Assa Abloy to Litigate Merger Concessions as DOJ Opposes Deal

Door-lock maker Assa Abloy AB will be the latest company to test a popular legal tactic of litigating its own proposed concession to alleviate US regulators’ antitrust concerns.

A bench trial that starts Monday in the US District Court for the District of Columbia pits Assa Abloy against the Justice Department’s antitrust division, which is trying to block the Swedish manufacturer from buying Spectrum Brands Holdings’ door hardware unit for $4.3 billion. The deal would heavily consolidate the markets for residential door hardware and smart locks, the DOJ says.

Merging companies have been increasingly turning to the “litigating the fix” tactic, which threatens to increase the burden of proof on antitrust regulators during court battles and complicate their missions.

The tactic entails companies waiting until US regulators sue to block their acquisition before they propose concessions—such as divesting overlapping units—that would then necessarily have to be litigated during the following legal proceedings. Companies more typically have offered concessions while US regulators review their deal before deciding whether to sue to block it.

As the trial kicks off, Assa Abloy is proposing to sell off its overlapping units to Fortune Brands for $800 million. The trial raises two key questions: Is Assa Abloy’s acquisition likely to substantially lessen competition in the relevant markets? And, if so, which side bears the burden to demonstrate whether the proposed fix is enough to remedy that harm?

Shifting the burden to the Justice Department “would make it harder for antitrust authorities to do their job,” said Bill Baer, a Brookings fellow and the former head of the DOJ’s antitrust division.

“If the court functionally increases the burden on the government as plaintiff, it means more risky deals are going to go through with untried and unproven purported solutions,” said Baer, who authored an amicus brief encouraging the court to place the burden on the defendants. “That’s not a good outcome for competition or for consumers.”

Under the Biden administration, the DOJ and the Federal Trade Commission, which also handles antitrust enforcement, have expressed increased skepticism of merger remedies. They cited some high-profile failures, such as the FTC-approved divestiture by grocery chain Albertsons when it acquired Safeway in 2015. A local chain that bought the divested stores collapsed less than a year later.

A 2017 FTC study found that nearly 20% of 50 divestiture orders between 2006 and 2012 failed.

Popular Moves

When companies propose fixes during regulators’ merger review, the government has more time to determine whether such concessions would help replace the competition that would otherwise be lost in the merger, Baer said.

But proposing it either on the eve of litigation or once the government has already moved to block the deal under the Clayton Act makes it difficult to conduct a full review, Baer said.

Defendants often push the court to consider the divestiture as the alternative to letting the deal close, rather than as a third option once it has ruled on the merits of the merger itself.

That makes the litigating-the-fix move popular for merging companies, especially those pursuing “vertical” acquisitions of companies up and down the supply chain.

Microsoft Corp. is utilizing the strategy in the tech giant’s $69 billion acquisition of video game maker Activision Blizzard Inc. The FTC is suing the block the deal.

Last summer, UnitedHealth Group Inc. also successfully litigated over its proposed concessions against the DOJ in its merger with Change Healthcare in the US District Court for the District of Columbia.

Assa Abloy pushed back on the DOJ’s argument that it should shoulder the evidentiary burden. In a pretrial brief, the company argued that “nothing in the text, structure, or legislative history suggests that a proposed divestiture—or any ‘defense’ to a Clayton Act merger challenge for that matter—shifts the ultimate burden of persuasion to defendants.”

The court should take the proposed divestiture into account when considering the DOJ’s case that the merger violates the Clayton Act, Assa Abloy said. The court should refrain from considering the remedy only after deciding whether the merger is likely to harm competition, the company said.

“Since Fortune Brands does not currently compete in either relevant market, DOJ cannot carry its burden by showing that competition will be eliminated,” Assa Abloy said. “Any head-to-head competition is preserved post-divestiture.”

Judge Ana C. Reyes, who was nominated by President Joe Biden to the US District Court for the District of Columbia, in February, will oversee the trial. It will be the first trial for Reyes, who has spent a bulk of her career at Williams & Connolly.

The case is United States of America v. Assa Abloy, D.D.C., No. 1:22-cv-02791, 4/24/23.