Dealmakers know that a critical part of the merger process is obtaining antitrust clearance from government enforcers. But, even if the antitrust enforcers review and clear a transaction, a third-party can file a private suit alleging the transaction violated the antitrust laws. Recently, an aggrieved customer did just that—it won a substantial jury verdict and is also seeking a court order to unwind the transaction nearly six years after the transaction was announced.
- On February 15, 2018, almost six years after Jeld-Wen announced an acquisition of Craftmaster Manufacturing, Inc. (CMI) in 2012, a federal jury awarded a customer, Steves and Sons (Steves), $58.6 million for antitrust damages and lost profits stemming from the acquisition. Additionally, Steves is seeking to unwind the 2012 Jeld-Wen/CMI transaction through a court order that would force Jeld-Wen to divest of assets sufficient to re-create a competitor as significant as CMI at the time of the acquisition in the doorskin market—that is, restoring competition to pre-transaction levels.
- The Department of Justice (DOJ) reviewed, but did not challenge, Jeld-Wen’s acquisition of CMI, which reduced the number of doorskin suppliers from three to two. Interestingly, the 2012 transaction involved CMI, a company that entered the doorskin market in 2002, when it acquired divested assets because of DOJ concerns about a doorskin merger at that time.
- One of the factors that led to DOJ clearance is that customers did not complain about the transaction. Prior to Jeld-Wen and CMI completing the transaction in 2012, Steves, entered into a long term supply agreement with Jeld-Wen.
- After the transaction, Steves became dissatisfied with Jeld-Wen’s treatment and alleged that it received less favorable price terms, reduced product quality and output, and worse service.
- As a result, in 2016—four years after closing—the customer filed a complaint alleging that Jeld-Wen’s acquisition of CMI violated the antitrust laws.
WHAT THIS MEANS
- Business leaders must understand that even if antitrust enforcers clear a merger, not only can they revisit that decision, but third parties can also sue for damages or to unwind the transaction.
- Steves did not complain about the merger until years after the transaction and yet still won a substantial verdict. This case is a reminder that business leaders must independently weigh the merits of their customer’s position (regardless of the antitrust enforcers’ posture regarding the same case) and manage the business appropriately after close to avoid a customer lawsuit.
- Secondarily, business leaders must realize that customer lawsuits can also create significant operational issues that distract from the company’s business objectives. For example, not only may company personnel be distracted from running the business while assisting with the defense of the litigation, the company may also face significant legal costs, as well as invasive discovery. Further, a complaint filed by one private litigant could spur follow-on litigation from other aggrieved customers or third parties. Buyers should be cognizant of those risks and should consider whether mollifying any aggrieved customers or suppliers would avoid litigation.