M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Monday, May 10, 2010

Unscrambling Eggs

It doesn't happen often. But, that doesn't mean it doesn't happen.  The FTC is now suing Dun & Bradstreet (H/T Main Justice) to unwind a transaction D&B closed last year.  According to the complaint, D&B acquired the Quality Education Data (QED), a division of Scholastic, Inc., in an asset purchase and integrated QED with its own Market Data Retrieval unit in February 2009.  The FTC sums up the transaction this way:

 Market Data Retrieval (“MDR”), a company of D&B, is the leading provider of data for marketing to kindergarten through twelfth-grade teachers, administrators, schools and school districts (“K-12 data”) in the United States. K-12 data includes but is not limited to contact, demographic and other information relating to K-12 educators. K-12 data is sold or leased to customers that use the data to market products and services to educators. In early 2009, D&B acquired the assets of QED, MDR’s primary competitor. As a result of the acquisition, MDR now holds over 90% of the relevant market, with only a small fringe consisting of two firms accounting for the remainder. This transaction is in practical effect a merger-to-monopoly and, if allowed to remain, would likely allow MDR unilaterally to exercise market power in various ways, including increasing prices and reducing product quality and services to K-12 data customers.

"Merge-to-monopoly"?  Acquiring your “primary competitor”?  Neither of those sound good.  In fact, they’re not.  So, why didn’t the HSR process catch this transaction?  Simply put, the deal was too small to trigger a required HSR filing.  The transaction was valued at $29 million, well below the $69 million trigger at the time.  It was probably unwise not to file anyway.  Certainly, in antitrust sensitive transactions the FTC will accept a voluntary filing.  Here it looks like the parties decided against such a filing.  They either neglected to consult antitrust counsel on the transaction, or they did, and then took a shot (in Feb 2009) that the somnolent attitude towards enforcement that was a hallmark of the previous administration would continue going forward.  And anyway … unscrambling the eggs post closing is so expensive and time-consuming, the FTC wouldn’t waste their time on such a small market.  Would they?

They would.  Here's a little advice from the FTC's Richard Feinstein, Director of the Bureau of Competition

Despite its relatively low dollar value, this transaction dramatically decreased competition in the marketplace.  When Dun & Bradstreet acquired QED, it bought its closest competitor and created a monopoly. That’s going to get the FTC’s attention every time.

While a voluntary HSR filing would not have created an absolute safe harbor from a subsequent antitrust suit, it might have cleared the ground and allowed the parties to address the government's antitrust concerns earlier on in the process - before there had been any integration work, before there had been any joint marketing, etc.  True, making such a filing might have added additional costs and added time to an otherwise small transaction.    These are common cost/benefit questions that parties have to consider with antitrust counsel in these kinds of transactions.  They can be close calls.  In this case, it looks like the parties may have made the wrong call.  By avoiding a voluntary pre-closing process, the parties have apparently triggered a worse fate - the potential that the government will come in ex post and undo a deal that closed more than a year ago.   


Update:  A reader helpfully points out the following:  

Technically there is no such thing as a voluntary HSR filing.  If you fall below the jurisdictional thresholds they’ll reject your filing. Of course, regulators will be glad to discuss whatever parties bring to their attention about pending transaction.  So, there is a way that you can get the antitrust regulators’ temperature before driving the car into the deep blue.  But, as a business matter, a target might be disinclined to wait for months pre-closing as the regulators sort it out.


Antitrust, Cases | Permalink

TrackBack URL for this entry:


Listed below are links to weblogs that reference Unscrambling Eggs:


I can certainly support the statement: "reducing product quality and services to K-12 data customers", from first hand experience. I entered into a contract with MDR and, after doing 3 e-mail campaigns, I did a random sampling of my 'hot leads' data and discovered a considerable amount of inaccurate data, not to mention dismal results from the campaigns. I requested a release from the contract and ended up dealing with a senior manager who denied or dismissed my concerns. Through perseverence, I finally got my release, but had to retract my request for the overpayment of over $1200 for services not received in order to do so. I copied my correspondence to 2 other senior managers, including the President, and neither bothered to follow-up with me. Not once did I hear a "We're sorry". In my opinion, this company has become too big and customer service is no longer a priority. I'm glad to see the FTC taking a stand on this issue.

Posted by: Brenda L. | May 17, 2010 2:58:34 PM

You write:

>They either neglected to consult antitrust counsel on the transaction, or they did, and then took a shot (in Feb 2009) that the somnolent attitude towards enforcement that was a hallmark of the previous administration would continue going forward.

Excellent observation. It is the HALLMARK of Republican administrations that they -- with a wink and a nod -- turn a blind eye to as many infractions of law as possible, IF they are committed by BUSINESSES or are commercial crimes by white-collar executives (not person-crimes by individual blue-collar crooks, like drug dealers, drunks or ruffians.)

Republicans openly believe, and preach, and act as though crimes that steal MILLIONS, or BILLIONS, are petty thefts (commonly by stout Republican businessmen, and Republican campaign donors) that must be ignored -- but desperate burglary, prostitution and drug addiction are signs of a threat to the Republic that must be met with swift and unending vengeance.

And thus the law ensures that the rich get richer, and the poor get poorer, while we continue to have the highest percentage of citizens in prison of any major nation on earth.

God Bless America. The "Christian" nation.

Posted by: RH | Feb 25, 2013 7:37:06 AM

Post a comment