DOJ Imposes Divestiture And Conduct Remedy In Small, Consummated Merger Of Makers Of Steel Sensors

Another in a string of challenges to already-consummated mergers, the U.S. Department of Justice ("DOJ") has announced that it will require Heraeus Electro-Nite to divest certain assets of Midwest Instrument Company, Inc. ("Minco"), which Heraeus acquired last year. Both companies make instrumentation that measures the temperature and chemical composition of molten steel during steel manufacturing. This case provides a reminder that U.S. antitrust enforcers can challenge acquisitions that already have closed, even relatively small acquisitions that do not require premerger notification, and it reflects the flexibility enforcers can have to tailor a remedy to the competitive situation in the particular case.

Background

In September 2012, Heraeus acquired the assets of Minco, its closest competitor, for $42 million. This low value did not trigger the filing thresholds of the Hart-Scott-Rodino ("HSR") Act, and therefore the transaction was not required to be reported to the DOJ and Federal Trade Commission. Nevertheless, shortly after the closing, having received complaints from the companies' customers, DOJ began investigating the acquisition. According to DOJ, the acquisition reduced competition in the market for single use sensors and instruments used to measure and monitor the temperature and chemical composition ‎‎of molten steel. DOJ determined that Heraeus had a 60 percent share of this "S&I market" in the United States and Minco 35 percent.

Remedy

Heraeus agreed to divest certain assets to address DOJ's concerns. Under the proposed settlement, Heraeus must divest to a specified buyer all remaining assets that were acquired from Minco in the United States and Mexico, including all of the Minco manufacturing plants. The buyer of the divested assets will be Keystone Sensors, which was founded in early 2013 for the purpose of entering the S&I market in the U.S. According to DOJ, the Minco assets will give Keystone the specific assets needed to more quickly become a more effective competitor.

In addition to the straightforward divestiture of assets, the settlement also requires Heraeus to comply with the following "conduct" obligations:

(1) Provide training and technical support to Keystone, under DOJ supervision, to ensure that this new competitor is prepared to compete against Heraeus.

(2) Waive the noncompete provisions it had imposed on terminated Minco sales and service employees. DOJ believes the noncompetes were overbroad and could...

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