According to recent reports, Sprint Corp. is rethinking a possible acquisition of T-Mobile US Inc. This comes after William J. Baer, Assistant Attorney General for the Antitrust Division of the Department of Justice (DOJ), stated in an interview that a deal involving any of the four big wireless telecommunications companies will invite antitrust scrutiny from the DOJ. Baer referenced the DOJ's 2011 case against AT&T and T-Mobile, which successfully blocked that merger (see What's Market, U.S. v. AT&T Inc. and T-Mobile USA, Inc. (litigated case)).

If Sprint decides to go forward with a T-Mobile deal, the companies will likely heavily negotiate antitrust risk-shifting provisions in the merger agreement. When merging companies face antitrust risk (typically in deals between competitors), counsel for the seller should seriously consider including antitrust risk-shifting language in the agreement. Without these provisions, a seller likely carries all the risk if the deal does not close for antitrust reasons. This is because the seller may suffer a loss in the value of its business between the signing of the agreement and the closing, when the seller can lose valuable customers and employees, making it difficult to find another buyer if the deal falls through.

Therefore, if there is a tangible risk of a merger investigation that may delay or even kill the deal, a seller should be motivated to protect itself by shifting some of the antitrust risk to the buyer.

This Update sets out the steps to prepare for negotiating provisions allocating risk once the seller's counsel has determined that the deal poses an antitrust risk.

The seller's counsel should begin by determining what other merging parties in the industry have recently done to shift antitrust risk. Determining how other merging parties have shifted antitrust risk in similar situations is sometimes referred to as "what's market." While counsel can look to the risk-shifting provisions they have drafted in prior deals as precedent, this only allows them a limited look at their own or their firm's prior deals.

Auditing publicly available agreements that have been filed with the Securities and Exchange Commission is a long, arduous process. Practical Law Antitrust, however, offers a way to quickly compare antitrust risk-shifting provisions by narrowing publicly available deals using various criteria, including industry, and then running a comparison of the types of risk-shifting provisions used in those deals, including:

(See What's Market, Antitrust Risk-shifting Provisions Database).

As an example, the following is an excerpt from a comparison of certain antitrust risk-shifting provisions used in 2013 deals in the pharmaceuticals industry:

Counsel should also run comparisons of antitrust risk-shifting provisions used in deals with similar:

The seller's counsel should determine the types of risk-shifting obligations the buyer has agreed to in prior deals and the degree of risk the buyer has been willing to accept. Knowing what the buyer has agreed to in past deals can give the seller's counsel the upper hand in negotiations. Counsel should use the search bar in the What's Market Antitrust Risk-shifting database to run a search on the buyer's name. Counsel should then run a comparison of the risk-shifting provisions used in the buyer's prior deals. As an example, the following is an excerpt from a comparison of deals involving the same buyer:

The seller's counsel should also become familiar with the seller's own past risk-shifting agreements, particularly if counsel:

The seller's counsel should assume that the buyer is doing its due diligence and determining how the seller has shifted its antitrust risk in prior deals and should not be caught off-guard.

The seller's counsel should determine the types and degree of risk-shifting obligations the buyer's counsel has negotiated in the past. Counsel should use the search bar in the What's Market Antitrust Risk-shifting database to run a search for:

Once those results are culled, counsel should run a comparison on the risk-shifting provisions previously negotiated by the buyer's counsel.

For more on antitrust risk-shifting provisions, counsel should review Practical Law's Antitrust Risk-shifting Toolkit, which includes: