Bad documents can sink a deal. As recent antitrust agency enforcement actions show, the Federal Trade Commission (FTC) and the Antitrust Division of the Department of Justice (DOJ) place great weight on transacting parties' documents when analyzing a transaction's effect on competition. In fact, agencies often build merger investigations around bad or hot documents. For example in U.S. v. Bazaarvoice, Inc., where the DOJ successfully forced Bazaarvoice to divest PowerReviews, the agency relied on several bad documents stating that:

(See What's Market, U.S. v. Bazaarvoice, Inc. (litigated case).)

This Update sets out the types of documents the antitrust agencies examine in merger review, describes bad or hot documents and provides practical tips for counsel seeking to prevent creation of those documents.

In reviewing a merger's effect on competition, the antitrust agencies rely heavily on the transacting parties' documents including:

These documents provide the agencies valuable information about the companies':

If transacting parties are competitors, statements in their documents can greatly impact whether the antitrust agencies decide to investigate a transaction or bring an enforcement action. If the agencies see documents that suggest anticompetitive effects, they tend to open merger investigations. If after an investigation an agency decides to challenge a merger, its complaint will cite heavily to any bad documents it has reviewed.

For more information on the importance the agencies place on hot documents, see Practice Note, Corporate Transactions and Merger Control: Overview: Box, The Role of Business Documents in Merger Review.

When reviewing a merger, the antitrust agencies seek out documents that raise red flags about the competitive effects of the transaction. These types of documents, known as bad or hot documents, generally contain statements that the transacting parties:

Because these types of documents can be damaging to, or contradict the parties' defense of the merger, counsel should prevent the creation of these documents wherever possible.

In a transaction that is reportable under the HSR Act, the antitrust agencies may obtain hot documents from merging parties through:

Even if the transaction is not reportable under the HSR Act, the agencies may still investigate the transaction and require the parties to produce the same types of documents. Just as with HSR reportable transactions, in non-reportable transactions, hot documents can encourage an agency to investigate further (see Practice Note, Considerations and Strategies in Non-HSR Reportable Transactions).

The antitrust agencies often cite to bad or hot documents in their complaints or briefs as evidence of the merger's anticompetitive effects. For examples of hot documents referenced in agency enforcement actions, see What's Market:

Because of the importance of hot documents to the antitrust agencies in a merger investigation, counsel should:

For example, counsel should advise a merging client that when creating ordinary course or deal-related documents before closing they should avoid, among other things:

For more information on how to avoid bad documents, see Practice Note, Considerations and Strategies in Non-HSR Reportable Transactions: Box, Avoiding the Creation of Bad Documents.