Important Guidance from a US Antitrust Agency
When the parties of a proposed M&A transaction share information on competitively sensitive information such as current and future price information, strategic plans, costs, customer-specific data etc. this can violate competition laws. Antitrust authorities worldwide are increasingly looking into procedural issues such as pre-closing information sharing during the due diligence or integration planning. Last year for example, the French competition authority issued a significant fine of EUR 80 million inter alia in the context of information sharing.
There is only very limited guidance from European antitrust authorities on this topic. Practitioners, therefore, look at the standards created by the US antitrust agencies. Against this background it is good news that one of the two big US agencies - the Federal Trade Commission (“FTC”) - recently published an article on its blog under the headline “Avoiding antitrust pitfalls during pre-merger negotiations and due diligence” (see here).
The article refers to some cases in which the FTC intervened and also gives guidance as to how to manage the risk (“Set up a Process and Police it”), as well as suggesting specific safeguards for both the disclosing party and the receiving party to prevent anticompetitive information exchanges.
The FTC highlights the need throughout the pre-merger period to consider the sensitivity of the information offered to or requested by a counter-party and how the exchange of the information could affect competition. However, the FTC also expressly states that companies considering acquisitions, mergers, or joint ventures typically have a legitimate need to access detailed information about the other party’s business in order to negotiate the deal and implement the merger.
The FTC notes that because there is a risk that information sharing during the pre-merger period – in particular in a transaction that involves actual or potential competitors – could violate the antitrust laws, it is important to have a plan in place to monitor and control the flow of information. Companies should consider the risks and establish appropriate protocols. Once the process for the handling of sensitive information is set up, both parties should police the rules to ensure they are followed.
Part of this process means that competitively sensitive information should only be provided to third party consultants or to a defined “Clean Team” with selected members from the acquiring company. Such Clean Teams should not include any personnel responsible for competitive planning, pricing, or strategy.
The FTC’s article also contains specific suggestions for the disclosing and the receiving parties for safeguarding competitively sensitive information during a transaction.
Suggestions for the disclosing party include inter alia:
- As a matter of principle, share the least amount of information needed for effective due diligence.
- Information shared should be narrowly tailored and reasonably related to a specific due diligence or premerger integration planning issue.
- Early in the sales process (when typically numerous bidders receive information) less information is needed than in later stages.
- Clean Team agreements limit access to competitively sensitive information in the data room to the selected individuals.
- Customer identities should be masked and customer-specific sensitive information should be sufficiently aggregated. Where appropriate, this includes redaction of documents and information.
- Measures should be taken to ensure document destruction at the end of the due diligence process, including penalties or consequences for a breach of destruction instructions.
Suggestions for the receiving party include inter alia:
- Individuals with access to sensitive information, i.e. Clean Team members, should be trained to understand the antitrust implications and non-disclosure agreements.
- Clean Teams and / or third-party consultants should be used for competitively sensitive information that must be exchanged.
- Outside counsel should vet clean team members for the role, including any individuals added to a clean team at a later date.
- To the extent the Clean Team have to prepare a report for other buyer personnel (e.g. to the individuals making the acquisition decision), such a report should contain blinded, aggregated versions of the competitively sensitive information and be subject to review by counsel before dissemination.
It should be noted that every transaction is different. In particular, every market is different and may require a new definition of what information is “competitively sensitive”, as well as tailor-made protocols. The FTC’s article is a most welcome source of the basic principles to be observed.