as close as is practical to signing, and thoughtful attention should be paid to the manner of disclosure.
Proximity of the closing date. The need for information exchange also grows as the closing date approaches and the acquirer seeks a seamless launch of the combined enterprise. In the run-up to closing, the parties may be justified in adopting a pragmatic approach to sharing competitively sensitive data on a need-to-know basis.
What role do procedures play?
The Antitrust Division of the Department of Justice and the Federal Trade Commission have emphasized the importance of procedures designed to prevent the exchange of sensitive antitrust information between competitors in the merger process. These procedures may take the form of:
Internal procedures intended to inform and guide the
parties’ respective personnel on exchange of
between the parties governing information exchange, designating
categories of competitively sensitive information that should not
be exchanged or that should be provided only to specified
- Clean team agreements, which restrict delivery of competitively sensitive information to consultants and other persons without operational involvement in the business of the acquirer.
Procedures will not, however, protect against agency enforcement unless they are actually followed.
The premerger process among competitors presents special challenges to ensure compliance with relevant antitrust laws. The parties must continue to conduct themselves as independent competitors until the transaction is complete. However, with appropriate safeguards and considered procedures, competitors that are parties to a merger transaction should be able to achieve their reasonable informational objectives while adhering to applicable law and avoiding possible enforcement action by the antitrust agencies.
This is a condensed version of an article that was published in the Nov. issue of Kramer Levin’s M&A Monitor. The original article is available here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.