FTC Remains Mindful of Minority Interests in Merger Review

On November 3, 2017, the FTC announced that Red Ventures and Bankrate agreed to a divestiture of Bankrate’s Caring.com business unit to settle FTC charges that their $1.4 billion merger would likely harm competition in the market for third-party paid referral service for senior living facilities.

According to the FTC’s complaint, Red Ventures was not itself present in that market.  Nevertheless, the FTC was concerned that two of Red Ventures’ largest private equity shareholders: Silverlake Partners and General Atlantic jointly own A Place for Mom.com, which allegedly competes with Bankrate’s Caring.com, which competes in the market for third-party paid senior living facilities referral services.  A Place for Mom.com, the largest provider of such services, and Caring.com is the second largest provider.  In addition to their 34% equity interest in Red Ventures, General Atlantic and Silver Lake Partners have two of the seven seats on Red Ventures’ board, approval rights over two other seats and approval rights over significant capital expenditures.

According to the complaint, a Place for Mom.com and Caring.com are each other’s closest competitors, competing for national and local business.  Other competitors in the U.S. market for third-party paid referral services for senior living facilities comprise a much smaller fringe.  The complaint alleges that the two Red Venture shareholders have the collective ability to significantly influence management of Red Venture and Caring.com.  Thus, if consummated, the transaction may increase the chance for Red Ventures to unilaterally exercise market power and the potential for coordinated interaction between Caring.com and A Place for Mom.

To resolve these concerns, the parties agreed to divest Caring.com no later than six months after the acquisition and provide transition services to an acquirer.  The parties are also required to establish firewalls related to Caring.com’s confidential business information.

Lessons Learned:

The FTC’s action demonstrates the FTC will examine competition concerns relating to minority ownership interests in rivals where the shareholders maintain influence and control over management of a company.  The FTC does not simply examine the two merging parties to determine whether any competitive overlap exists.  Rather, the FTC will scrutinize the portfolios of their significant shareholders to determine whether the shareholders own interests in any overlapping products or services.  Counsel and companies need to be aware of the ownership interests in other companies of significant shareholders when assessing antitrust risk on a transaction.  Also, it is worth noting that the FTC required structural (divestiture) and behavioral (transition services and firewall) remedies to resolve the antitrust concerns.

Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com