Mergers Acquisitions Counseling - An Example

Mergers & Acquisitions Counseling An Example

I represented a company who had a competitor interested in acquiring it. The company wanted to know whether it was likely that the acquisition would be challenged by the Justice Department. There were only five companies involved in that industry. Unfortunately, the clients company was in an industry in which I had no prior experience, so I did not know how that industry worked. As a result, I asked the company to prepare a great deal of information to inform me about its inner workings and the industry in general. It sent me its 10Ks and 10Qs, annual reports , descriptions of the products it sold, copies of the forms it used to sell the products, and internal documents describing or discussing its competitors . I also asked for information from its trade association, which would explain what the industry looked like, who the other players were, the size of the other players, and their market share and revenues . Once I had that information, I created a list of the types of documents that the government would likely ask for if it were to serve the company with requests for information. I then showed the company how to do an HHI analysis, which is an economic way to analyze a merger by considering what the competitors market share would likely be prior to and after the acquisition. I then obtained copies of the Department of Justice guidelines for analyzing mergers and HHI numbers . Armed with information about the companys business, the types of products it sold, the companies against whom it competes, and the industry information, I was prepared to sit down with the company and ask whatever questions still needed to be answered . I discussed with the company the standards for evaluating a merger. For each standard, we determined what the companys response would be if the question were asked by the Justice Department. At the end of the process, we were able to conclude that while one particular type of acquisition would present antitrust problems, another type of acquisition would likely not.

The biggest challenge when analyzing a merger or acquisition is determining how the market is going to be defined. Without a precise determination of the relevant product and geographic markets, you cannot shape arguments to the government to justify your transaction. The assistance of an economist can be invaluable, if not absolutely necessary, in most cases to support your conclusions. After all, the government will be using its economists to evaluate the transaction; why go into that battle without a soldier of your own.

Another challenge in merger analysis is that in very complicated industries, where the companies are not selling traditional goods and services, you will need to know the industry backwards and forwards to determine whether or not there are other defenses that might be available. For instance, you should know whether companies in that industry are failing or going out of business at a rapid rate to determine whether the failing company defense, or the failing division and weakened firm defense, may be applicable . You should also know whether a new technology is replacing the industry's present technology since this might suggest a broader product market. You should understand whether there are barriers to entry into that market, such that if the acquisition were to occur, other companies would face a virtually insurmountable hurdle to enter into the market. If that is the case, it will be more likely that the merger will be challenged. If, on the other hand, you can establish that entry into the market is relatively easy and a new entrant could, with the right amount of money and expertise, enter within a short period of time, then the merger will more likely receive approval. Consequently, it is critical when representing a client in a merger or acquisition situation to know the client's industry. If you do not know the client's industry well, then you will not be able to formulate defenses for what might otherwise look to be an indefensible acquisition.