Modest Antitrust Settlement for HSR Avoidance Still Raises Concerns for Smaller Deals

The Federal Trade Commission (“FTC”) and the U.S. Department of Justice (“DOJ” and collectively, the “agencies”) recently entered a settlement with Canon, Inc. and Toshiba Corp. that highlights the continued importance of antitrust merger reporting for small and mid-sized companies, despite the relatively low settlement amount. On June 10, 2019, Canon, Toshiba, and the agencies agreed to a settlement for Canon and Toshiba’s alleged violations of the Hart-Scott-Rodino Antitrust Improvements Act (the “HSR Act”). Facing statutory penalties in excess of $6 million each, Canon and Toshiba agreed to pay $2.5 million each on a deal with an overall value of roughly $6 billion. The federal agency action follows similar enforcement efforts by both the European Commission and the Japanese equivalent of the FTC.

According to the Government’s allegations, Toshiba and Canon skirted the HSR Act’s review requirements in late 2015 and early 2016.Toshiba began shopping its medical subsidiary in December 2015 to raise capital to overcome overstated profits. Facing pressure to complete a deal before the end of Toshiba’s fiscal year, Toshiba sold Canon non-voting shares for $6.1 billion, which Canon later converted to voting shares. According to the complaint, “the purpose of the unusual transaction structure selected by Canon and Toshiba was to avoid the HSR Act’s waiting period” and complete the sale before the end of Toshiba’s fiscal year. With HSR fines currently $42,530 per day, the companies faced penalties of $6.3 million each before the settlement.

While the relatively low settlement for clear violations may entice larger companies to accept penalties to close deals quickly, HSR penalties are not indexed to deal size, making penalties comparatively much weightier for small mergers that meet the HSR Act’s filing thresholds, and even for mid-market deals in the $100 million to $500 million range. Although the agencies may not aggressively enforce the full statutory penalties the HSR Act imposes, violations of the HSR Act’s notice requirements and review period can still have a significant impact on the bottom line for mid-sized mergers.

The full complaint can be found here.