US Antitrust Agencies Reject Parties' Corporate Deal Structure To Determine Alleged HSR Act Violations

On June 10, 2019, Toshiba Corporation ("Toshiba") and Canon Inc. ("Canon") agreed to settle a complaint filed by the Antitrust Division of the US Department of Justice ("DOJ") at the request of the Federal Trade Commission ("FTC"). The complaint alleges that the companies intentionally engaged in a scheme to evade US pre-merger notification laws in violation of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, 15 U.S.C. § 18a (the "HSR Act"). Pursuant to the terms of the settlement, Toshiba and Canon each must pay $2.5 million in civil penalties for a total of $5 million. Additionally, for a period of three years after the fine is paid, each corporation is required to implement an HSR compliance program, which includes hiring a compliance officer and ensuring that relevant employees receive at least two hours of annual HSR training by a specialist in US antitrust law.

The complaint alleges that Toshiba and Canon devised a plan to enable Canon to acquire Toshiba's subsidiary, Toshiba Medical Systems Corporation ("TMSC"), which would allow the financially struggling Toshiba to recognize the proceeds from the sale by the close of its fiscal year. Although Toshiba and Canon actively were negotiating a deal for TMSC in February 2016, the complaint asserts that the parties realized that they did not have enough time to complete their negotiations and abide by the 30-day waiting period under the HSR Act if they were to meet Toshiba's March 31, 2016 fiscal year end deadline.

Thus, the complaint alleges that the parties engaged in a series of legal somersaults to sign a deal that allowed Toshiba to realize income before March 31, transfer control of TMSC to Canon, and avoid or delay an HSR Act filing until after March 31. Specifically, (1) the parties engaged a law firm to create a special purpose vehicle called MS Holding Corporation ("MS Holding"); (2) Toshiba re-arranged the ownership of TMSC to create new voting shares, a single non-voting share and options convertible to ordinary shares; (3) Toshiba sold TMSC's voting shares to MS Holding for approximately $900; (4) Toshiba sold TMSC's non-voting shares and convertible options to Canon for $6.1 billion; and (5) Canon exercised its options later, only after an HSR Act filing was made and a waiting period was observed.

As devised, in the absence of being an avoidance device (discussed below), the TMSC sale to MS Holding was not reportable under the HSR Act. The transfer of the TMSC...