The Federal Trade Commission ("FTC") Bureau of Competition urged companies to protect competitively sensitive information through established protocols during pre-merger negotiation and the due diligence process.
The FTC warned that, in transactions involving a competitor or a potential competitor, companies must be wary of antitrust risks that can arise when parties share information as part of their due diligence and pre-consummation integration planning. The exchange of competitively sensitive information may limit or eliminate competition between the parties to a merger, acquisition or joint venture.
The FTC stated that the antitrust agencies have taken action against companies for unreasonable information sharing prior to or during the Hart-Scott-Rodino Act ("HSR") merger review period (and, separately, as a course of conduct between competing parties). Parties to a transaction may inadvertently violate the waiting period requirements of the HSR Act by engaging in conduct that transfers beneficial ownership of the target company before HSR clearance is obtained.
The FTC advised companies to closely monitor the information shared by parties contemplating a merger, and encouraged antitrust counsel to (i) employ third-party consultants to protect the exchange of competitively sensitive information, (ii) ensure that companies agree to and follow established protocols to prevent problematic information sharing, and (iii) immediately stop information sharing if the transaction's consummation may be delayed.
Specifically, the FTC recommended that companies and their counsel avoid antitrust risk by:
- sharing only that information which is required to comply with due diligence during merger proceedings;
- using an independent agent to monitor competitively sensitive information;
- reviewing documents available to bidders for confidential information.
- prohibiting individuals from downloading or e-mailing confidential information in the data room; and
- ensuring that document destruction instructions are followed at the end of the due diligence process.
The FTC suggested that companies and company counsel that receive information as part of pre-merger diligence and integration planning:
- educate all employees with access to confidential information on the terms of pre-merger agreements;
- use clean teams and third-party consultants when exchanging competitively sensitive information;
- allow outside counsel to thoroughly review the identities and job functions of clean team members;
- make sure that employees do not save confidential information meant for due diligence; and
- review reports for sensitive information before sending them to other business personnel.
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.
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