440 13 Due Diligence and Disclosures
This risk and the possible ways to mitigate it can be illustrated by the US case of
Omnicare v UnitedHealth Group.^32
Omnicare, a provider of pharmacy services, alleged that UnitedHealth andPacifiCare, two
health insurers, had improperly shared with each other competitively sensitive prescription
drug pricing data during pre-signing due diligence and post-signing merger planning and
that the exchange of information constituted a “conspiracy in restraint of trade”.
The court noted that “virtually no case law establishes standards for determining when
premerger discussions are anticompetitive”. For this reason, the decision includes a discus-
sion of the relevant principles.
The court was hesitant to “chill business activity by companies that would merge but for
a concern over potential litigation”. However, the court recognised that the federal antitrust
agencies have expressed concerns over improper information exchange, and that the “mere
possibility of a merger cannot permit business rivals to freely exchange competitively sen-
sitive information”. To allow competitors to do so “could lead to sham merger negotia-
tions” and “allow for periods of cartel behavior” before a merger was consummated.
In this case, the court concluded that the information exchange was “necessary to due
diligence and was performed in a reasonably sensitive manner”. The court took into ac-
count the fact the information was shared mostly by high-level executives evaluating the
merger, and not by the personnel responsible for negotiating prescription drug agreements.
Furthermore, the court was careful to distinguish between the exchange of average prices
(which could be permitted) from the exchange of specific prices (which was prohibited).
The court’s decision is generally consistent with guidance from the Department of Jus-
tice and Federal Trade Commission on information sharing in the context of merger nego-
tiations between competitors.
13.3.5 Buyer Due Diligence, Buyer’s Perspective
From the perspective of the buyer, the main purpose of buyer due diligence is
clear. Buyer due diligence enables the buyer to gather information about return
and risk. No sensible buyer would acquire a business without carrying out a de-
tailed investigation of the target. A thorough due diligence helps the buyer in its
decision as to: whether or not to proceed with the proposed transaction; what to
buy; how to structure the transaction; how to draft conditions, representations, and
warranties; and how much to pay for the target.^33
Buyer due diligence is therefore much more than a way to mitigate risks caused
by the caveat emptor ( “buyer beware”) principle or an exercise that helps the
buyer in drafting warranties. The buyer should perform a due diligence inspection
regardless of the possible existence of legal background rules that provide for the
liability of the vendor of shares or assets for the characteristics of the target.
(^32) Omnicare, Inc. v. UnitedHealth Group, Inc., No. 06 Civ. 06235 (N.D. III. Jan. 16, 2009).
See, for example, Weil Briefing: Antitrust/Competition, District Court Examines Infor-
mation Exchange By Competitors During Merger Discussions, 2 February 2009; Kühne
E, Broder DF, Bei Austausch von Informationen droht Gefängnis, FAZ, 25 March 2009
p 23.
(^33) See, for example, Vandrill R, Legal Due Diligence in Private Equity Transactions, Int
Comp Comm L R 13(8) (2002) p 291.