Antitrust

S H E A R M A N & S T E R L I N G L L P | 3 3 Similar rules apply in other jurisdictions. In July 2018, the ACCC instituted its first gun-jumping case, against Cryosite Limited (Cryosite), in connection with Cryosite's sale of its assets to Cell Care Australia (Cell Care). The two companies were competitors in cord blood and tissue banking services. Cryosite had agreed to refer all new customers to Cell Care even before the acquisition was completed, while Cell Care agreed that it would not market to Cryosite's existing customers. According to the ACCC, these restraints amounted to cartel conduct because they restricted or limited the supply of cord blood and tissue banking services, and allocated potential customers between Cell Care and Cryosite. On February 13, 2019, the Australian Federal Court fined Cryosite Limited A$1.05 million for engaging in cartel conduct in its asset sale agreement with Cell Care Australia Pty Ltd. Although, in January 2018, the parties announced that they would not go ahead with the proposed acquisition. Under Australian law, penalties can be both civil and criminal (up to 10 years imprisonment). Corporate penalties can be the greater of A$10 million (circa US$7 million), three times the total benefit from the violation, or 10% of the Australian annual turnover. These enforcement actions serve as a reminder of gun-jumping risks regardless of whether a deal is subject to pre-merger notification requirements. Indeed, gun- jumping cases can be brought, as in the case against Cryosite, against merging parties that do not even consummate their deal. AVOIDING CLOSING RISKS The key lesson from the above examples is that parties should not presume a merger will not be subjected to antitrust scrutiny or challenged merely because it was not reportable or because it was reported but not challenged following the original pre-closing agency review. On the contrary, even in these circumstances, parties should manage potential investigation and closing risks, in the event that some aspect of the deal faces agency scrutiny. Merging parties may want to consider advising the antitrust authorities of potential overlaps created by their deal and be prepared to address anticipated customer complaints. Anticipating those concerns by presenting a positive competitive analysis — including taking customer views of the deal into account — may avoid post-merger challenges. It is also crucial for the merging parties to remain independent competitors until closing. Procedures should be considered to ensure the merging parties do not share competitively sensitive information (e.g., current and future prices, customers, or strategies) and that they do not begin to coordinate their market actions before closing. Understanding the potential for antitrust exposure before proceeding with a transaction is essential. Without such an appreciation, parties may be confronted with lengthy, unanticipated, and costly investigations and/or litigation, and could even be required to unwind their deal. I T I S C R U C I A L F O R T H E M E R G I N G PA R T I E S T O R E M A I N I N D E P E N D E N T C O M P E T I T O R S U N T I L C L O S I N G

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