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In a warning to corporate America about the importance of complying with pre-merger notification rules, the Federal Trade Commission authorized a lawsuit Wednesday seeking to break up a 1998 merger between Hearst Corp.’s First DataBank unit and Indianapolis-based Medi-Span Inc. Notably, the FTC is seeking to force the company to forfeit all profits earned from the deal because the companies failed to disclose key information in their Hart-Scott-Rodino filing. The action appears to be the harshest ever for a violation of the pre-merger notification law. Besides the breakup and the profit forfeiture, the FTC has asked the Department of Justice to seek a penalty of $11,000 per day for each day the merged company was in violation of the HSR law. “The commission will move aggressively not only to restore competition to the market but also to deprive First DataBank of the monopoly profits it enjoyed as a result of its grossly illegal conduct, consisting of withholding key information from the pre-merger process and buying its only competitor,” said Molly Boast, the director of the FTC’s competition bureau. A Hearst spokeswoman declined to comment, saying she had not yet seen the FTC announcement. In a statement, San Bruno, Calif.-based First DataBank said that, while it “disagrees with today’s FTC 3-2 decision, the company will continue to cooperate with the agency in reaching a resolution of the matter. We are surprised and disappointed that, despite our earnest efforts to settle the matter, the agency has initiated litigation.” According to the FTC, First DataBank and Medi-Span were major competitors in the market for drug information databases used by pharmacists and other medical professionals. First DataBank announced its intent to acquire Medi-Span on Jan. 20, 1998. Terms were not disclosed. The companies made an HSR filing, but the FTC alleges they failed to disclose key documents used by senior executives to evaluate the acquisition and its effect on competition. The Hart-Scott-Rodino Antitrust Improvements Act requires companies to turn over all documents used by management in evaluating a merger. All five FTC commissioners supported statements condemning Hearst’s conduct, but the lawsuit was authorized on a 3-2 vote. Both Republican commissioners, Thomas Leary and Orson Swindle, said they would have preferred to consider the case before an administrative law court rather than in federal court. They also said there is no need to seek disgorgement of profits, saying other avenues exist to recover money lost by customers. The agency’s three Democratic commissioners, Chairman Robert Pitofsky and members Sheila Anthony and Mozelle Thompson, supported filing suit. They said disgorgement of profits was required because this is an exceptional case. “The alternative, which would simply restore competition by divesting illegally acquired assets, is inadequate because it allows the respondent to walk off with profits gained as a result of its allegedly illegal conduct.” Joel Mitnick, partner at the Brown & Wood LLP law firm in New York, said such violations of the HSR Act are unusual. “It is almost unheard of,” he said. “One of the reasons this type of alleged violation is so rare is that firms do not want to risk the possibility of facing disgorgement and pile-on shareholder suits.” Copyright (c)2001 TDD, LLC. All rights reserved.

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