Under the Clayton Act (15 U.S. Code § 18), certain business acquisitions are prohibited where “the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.” Long-standing jurisprudence has established that merger challenges require, at the outset, a prima facie showing of the likelihood of a substantial lessoning of competition that would result from the merger or acquisition. Such prima facie showing typically takes the form of claims and evidence related to market shares above a certain level, but can take other forms.
The Sherman Act was passed in 1890. The Clayton Act in 1914. And they have hardly changed since. Last month, Senator Amy Klobuchar, the new chair of the Senate Judiciary Committee’s Subcommittee on Antitrust, Competition Policy and Consumer Rights, proposed an overhaul of the antitrust laws: CLERA, the Competition and Antitrust Law Enforcement Reform Act. If passed, CLERA would constitute the most significant change to antitrust law in a least a generation. In particular, it would also pose substantial new antitrust concerns for technology companies seeking to engage in what have been standard mergers and acquisitions.
In Salladay v. Lev, the Delaware Chancery Court elaborated on how early a corporate board must take protective measures to shield a conflicted transaction from entire fairness review.
Salladay involved a motion to dismiss a challenge to a merger agreement based on alleged director conflicts at the target company. The defendants argued that the transaction was approved by an independent committee of directors and a shareholder vote, warranting deferential business judgment review and, in turn, dismissal. The court held that business judgment review was inappropriate because the independent committee only became involved in negotiations after they had begun—too late to “replicate the value-enhancing structure of an arms-length transaction”—and the shareholder vote was not fully informed. Instead, the much stricter standard of entire fairness applied, rather than the more lenient business judgment rule, and therefore dismissal was inappropriate.