The Department of Justice’s Antitrust Division imposed a $900,000 fine on Smithfield Foods Inc. today over what the government dubbed “gun jumping” in the company’s 2007 acquisition of Premium Standard Farms, LLC. Although the Antitrust Division did not mount an antitrust challenge to the acquisition itself, the Division objected to Smithfield exercising approval over Premium’s hog purchasing contracts approximately six months before the expiration of a federally mandated “waiting period” designed to give the Antitrust Division time to complete its investigation. Under the Hart-Scott-Rodino Act, mergers over a certain value must be submitted to the DOJ and Federal Trade Commission before they are consummated. During this “waiting period,” the DOJ or FTC is free to open a formal investigation (with no time limits attached) and seek virtually unlimited access to the companies’ files without having to abide by constitutional due process requirements. In all but a few cases, the agencies terminate the waiting period and allow the merger to proceed.
Here, the DOJ claimed that “Smithfield exercised operational control over a significant segment of Premium Standard’s business prior to the expiration of the waiting period” – referring to Smithfield’s approval of three multi-year contracts to purchase hogs – in defiance of government authority. The DOJ objected to Premium even providing Smithfield with information about the hog contracts during the “waiting period.”
The antitrust statutes themselves are, of course, unconstitutional and a naked violation of property rights. But the Hart-Scott-Rodino “waiting period” is an especially egregious prior restraint. It violates property rights simply for the convenience of government antitrust lawyers. There is no requirement that the state demonstrate any imminent harm to consumers or “competition”; only that the estimated value of the deal exceeds an arbitrary threshold. It would be like imposing a thirty-day waiting period on the distribution of a newspaper that exceeds a certain distribution threshold – so that the government could review the publication for potential copyright infringement.
The other side of this is that in those few mergers subject to additional scrutiny, there are no time limits or constraints on the DOJ or FTC’s activities. Some mergers have been subjected to “reviews” of more than two years, requiring firms to spend eight-figure sums on their own attorneys. These reviews can encompass millions of documents and often involve business matters completely unrelated to the “competitive” aspects of the merger. They’re fishing expeditions, nothing more, and the targeted firms generally have no recourse to put a stop to it.