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Legal Update

US Justice Department and Three States Sue to Unwind a Transaction

28 January 2010
Mayer Brown Legal Update

A recent lawsuit by the US Department of Justice’s Antitrust Division and three states is the latest example of the antitrust authorities’ willingness to attack consummated transactions — even ones that are too small to be reported pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act).

On January 22, 2010, the Antitrust Division filed a complaint in federal court challenging Dean Foods Company’s acquisition of two milk processing plants from Foremost Farms USA. Joining the complaint were the attorneys general of Wisconsin, Illinois and Michigan. United States v. Dean Foods Company, No. 10-C-0059 (E.D. Wis. Jan. 22, 2010). The complaint alleged that Dean Foods’ acquisition of Foremost’s milk processing plants in Waukesah and DePere, Wisconsin would substantially lessen competition in violation of Section 7 of the Clayton Act, 15 U.S.C. § 18.
The acquisition was completed on April 1, 2009. Because the purchase price for the plants was $35 million, well below the $65.2 million threshold for reporting acquisitions under the HSR Act, no prior notification or regulatory antitrust review was required. The complaint sought, among other things, an order compelling Dean Foods “to divest all of the assets and interests it acquired as part of the Acquisition.”

The complaint alleged that the acquisition would lead to reduced competition in the markets for the sale of school milk to individual school districts and processed milk ready for consumption in Wisconsin, the Upper Peninsula of Michigan and northeastern Illinois. Of particular importance to the Antitrust Division was the fact that Foremost had been pricing aggressively in an attempt to fill up underutilized processing capacity. The complaint cited several Dean Foods internal documents that described Foremost as an “irrational” and “dangerous” competitor because of its willingness to increase volume through lower prices.

The complaint also alleged that the Foremost acquisition was actually motivated by Dean Foods’ desire to eliminate aggressive competitors from the market. This would leave only “good competitors,” as Dean Foods dubbed those that avoided starting price wars by not aggressively bidding on other processors’ customers. As a consequence, fluid milk purchasers and school districts would be denied the benefit of competition from Foremost, and coordination between the remaining milk processors would become easier and more durable.

This case raises several important issues:

  • The antitrust authorities are not afraid to challenge a transaction even after it has closed. This case is the latest in a line of post-consummation challenges by the federal antitrust regulators.
  • The fact that notification under the HSR Act is not required does not immunize a transaction from antitrust review. The HSR Act is simply one means through which the federal regulators can review a transaction. In fact, even if the agencies review a transaction under the HSR Act and take no action during the HSR waiting period, nothing prevents the agencies from challenging the transaction at a later time should evidence arise indicating that the transaction led to anticompetitive effects.
  • Be careful of what is written in documents concerning competition in the marketplace, especially documents that discuss or propose potential acquisitions. Documents analyzing acquisitions should not claim benefits associated with eliminating competition, but rather should focus on the procompetitive aspects of the transaction (e.g., synergies and savings, better customer service, ability to expand product mix).
  • The agricultural industry has been identified by leaders of the Antitrust Division as an area that requires increased scrutiny. Members of Congress have also expressed a desire to see more aggressive enforcement in the agricultural area. For example, at a hearing before the Senate Judiciary Committee last fall that was supposed to discuss antitrust issues relating to health care reform and the insurance industry, several senators—including both senators from Wisconsin—questioned Assistant Attorney General Christine Varney about the Antitrust Division’s agricultural enforcement agenda.

For more information about the matters raised in this Client Alert, please contact at +1 202 263 3275.

Learn more about Mayer Brown’s Antitrust & Competition practice.

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