The Merger Market With Missing Imports

Question 54: The Merger Market With Missing Imports

Your role

You represent Alder Loom, which proposes to acquire rival Prism Thread for $140 million in the fictional Federation of Corda. Management needs a merger-screen calculation and a filing recommendation. One product market is complete; the other depends on import revenue not yet verified.

Governing law

Assume the following Corda rules apply:

1. A premerger filing is required for a transaction above $100 million when, in any properly defined market, either: (a) the parties' combined share is at least 25 percent; or (b) postmerger HHI exceeds 1,800 and the merger increases HHI by more than 200 points.

2. HHI is the sum of squared market shares. Combining firms increases HHI by twice the product of their premerger shares.

3. Revenue from products delivered into the market counts regardless of seller location. Claimed imports are included only to the extent verified as sales into the relevant market during the measurement year.

4. A postmerger HHI above 1,800 with an increase greater than 200 creates a structural presumption of competitive harm. Other screens do not create that presumption but may still require investigation.

5. Product-market definition turns on customer substitution under the supplied facts. Counsel must not combine distinct products merely to dilute share.

6. Parties must file before closing when a threshold is met. Closing without a required filing exposes each party to $40,000 per day from closing until compliance.

7. When a known, obtainable market input determines filing, counsel must obtain it or recommend filing conservatively. It may not assume the input in the direction preferred by the client.

8. A filing does not concede illegality. The parties may present entry, expansion, efficiencies, failing-firm, or remedy evidence after filing when supported.

Facts

Alder Loom and Prism Thread make two products: industrial conductive yarn and medical conductive mesh. Customers do not substitute one for the other, so they are separate markets.

Industrial conductive yarn

Premerger shares are:

• Alder Loom: 12 percent.
• Prism Thread: 8 percent.
• Competitor A: 25 percent.
• Competitor B: 20 percent.
• Competitor C: 15 percent.
• Competitor D: 10 percent.
• Competitor E: 10 percent.

The shares sum to 100 percent.

Medical conductive mesh

Verified domestic-market revenue totals $80 million and includes:

• Alder Loom: $18 million.
• Prism Thread: $6 million.
• Other verified sellers combined: $56 million.

Industry participants report additional imported mesh, but the supplied record does not establish how much was actually delivered into Corda during the measurement year. Customs codes combine medical mesh with unrelated textile products. A specialist can verify qualifying import revenue within ten days from customer and importer records. The plausible but unverified range is $0 to $30 million.

Assume Alder and Prism's $24 million combined medical-mesh revenue is complete. If qualifying imports exist, add them to the $80 million market denominator. No verified seller-by-seller import shares are available, so a reliable medical-mesh HHI cannot yet be calculated.

The parties want to sign next week and close in 35 days. Management argues no filing is needed because "imports probably push us below 25 percent."

Assignment

Analyze:

• Combined share, premerger HHI, postmerger HHI, and HHI increase for industrial conductive yarn.
• Whether either filing trigger or structural presumption applies in that market.
• The medical-mesh combined-share formula using qualifying import revenue.
• The exact import-revenue level at which the combined share falls below 25 percent.
• Why medical-mesh HHI cannot yet be calculated reliably.
• The specific data needed to verify imports.
• Filing and gun-jumping consequences.
• Whether to file now, wait for the ten-day data work, or proceed without filing, with a concrete recommendation conditioned on the missing market figure.

Q54 key (Merger Market With Missing Imports)

1. Industrial-yarn combined share is 20 percent. Premerger HHI is 12 squared + 8 squared + 25 squared + 20 squared + 15 squared + 10 squared + 10 squared = 1,658. Increase is 2 x 12 x 8 = 192; postmerger HHI is 1,850. Missed: the complete market screen is wrong.
2. Neither filing trigger applies in yarn: combined share is below 25 percent and HHI increase is not greater than 200. Post-HHI exceeds 1,800 but the delta fails the conjunctive trigger and presumption. Missed: one threshold component is treated as sufficient.
3. Medical-mesh combined share is $24 million divided by $80 million plus verified qualifying imports I. The share is at least 25 percent when 24/(80 + I) is at least 0.25. Solving gives I at or below $16 million. It falls below 25 percent only when imports exceed $16 million. Missed: management's vague import claim replaces the dispositive calculation.
4. Medical HHI cannot be computed because seller-by-seller import shares are absent. Total import revenue alone will not supply squared shares. Missed: a fabricated HHI is used for filing.
5. Obtain verified customer purchases, importer sales, product classifications, delivery destinations, and seller-level revenues within ten days. The customs category alone is insufficient. Missed: unrelated textiles dilute the market.
6. The filing call depends on the missing imports unless another reliable trigger emerges. Wait the ten days before closing, not before signing, and file if qualifying imports are $16 million or less or if uncertainty remains too great to establish below-threshold status. Missed: parties close on "probably" and incur $80,000 per day combined exposure.
7. Filing preserves legality without conceding competitive harm. Do not proceed to close without either verified data defeating both triggers or a filing and clearance. Missed: timing preference becomes gun jumping.