In June 2017, Cryosite signed an asset sale agreement with Cell Care to sell its blood and tissue banking business. Notably, the asset sale agreement required that between execution and completion, Cryosite would refer all sales enquiries into its stem cell banking service to Cell Care.
The ACCC investigated, and ultimately the parties decided not to proceed to completion with sale. The question arose as to whether the parties had engaged in cartel conduct.
Where two businesses take steps to integrate or coordinate prior to the competition of a merger or acquisition, colloquially referred to as "gun jumping" this can run afoul of the cartel conduct provisions of the Act.
Cryosite ultimately admitted to breaching the relevant provisions, and the question of the penalty was to be determined by the Federal Court of Australia. On the question of the important role of deterrence with respect to gun jumping, Beach J of the Federal Court of Australia stated:
"Market sharing, including when it is undertaken in the context of a proposed or anticipated sale of business, is cartel conduct. And cartel conduct of its nature causes serious harm to consumers, other businesses and the economy.
In addition, cartel conduct involving the coordination or integration of competing businesses prior to the completion of a sale can result in permanent structural change to the market… Accordingly, the penalty imposed for cartel conduct of the kind I am considering ahead of a proposed sale or its completion needs to be sufficiently high to deter businesses…
Further, any penalty must be sufficient to overcome the broader incentives to businesses to prematurely coordinate or integrate their businesses ahead of the completion of a sale in a manner which has an anti-competitive purpose or effect."The Court ultimately agreed with the penalties proposed by the ACCC, which was $1.05 million in pecuniary penalties and $50,000 in costs.
Businesses must keep this in mind before getting too eager after the execution of a business sale agreement or a merger. Advice should be obtained at an early stage to ensure that the parties conduct themselves at arm's length. Where companies jump the gun to coordinate or integrate competing businesses or resources prior to finalising the relevant acquisition, this can leave them open to significant liability.
McCabe Curwood is experienced in advising its clients in relation to mergers and acquisitions, and litigation arising out of the Competition and Consumer Act. Get in contact with us today.