On second thought: Post abandons deal after rare FTC challenge

On January 13, 2020, Post Holdings, Inc. (Post) announced that it was abandoning its acquisition of the private label cereal business of TreeHouse Foods, Inc. (TreeHouse).[1] The chronology of the now-defunct deal is interesting and unusual:

• On May 2, 2019, Post announced that that it had agreed to acquire TreeHouse’s ready-to-eat cereal business.
• After Post and TreeHouse completed filings to comply with the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act), “early termination” (termination of the applicable HSR waiting period before its end) was granted on May 17, 2019.
• On July 22, 2019, the companies disclosed that closing of the deal was delayed because the Federal Trade Commission (FTC) was reviewing the deal in detail.[2]
• The FTC filed a complaint challenging the deal on December 19, 2019, claiming that it “would give Post more than a 60 percent share of an already highly concentrated market and eliminate the vigorous competition between them to serve grocers across the country.”[3]
• Post initially denied the allegations in a response filed on January 3, 2020, but the companies abandoned the deal on January 13, 2020.

The substance of the FTC’s complaint—alleging that the deal would further limit competition in an already concentrated market—appears to be fairly typical. However, it is unusual for the FTC to challenge a deal after it clears the HSR process without objection or a request for additional information. Such a challenge is even more unusual after early termination is granted, as occurred in this case.

The HSR Act was designed in part to give the government an opportunity to review, and potentially challenge, proposed deals before consummation, and early termination is typically only granted when a deal does not raise any antitrust concerns. Indeed, the FTC’s website states that “a request for ‘early termination’ will be granted only after compliance with the rules and if both the [FTC] and Department of Justice Antitrust Division have completed their review and determined they will not take any enforcement action during the waiting period.”[4]

Nevertheless, the experience of Post and TreeHouse provides a reminder that the expiration of the HSR waiting period, or a grant of early termination, does not constitute government “approval” of a deal. After HSR clearance, parties to a deal are free to proceed with the closing without violating the HSR Act, and HSR clearance will typically be sufficient to give parties comfort that their deal will not be challenged by the government. But transactions may still be, and occasionally are, challenged by the government after HSR clearance (even after closing).

As a result, parties to a deal that could raise competitive issues should have a strategy and be prepared in advance to address a government challenge based on potential competitive issues, even if the deal clears the HSR waiting period or is granted early termination.

1. “Post Holdings Terminates Agreement to Buy Ready-to-Eat Cereal Business from TreeHouse Foods, Inc.” (Jan. 13, 2020), available here.
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2. “Post Holdings and TreeHouse Foods Provide Update on Proposed Private Label Ready-to-Eat Cereal Transaction” (Jul. 22, 2019), available here.
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3. Press Release, “FTC Alleges Post Holdings, Inc.’s Proposed Acquisition of TreeHouse Foods, Inc.’s Private Label Ready-to-Eat Cereal Business Will Harm Competition” (Dec. 19, 2019), available here.
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4. “About Early Termination Notices,” available here (emphasis added).
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