Are Joint/Club Bids At Risk Of Competition Law Enforcement?Copyright 2008, Blake, Cassels & Graydon LLP LLP - Lower Layer Protocol Originally published in Blakes Bulletin on Competition Law, April 2008 Can a joint bid for control of a business (also referred to as a 'club bid') constitute an illegal price fixing price fixing n. a criminal violation of federal anti-trust statutes, in which several competing businesses reach a secret agreement (conspiracy) to set prices for their products to prevent real competition and keep the public from benefiting from price competition. arrangement under Canada's "Competition Act"? The underlying reasons set out in a recent U.S. judgment would seem to suggest that this type of enforcement action would not be likely to succeed. The decision of the U.S. District Court, dated February 21, 2008, in Pennsylvania Avenue Pennsylvania Avenue is a street in Washington, D.C. joining the White House and the United States Capitol. Called "America's Main Street," it is the location of official parades and processions, as well as protest marches and civilian protests. Funds v. Edward J. Borey, et al., sheds light on whether a club bid could constitute a conspiracy, in this case under section 1 of the U.S. Sherman Act. The case was brought against two U.S. private equity funds, Vector Capital Corporation (Vector) and Francisco Partners LP (FP) that, having made several independent bids for WatchGuard Technologies Inc. (WatchGuard), entered into a two-stage agreement to jointly take control of the company. Under the agreement, Vector agreed to stop pursuing WatchGuard and stand aside while FP made a lower bid for the company. After FP's bid was accepted by WatchGuard's board of directors, FP and Vector announced that Vector would fund 50% of the acquisition in exchange for a 50% interest in WatchGuard. The plaintiffs alleged that Vector and FP had "entered into a contract, combination or conspiracy to artificially fix the price, refrain from bidding, or rig the tender offer bids for WatchGuard shares." In dismissing the plaintiff's claim, the U.S. Court held that price agreements between competitors in a corporate control context are not per se illegal. In this regard, the Court noted that price fixing among rival bidders in a contest for corporate control is not generally anticompetitive an·ti·com·pet·i·tive adj. That discourages competition among businesses: anticompetitive foreign trade restrictions. and, in fact, "can promote rather than suppress To stop something or someone; to prevent, prohibit, or subdue. To suppress evidence is to keep it from being admitted at trial by showing either that it was illegally obtained or that it is irrelevant. competition." The Court noted that in some cases "in a corporate auction involving numerous well-heeled bidders, less wealthy bidders cannot compete. By joining forces, and thus combining resources, poorer contestants can gain access to the contest, thus increasing competition." The Court then considered whether the agreement violated vi·o·late tr.v. vi·o·lat·ed, vi·o·lat·ing, vi·o·lates 1. To break or disregard (a law or promise, for example). 2. To assault (a person) sexually. 3. U.S. antitrust law antitrust law Any law restricting business practices that are considered unfair or monopolistic. Among U.S. laws, the best known is the Sherman Antitrust Act of 1890, which declared illegal “every contract, combination…or conspiracy in restraint of trade or under the rule of reason. In this context, the Court found that even if the relevant market was limited to the market for corporate control of WatchGuard alone, the plaintiff had failed to show that FP and Vector had market power. In support of this conclusion, the Court noted that there were dozens of other suitors who had expressed interest in WatchGuard, that any acquirer who believed that WatchGuard was worth more than FP's bid could have made a topping bid, and that had WatchGuard's shareholders believed that the FP bid was too low, they retained the power to reject the merger. In Canada, club bids are subject to potential scrutiny under Canada's Competition Act as either illegal bid rigging Bid-rigging is an illegal agreement between two or more competitors. It is a form of collusion, which is illegal in the United States. It is a form of price fixing and market allocation, and involves an agreement in which one party of a group of bidders will be designated to win or conspiracy. The risk of a case being brought as bid rigging can be eliminated by the members of a club bid by making their agreement known ahead of time. In particular, the Competition Act provides a defence to bid rigging where the parties to the impugned agreement have made their agreement known to the party calling for tenders at or before the time the bid is made. Consequently, club bids, if they are to raise issues under the Competition Act, are most likely to be an illegal conspiracy. The Competition Act prohibits agreements and arrangements that are likely to prevent or lessen less·en v. less·ened, less·en·ing, less·ens v.tr. 1. To make less; reduce. 2. Archaic To make little of; belittle. v.intr. To become less; decrease. competition unduly or to otherwise restrain or injure To interfere with the legally protected interest of another or to inflict harm on someone, for which an action may be brought. To damage or impair. The term injure is comprehensive and can apply to an injury to a person or property. Cross-references Tort Law. competition unduly. Accordingly, the entering into a club bid agreement in and of itself is not illegal. The undueness element must too be established. The decision in Pennsylvania Avenue Funds v. Edward J. Borey, et al. demonstrates just how difficult it would be to meet this requirement. The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances CIRCUMSTANCES, evidence. The particulars which accompany a fact. 2. The facts proved are either possible or impossible, ordinary and probable, or extraordinary and improbable, recent or ancient; they may have happened near us, or afar off; they are public or . Mr Jason Gudofsky Blake, Cassels & Graydon LLP 199 Bay Street, Suite 2800, Box 25, Commerce Court West Toronto Ontario Ontario, M5L 1A9 CANADA Tel: 4168632400 Fax: 4168632653 E-mail: lynn.spencer@blakes.com URL URL in full Uniform Resource Locator Address of a resource on the Internet. The resource can be any type of file stored on a server, such as a Web page, a text file, a graphics file, or an application program. : www.blakes.com Click Here for related articles (c) Mondaq Ltd, 2008 - Tel. +44 (0)20 8544 8300 - http://www.mondaq.com |
|
||||||||||||||
Printer friendly
Cite/link
Email
Feedback
Reader Opinion