On March 20, 2018, the U.S. Federal Trade Commission (“FTC”) issued updated guidance concerning compliance with the antitrust laws while conducting due diligence and planning for integration prior to the closing of an M&A transaction.
The FTC acknowledges that “[c]ompanies 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.” However, the FTC emphasizes that parties may be subject to liability under the Sherman, Clayton and Hart Scott Rodino Acts for improper sharing of information or coordination with a competitor before or during negotiations – “a concern that remains until the merger closes.”
The FTC guidance includes a reminder that “[r]ight up until consummation, the merger parties are still independent businesses and they must continue to operate independently including safeguarding their competitively sensitive information – to insure competitive vigor in the short term and also in the event that the merger does not happen.” The FTC guidance highlights a number of cases where the government has pursued merging parties for unlawful “gun jumping” due to improper sharing of information, premature coordination and similar conduct.
In its guidance, the FTC identifies three main steps for companies to manage risk, as well as a number of specific recommendations concerning due diligence. Most of the FTC’s recommendations appear to be consistent with established risk-management practices.
In summary, the three main steps include:
The FTC also identifies a number of specific recommendations for the disclosing party and receiving party during due diligence, which may be summarized as follows:
For the disclosing party:
For the receiving party:
The FTC’s main message is that companies should (1) consider the gun jumping risks and establish appropriate protocols to avoid the risks, (2) police those protocols to insure they are followed, and (3) when the process is complete, individuals who received confidential information must comply with all document destruction and confidentiality requirements.
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