This checklist guides you when advising buyers or sellers on why, when, and how to contact customers during an FTC or DOJ merger investigation. Developing and implementing a plan for customer outreach is an important component of merger investigations. The FTC and DOJ often request, or parties can produce voluntarily, a list of each party's top 10 customers for overlapping products along with contact information for each customer.
For background on merger antitrust law generally, see the practice note Merger Review Antitrust Fundamentals. For background on the steps of a DOJ or FTC merger investigation, please see the practice note DOJ/FTC Merger Investigation Process.
Why Customer Outreach During a Merger Review Is Important
- FTC and DOJ Typically Request Contact Information of Top 10 Customers for Overlapping Products: If the FTC or DOJ decide to open a preliminary merger investigation, one of the first steps that FTC or DOJ staff will take is to speak with the top 10 customers of overlapping products for the merging parties. The FTC or DOJ can do this throughout the 30-day waiting period and may request this information through a voluntary access letter. For more information on voluntary access letters, please see the section on Investigation Process and Common Issues During the Initial HSR Act Waiting Period in the practice note DOJ/FTC Merger Investigation Process.
- FTC and DOJ Value Customer Perspectives: If there is a risk that a transaction could be perceived as anticompetitive, FTC and DOJ (and courts) are receptive to hearing about the procompetitive effects of a transaction that may outweigh any perceived anticompetitive harms. The FTC and DOJ value hearing whether customers for the overlapping products view the transaction favorably.
- Customer Relationships: Maintaining open channels of communication with customers in advance of a transaction could lead to positive interactions with these customers moving forward. By informing customers about the potential future of your company, you can emphasize how important their relationship is to you moving forward.
How to Identify Customers and Selecting the Right Contact at Each Customer
- Top 10 Customers in Overlapping Segments: Typically, the FTC or DOJ request the contact information of the top 10 customers in each segment in which a merging party overlaps with the other merging party. The FTC or DOJ may request this information on a U.S. level or they may request the information for North America (including Canada and Mexico), or globally. Therefore, you will want to compile a list of these top 10 customers first.
- Key Customers: Identify other key customers beyond your top 10 customers. This can include customers with whom you have had a longstanding relationship or other customers that may have positive or negative views about the potential transaction.
- Selecting the Right Point of Contact at the Customer: The FTC or DOJ will ordinarily request the full name, title, email address and phone number of an individual at each customer.
When to Develop a Customer Outreach Plan and Start Contacting Customers
- Before Signing a Transaction Agreement: Once you have identified potential competitive overlaps with a merging party, you should assess how customers affected by the transaction will react. It is best to do this before the transaction agreement (or letter of intent) is executed so that you have time to develop a customer outreach plan once the transaction is public.
- Confidentiality of Transaction: Exercise caution when communicating with customers before a transaction agreement is signed. For example, consider any foreign securities law obligations, especially when notifying a transaction in the United States on an executed letter of intent. Assess any non-disclosure agreements that may be in place with customers.
- Once the Agreement or Letter of Intent is Executed or Transaction is Public: Once the transaction has become public or shortly after signing is a good opportunity to begin your outreach to customers. It is effective to inform customers of a potential transaction that is subject to customary regulatory obligations before they receive a "cold call" from the DOJ or the FTC.
- During the Merger Investigation: Maintain open lines of communication with customers once a merger investigation begins. Call customers again even after the initial outreach to check in on their views about the transaction.
How to Develop a Proactive Customer Outreach Plan
Once you identify the customers that you will need to contact, the next step is to develop an outreach plan that you can implement once you sign a transaction agreement or letter of intent. In sum, the outreach plan should contain a list of customers, general talking points for addressing each type of customer, and the timing for outreach. It should also incorporate multijurisdictional implications of customer outreach and should generally align with the approach for customer outreach implemented by the other merging party.
- Multijurisdictional Considerations: If the transaction is reportable in a number of jurisdictions, and you have the same customers in different countries, ensure that you are identifying the right individuals at each customer in each jurisdiction. You should familiarize yourself with how non-U.S. antitrust authorities approach customer outreach.
- Selecting the Right Point of Contact at the Merging Party to Contact the Customer: Identify a person or group of people at the merging party who are familiar with the transaction, arguments in support of the transaction, and who will reach out to customers to inform them about the transaction. Ordinarily, this is a lead business or sales person who has enough information to speak in support of the transaction.
- Timing: As discussed in the Timing section, it is important to develop a customer outreach plan before a transaction agreement is executed or before filing the HSR with the DOJ or the FTC, but at a minimum before submitting the customer lists to the DOJ or FTC. In addition, there are a number of factors to consider regarding when to reach out to customers. For example, if you file an HSR on a letter of intent or a memorandum of understanding (and the deal is not yet public), the FTC or DOJ would still request customer contact information and you should assess the implications of any leaks on other legal obligations, i.e., such as foreign securities law reporting requirements.
- Coordinate with Counsel for the other Merging Party: Develop this customer outreach plan in conjunction with the other merging party and consistent with any obligations in the transaction agreement (i.e., confidentiality obligations and which party would lead antitrust strategy). You should align on the general structure of the talking points and messages you intend to convey to customers, so long as the coordination is about the procompetitive benefits of the transaction and not other competitively sensitive information.
- Identify next steps for positive customer feedback: When you receive positive feedback about the transaction from customers, you can prepare customer declarations, develop further evidence in support of the transaction, and incorporate the feedback into other antitrust advocacy in support of the transaction. Build these steps into the customer outreach plan from the start so that you maintain a positive relationship with customer before, during, and after the merger review period.
- Preparing for negative customer feedback and resolving concerns: Prepare for the possibility of negative feedback about the transaction and identify what the company can do to remedy any concerns customers raise. Resolving negative feedback from customers could also factor into remedy discussions with the FTC or the DOJ.
Preparing Talking Points for The Business Team to Use During Customer Outreach Calls
In preparing talking points for a business team to use when reaching out to customers, remember the following:
- Provide non-confidential updates about the transaction.
- "We are checking in to provide an update on our transaction with [Party Name]. As you may recall, [Party Name] announced its plans to acquire [Party Name]."
- Address the rationale for the transaction.
- "We are buying X business to compete against other products and to improve our service and increase efficiency to offer better prices."
- Discuss the procompetitive benefits and effects of the transaction.
- "We believe the transaction is going to provide quality products and excellent services to our customers."
- Tell the customer that they are important and valuable to your company.
- Inform them why the FTC or DOJ may reach out them.
- "As an important customer, you are on a list of customers we will provide to the U.S. antitrust authorities as part of a routine antitrust merger clearance."
- "The [FTC or DOJ] may call you to speak about your views on this transaction. They may ask for information about competition in the industry and the services and products we offer."
- Be prepared to address questions about what will happen to the customer's relationships with you.
- Do not make any commitments on behalf of the other merging party.
- Do not ask the customer for their current prices, volumes, or terms from the other merging party. Remember, it is business as usual until the transaction closes.
- Educating and informing a customer about a potential transaction and its procompetitive benefits is appropriate. However, it is not appropriate to "coach" a customer who may receive or has received a call from the FTC or DOJ, about what it should say to antitrust authorities about the transaction.
Tracking Customer Calls
- Develop an internal customer outreach tracking mechanism: Prepare an internal list of the top 10 customers for overlapping products to track customer calls. The list could have additional columns for dates of outreach, person who conducted outreach, and positive, neutral, or negative feedback from customers.
- Antitrust counsel can use the list of positive feedback to develop customer declarations or other forms of written support statements.
- Antitrust counsel can direct the agencies to certain customers if they have positive views about the transaction.
- Report feedback to antitrust counsel. Designate a person or group of people at the merging party to report back feedback from the customer calls.
Continuing Customer Engagement
After a merging party completes initial customer outreach and updates antitrust counsel on any feedback, it will be important to stay in touch with customers throughout the merger review period.
A merging party, in consultation with antitrust counsel, should address any concerns or questions raised by negative feedback. Understanding and potentially addressing any concerns could mitigate or potentially avoid heightened antitrust scrutiny.
The DOJ and FTC value customer feedback. Therefore, developing a proactive customer outreach strategy that educates customers about the procompetitive benefits of the transaction early on is a critical component of an effective merger review strategy.
This article was first published by LexisNexis.
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