# Merger Screen Analysis and Filing Recommendation **Transaction value: $140 million (> $100 million).** The value threshold is satisfied, so a filing is required if *any* properly defined market meets either trigger. Two separate markets exist — industrial conductive yarn and medical conductive mesh — because customers do not substitute between them. Under Rule 5 they may not be combined, and I decline management's implicit invitation to dilute the mesh share by blending the two revenue pools. --- ## 1. Industrial conductive yarn **Combined share:** 12% + 8% = **20%**. **Premerger HHI:** | Firm | Share | Share² | |---|---|---| | Competitor A | 25 | 625 | | Competitor B | 20 | 400 | | Competitor C | 15 | 225 | | Alder Loom | 12 | 144 | | Competitor D | 10 | 100 | | Competitor E | 10 | 100 | | Prism Thread | 8 | 64 | | **Total** | **100** | **1,658** | **HHI increase:** 2 × 12 × 8 = **192 points**. **Postmerger HHI:** 1,658 + 192 = **1,850** (check: 625 + 400 + 400 + 225 + 100 + 100 = 1,850). ### Triggers - **Share trigger (a):** 20% < 25% → **not met**. - **HHI trigger (b):** requires postmerger HHI > 1,800 **and** increase > 200. Postmerger HHI is 1,850 (satisfied), but the increase is 192, which is **not** greater than 200. Because the test is conjunctive, **trigger (b) is not met**. - **Structural presumption (Rule 4):** same conjunctive test → **no presumption**. **Conclusion: the yarn market, standing alone, does not require a filing.** ### Fragility warning This is a near miss, not a comfortable clearance. The concentration level already exceeds 1,800; only the 8-point cushion on the delta prevents a trigger *and* a structural presumption. The delta exceeds 200 as soon as the product of the two shares exceeds 100. For example: - Alder 13% / Prism 8% → delta 208, postmerger HHI 1,866 → **trigger and presumption**. - Alder 12% / Prism 9% → delta 216 → **trigger and presumption**. So any upward revision of either party's share by roughly one point flips the result. Before relying on this market as clean, the 12/8 split must be confirmed against audited yarn revenue for the measurement year, on the same revenue basis used for competitors, and the record should document the source of the competitor shares. --- ## 2. Medical conductive mesh ### Combined-share formula Let **I** = qualifying import revenue verified as delivered into Corda during the measurement year (Rule 3). $$\text{Combined share} = \frac{\$24\text{M}}{\$80\text{M} + I}$$ (numerator: Alder $18M + Prism $6M, stipulated complete; imports enter the denominator only). | Verified imports *I* | Denominator | Combined share | |---|---|---| | $0 | $80M | 30.00% | | $5M | $85M | 28.24% | | $10M | $90M | 26.67% | | **$16M** | **$96M** | **25.00%** | | $20M | $100M | 24.00% | | $24M | $104M | 23.08% | | $30M | $110M | 21.82% | ### Exact crossover point $$\frac{24}{80+I} < 0.25 \;\Rightarrow\; 96 < 80 + I \;\Rightarrow\; I > \$16\text{ million}$$ **At exactly $16 million of verified imports the share is exactly 25%, which satisfies "at least 25 percent" and triggers the filing.** The share trigger fails only if verified qualifying imports **strictly exceed $16 million**. The plausible range ($0–$30M) straddles that line, so the filing question is entirely determined by an input we do not yet have. ### Why mesh HHI cannot yet be calculated Two independent gaps: 1. **No seller-by-seller import shares.** Imports could be one importer with $30M (adding 743 points at a $110M denominator and possibly making it the market's largest seller) or fifteen importers with $2M each (adding ~50 points total). The postmerger HHI level is indeterminate across that spread. 2. **The $56M of "other verified sellers" is not broken out.** Even at *I* = 0, the level cannot be computed: $56M could be one firm (70% share, HHI level ≈ 5,400) or eight firms of $7M each (level ≈ 1,000). Without that breakdown there is no reliable HHI *level* on any assumption about imports. What *can* be computed is the **delta**, because it depends only on the merging parties' shares: $$\Delta \text{HHI} = 2 \times \frac{1800}{80+I} \times \frac{600}{80+I} = \frac{2{,}160{,}000}{(80+I)^2}$$ - *I* = $0 → **337.5** - *I* = $10M → 266.7 - *I* = $16M → 234.4 - *I* = $20M → 216.0 - *I* = $23.9M → 200 - *I* = $30M → 178.5 Setting Δ = 200: (80 + *I*)² = 10,800 → 80 + *I* = $103.92M → **the delta exceeds 200 for any *I* below about $23.9 million.** Practical upshot: for *I* between $16M and $23.9M the share trigger fails but the delta trigger is satisfied, so the filing question turns on whether postmerger HHI exceeds 1,800 — which requires the seller-level breakdown described above. Only if verified imports exceed roughly $23.9M does the mesh market fail both triggers regardless of the concentration breakdown. --- ## 3. Data needed to verify imports The specialist should produce, for the measurement year, on the same revenue basis as the $80M verified figure: 1. **Customer-side records:** purchase orders, invoices, and accounts-payable data from Corda mesh purchasers identifying seller, product, delivery date, delivery destination, and dollar value — the most reliable proof of "delivered into the market." 2. **Importer/distributor records:** sales ledgers of importers and distributors showing resale into Corda, with product-level SKU detail. 3. **Customs documentation with product-level detail:** entry summaries, commercial invoices, bills of lading, and packing lists sufficient to strip out the unrelated textile products bundled into the shared customs code; a bare code-level total is unusable. 4. **Product-qualification screen:** confirmation that the mesh is *medical* conductive mesh within the defined product market, excluding industrial yarn and non-conductive or non-medical mesh. 5. **Timing and destination screens:** delivery within the measurement year; exclusion of goods transshipped or re-exported, held in bonded warehouse and not sold into Corda, or sold for delivery in a later year. 6. **Double-counting check:** confirmation that imported volumes resold by sellers already inside the verified $80M are not counted twice. 7. **Revenue-basis reconciliation:** landed/customs value versus price to Corda customers; one convention must be applied to the whole market. 8. **Seller-by-seller attribution** of qualifying imports, plus **the firm-level breakdown of the $56M verified "other sellers"** — required for any HHI calculation. 9. **Documentation of method and residual uncertainty** (confidence interval), since the answer will sit near a bright line. --- ## 4. Filing and gun-jumping consequences - A filing is required **before closing** whenever a threshold is met (Rule 6). - Closing without a required filing exposes **each party** to **$40,000 per day** from closing until compliance — **$80,000 per day combined**, roughly **$2.4 million per party per month**. On a $140M deal, thirty days of non-compliance would consume about 3.4% of the purchase price, with no offsetting benefit. - Filing is cheap and non-prejudicial: it **does not concede illegality** (Rule 8). Entry, expansion, efficiencies, failing-firm, and remedy evidence remain fully available after filing. - The asymmetry is decisive. Cost of filing unnecessarily: filing expense plus the waiting period. Cost of not filing when required: per-day penalties for both parties plus the compliance and credibility fallout of having closed illegally. **Rule 7 governs management's argument.** "Imports probably push us below 25 percent" is precisely the assumption counsel may not make. The input is known and obtainable — ten days, well inside the 35-day timetable — so I must obtain it or recommend filing conservatively. I cannot resolve it in the client's preferred direction. --- ## 5. Recommendation **Do not close without either (a) verified import data showing no trigger, or (b) a filing on file. Order the ten-day verification immediately and prepare the filing in parallel.** Timeline works: signing next week, closing in 35 days, verification in 10 days. Sequencing: **Step 1 — Now.** Engage the specialist for the mesh import study *and* the firm-level breakdown of the $56M. Simultaneously begin drafting the premerger filing so it can be lodged on 24 hours' notice. Re-audit the yarn shares (12/8) given how narrow that clearance is. **Step 2 — Signing documents.** Make closing expressly conditional on completion of any required premerger filing and expiry of any applicable waiting period. Bar pre-closing integration, price or customer coordination, and exchange of competitively sensitive information between the parties. **Step 3 — Decision rule on Day 10 (conditioned on the missing figure):** | Verified qualifying imports *I* | Screen result | Action | |---|---|---| | *I* ≤ $16M | Combined share ≥ 25% → trigger (a) met | **File before closing** | | $16M < *I* < ~$23.9M | Share test fails; ΔHHI > 200. Trigger (b) turns on whether postmerger HHI > 1,800 | Obtain seller-level shares. If HHI > 1,800 → **file**. If the level cannot be reliably established → **file conservatively** | | *I* ≥ ~$23.9M | Share < 25% and ΔHHI ≤ 200 → neither trigger | **No filing required** on mesh; document the analysis and rely on the yarn conclusion | | Verification incomplete, unreliable, or the result sits within measurement error of $16M or $23.9M | Indeterminate | **File** (Rule 7) | **Step 4 — Near-miss margin.** Because $16M is a bright line and the study will carry uncertainty, I will treat a result inside roughly $16–18M as functionally indeterminate and file. Being right by $0.3M is not worth $80,000 per day of exposure. **Step 5 — If the specialist cannot deliver within 10 days,** file now and continue the verification work. Rule 8 means a filing costs us nothing on the merits; we can present the import evidence, entry and expansion, efficiencies, or a remedy after filing. **Bottom line.** The yarn market does not trigger a filing (combined share 20%; premerger HHI 1,658; postmerger 1,850; increase 192 — the level clears 1,800 but the increase does not clear 200, and the test is conjunctive), so there is no structural presumption there. The entire filing question rests on medical mesh, where the combined share is 24/(80 + *I*) and falls below 25% only if verified qualifying imports strictly exceed **$16 million**; mesh HHI cannot be computed at all until imports and the $56M residual are attributed seller by seller. Get the number in ten days, keep the filing drafted, and **file unless verified imports exceed $16 million (and, in the $16–23.9M band, unless postmerger HHI is reliably shown to be at or below 1,800)**. We must not close on management's assumption that imports "probably" solve the problem.