When the makers of Chicken of the Sea and Bumble Bee seafood products publicly announced their intended $1.51 billion merger in December 2014, no one could have foreseen the complications that followed. The transaction would have created one of the world’s largest seafood companies and, at the time, leaders of the companies touted the size of the deal and how it would help to improve operating efficiencies in sourcing and production, and in making further expansions in the North American markets.
Given the size of the transaction, the parties were required under the Hart-Scott-Rodino Act to notify the Department of Justice (DOJ) of the merger and await regulatory approval before consummating the tie-up. As part of the DOJ’s review, and as is required in such merger reviews, the parties provided ordinary course of business documents to the agency. As the DOJ’s civil attorneys reviewed the documents, however, they discovered materials that appeared to raise criminal antitrust concerns. Those attorneys referred their concerns to the Criminal Section of the DOJ’s Antitrust Division for further investigation. After this, matters quickly got worse for the two manufacturers:
- On July 23, 2015, the acquiring company suspended a public offering meant to finance the transaction and disclosed that the DOJ’s Antitrust Division had convened a grand jury investigation and issued subpoenas to the three major US manufacturers in the packaged seafood industry.
- In August 2015, putative class action complaints by purchasers of seafood products were filed against the two merging manufacturers as well as a third competitor. The complaints alleged that, based largely on publicly available information, all defendants had conspired to fix prices of canned tuna in the United States from at least July 24, 2011 through the date of the complaint. This litigation is ongoing.
- In December 2015, the two manufacturers called off their proposed merger, citing antitrust concerns by the DOJ that were unlikely to be resolved within the time frame stipulated in the transaction.
- On December 21, 2016, the DOJ announced that its criminal investigation had resulted in guilty pleas from two senior executives at seafood companies for conspiring to fix the price of packaged seafood such as canned tuna. The DOJ’s criminal investigation remains ongoing.
Lessons Learned
In light of the myriad of legal problems following what appeared to be a regular submission of premerger documents to the DOJ, companies in the food industry might think: How can we protect against something like that from happening to us? Although there is no solution to completely eliminate antitrust risk, there are three primary takeaways from the experience of these manufacturers that can help to mitigate such risks.
First, strong antitrust compliance, training, and reporting programs provide the best line of defense to prevent and detect antitrust violations before they occur or develop. And, if problems were to arise, having robust antitrust programs in place is the expectation of enforcers, not the exception. Although a compliance program will not absolve a company in the event of serious violations, it is an important part of demonstrating to enforcers a company’s commitment to observing competition laws. Antitrust counsel can assist in the creation of written policies, training materials, and the design of reporting and monitoring systems.
Second, parties to any merger need to identify an effective strategy for the agency’s review and anticipate key issues and questions. Experienced antitrust counsel should be involved before the transaction is submitted to regulatory agencies so that a narrative to support the transaction can be developed in the event of a challenge. In addition—and where it seems that the merging parties above ran into problems—documents must be reviewed carefully before they are produced. If “problematic” documents are discovered, a plan should be formulated to address and understand them before they are produced. Timing in a merger can be tight, but that should not be an excuse to produce documents to regulators before such documents have been fully vetted. Even if a transaction is not reportable to regulatory authorities, the involvement of antitrust counsel in the review and analysis of diligence documents can help spot any concerns.
Finally, as a matter of risk management, giving careful consideration to market factors is essential, including suspicion of antitrust violations by others in a market with relatively few participants, as such suspicion could lead to greater scrutiny and antitrust risk and litigation for all market participants. As noted above, a third competitor in the three-player canned tuna market was named as a co-conspirator in antitrust litigation brought by private purchasers of canned seafood products and has received a subpoena from a grand jury. And, as seen in other segments such as auto parts and electronic components, the discovery of a conspiracy on one product could lead to the discovery of other conspiracies on other products. If there are allegations of anticompetitive conduct in the industry, companies should consult with experienced antitrust counsel to assess whether those concerns could implicate their businesses and whether any internal investigation is warranted.