FTC Additional Scrutinizes Use of Non-Competes in Merger Transactions | Seyfarth Shaw

The Federal Commerce Fee (FTC) lately set its sights squarely on non-compete agreements in merger transactions, making them ripe for additional scrutiny. In a Consent Order issued June 14, 2022, the FTC ordered GPM Investments LLC and its dad or mum firm ARKO Corp. to roll again provisions it deemed “anticompetitive” in GPM’s Might 2021 acquisition of 60 Categorical Cease retail gas stations from Corrigan Oil Firm. Below the FTC’s order, ARKO and GPM agreed to restrict the non-compete settlement that it imposed on Corrigan, and return 5 retail gas stations in a number of native Michigan markets. This resolution comes on the heels of a June tenth assertion by the FTC’s Chair Lina M. Khan, joined by Commissioners Rebecca Kelly Slaughter and Alvaro M. Bedoya, warning companies that contract phrases in merger agreements that probably impede truthful competitors can be extremely scrutinized.

As a part of the $94 million acquisition, GPM required Corrigan to signal not solely a non-compete settlement overlaying the 60 Categorical Cease areas that had been acquired, but in addition requiring Corrigan to not compete with greater than 190 pre-existing GPM areas all through Michigan and Ohio . A lot of the roughly 190 pre-existing GPM areas topic to the non-compete settlement had been positioned in geographic areas removed from the acquired Categorical Cease areas.

The non-reportable transaction, which fell just below the reporting threshold of the Hart-Scott-Rodino Antitrust Enchancment Act (HSR Act), got here below scrutiny of each the FTC and Michigan’s Workplace of the Legal professional Normal, which assisted within the investigation of the case. The criticism issued by the FTC alleged that the noncompete settlement, as utilized to the roughly 190 pre-existing GPM areas, was unreasonable as a result of it bore no relation to the acquisition of the Categorical Cease areas and harmed clients in native retail gasoline and diesel gas markets in Michigan and Ohio who would in any other case profit from potential competitors. “By maintaining Corrigan from competing to promote gasoline and diesel to shoppers in [Michigan and Ohio]the settlement to not compete harmed clients who in any other case may benefit from this competitors,” mentioned Holly Vedova, the FTC’s Director of the Bureau of Competitors, in a press launch saying the motion.

The Grievance additionally alleged that, even within the 60 markets acquired from Corrigan, the non-compete settlement was unreasonably overbroad in geographic scope and longer than fairly obligatory to guard a authentic enterprise curiosity. Moreover, the Grievance alleged that the acquisition harmed competitors within the retail sale of gasoline and diesel gas in 5 native Michigan markets by decreasing the unbiased market contributors to 2 or fewer.

The settling the FTC’s criticism in opposition to ARKO and GPM required them to:

  • amend the settlement to not compete to solely apply to the retail gas companies acquired by GPM, excluding the 5 areas to be returned to Corrigan;
  • restrict the phrases of the settlement to not compete in these markets to no broader than 3 years in period and not more than 3 miles from every Categorical Cease location;
  • return to Corrigan, no later than June 28, 2022, the retail gas retailers in every of the 5 native markets;
  • get hold of prior approval from the Fee earlier than buying retail gas property inside a 3-mile driving distance of any of the returned areas for 10 years;
  • not enter into or implement any settlement to not compete associated to acquisitions of a retail enterprise that restricts competitors solely round a retail gas enterprise already owned or operated by GPM; and
  • notify third events topic to related agreements to not compete of GPM’s obligations below the order.

The Fee voted unanimously to concern the Grievance and settle for the proposed Consent Order. The FTC will now publish the Consent Order within the Federal Register and invite public remark. As soon as processed, feedback will likely be posted on Rules.gov.