Antitrust issues have played a key role in several recent hostile takeover battles.  As companies have had difficulty growing their top lines through internal growth, they have increasingly turned to considering the acquisition of competitors on a hostile basis.  As a result, antitrust issues can be expected to become increasingly important in future takeover battles. 

The following are two recent hostile takeover contests in which antitrust issues have played a crucial role.

PeopleSoft's Efforts to Fend Off Oracle

Just recently, the U.S. Department of Justice filed suit to block Oracle's attempted hostile takeover of PeopleSoft.  Oracle and PeopleSoft compete against each other for the sale of software systems that run the accounting, human resource, and other back-office functions of companies, government agencies, and educational organizations.  The government's complaint alleges that a combination of the two companies would reduce competition in markets for financial management and human resource systems suitable for use by large enterprises with high-level functional needs, in violation of the antitrust laws.  Shortly after Oracle announced its hostile tender offer in June 2003, the Department of Justice issued a "second request" for more detailed information about the parties and the transaction, which effectively put the tender offer on hold.  The Department filed its lawsuit about eight months later following an intensive investigation.  In addition, the European Commission is investigating the proposed transaction and has initiated a second-phase investigation, which also effectively has put Oracle's bid on hold.  The Commission is expected to decide by May 11, 2004 whether to the block the transaction. 

Typically, a Department of Justice lawsuit to block an acquisition would effectively kill a transaction.  However, Oracle has indicated that it will litigate.  The outcome of this litigation is uncertain.  What is clear, however, is that antitrust issues have increased the cost to Oracle, in terms of time and effort, of its attempted takeover of PeopleSoft and have decreased Oracle's ultimate chances of success.

Atlantic Coast Defending Against the Unwanted Bid from Mesa Airlines

In December 2003, at the request of Atlantic Coast Airlines, a U.S. federal district court enjoined Mesa Airlines' hostile attempt to acquire Atlantic Coast.  Particularly striking about this decision was that not only did the court enjoin Mesa's proposed exchange offer to acquire Atlantic Coast shares, but the court also enjoined Mesa's shareholder consent solicitation to remove and replace Atlantic Coast’s board.  To our knowledge, this is the first time in over 25 years that a court has enjoined a hostile takeover attempt on antitrust grounds and the first time ever that a court has enjoined a shareholder consent solicitation on antitrust grounds.  This case also demonstrates the pivotal role antitrust law can play when a transaction threatens significant competitive harm.

Atlantic Coast was a regional United Express carrier affiliated with United Airlines and based out of Washington, D.C.’s Dulles International Airport.  After United Airlines filed for bankruptcy, Atlantic Coast announced in July 2003 that it was unable to negotiate a continuation of its agreement with United and instead intended to begin operating as an independent low-fare airline, to be known as Independence Air.  The entry of Independence Air, with a fleet of over 100 jets and a plan for 300+ departures each day from its Dulles hub, would be the largest entry by a new airline in the history of the U.S. airline business. Atlantic Coast argued that Independence Air would have a significant competitive impact on United (on many of whose Dulles-based routes it would directly compete)  and other air carriers to the benefit of competition and the consuming public. 

Shortly after Atlantic Coast announced its plans, Mesa made an unsolicited acquisition proposal and announced a consent solicitation to replace Atlantic Coast’s board of directors with a slate that would devote Atlantic Coast’s resources to serving as a United Express carrier.  Mesa had undertaken this hostile attempt to acquire Atlantic Coast pursuant to a memorandum of understanding that Mesa had negotiated with United Airlines the effect of which would have been to keep Atlantic Coast as a United Express carrier and preclude the launch of Independence Air  in competition with United and other carriers.  Atlantic Coast filed antitrust claims against Mesa, claiming that Mesa and United had contracted, combined and conspired in violation of Section 1 of the Sherman Act to prevent the entry of Independence Air.  After expedited briefing and discovery and a two-day hearing, the district court granted a preliminary injunction that prevented Mesa from proceeding with its consent solicitation and exchange offer.  Within a week of the injunction, Mesa announced it would not be moving forward with either its proposed consent solicitation or exchange offer.  Mesa has since filed a notice of appeal.

Gibson, Dunn & Crutcher LLP represents PeopleSoft in certain aspects of the Oracle matter and Atlantic Coast Airlines in the Mesa matter.

Every corporate control battle poses unique challenges.  However, as Atlantic Coast and PeopleSoft make clear, antitrust issues need to be carefully considered by both acquirors and targets involved in hostile takeover battles. 

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