U.S. and Assa Abloy Reach Abrupt SettlementMay 8th, 2023 by Drew Vass, Executive Editor
A bench trial between the United States and Assa Abloy came to a screeching halt Friday, after the two parties reached a deal to settle the case. The agreement marked a stark change in strategy, after seven months of deliberation in which the U.S. staunchly objected to Assa Abloy’s plan to acquire the HHI division of Spectrum Brands, citing concerns over competition. Assa Abloy’s agreement to acquire Spectrum’s HHI division was announced on September 8, 2021, including a purchase price of $4.3 billion. On September 15, 2022, the U.S. Department of Justice (DOJ) blocked the deal. According to DOJ officials, Assa Abloy and Spectrum are two of the three largest producers of residential door hardware in a $2.4 billion U.S. industry. The proposed transaction would have threatened competition in at least two separate antitrust markets, U.S. officials said, including the markets for premium mechanical door hardware and smart locks.
“The settlement with DOJ is an important milestone toward closing of the HHI acquisition, which will empower us to increase investments in the residential segments, realize the synergies of MUSD 100 and strengthen our product offering for the benefit of consumers,” said Nico Delvaux, president and CEO of Assa Abloy.
Following Friday’s settlement, the acquisition remains subject to customary closing conditions, including approval of the Mexican competition authority, officials for Assa Abloy said.
A competitive impact statement, filed by the U.S. May 5 in accordance with the Antitrust Procedures and Penalties Act (Tunney Act), identified numerous concerns with Assa’s divestiture proposals, suggesting that the divestiture agreement restricted the rights of Fortune to use the Yale brand name to sell products outside of the market for residential smart locks, including “important products” in the multifamily segment. This would disincentivize Fortune’s investment in the Yale brand, officials said, curtailing its ability to compete for customers who sought Yale locks. The supply agreement between Assa Abloy and Fortune “lacked specific enforcement terms and risked Fortune’s ability to supply an important customer base,” they said.
According to court documents, the U.S. does not contend that relief obtained through a Final Judgment will fully eliminate the risks cited in its original complaint. “The United States respectfully submits that only a complete injunction preventing the original proposed merger would have eliminated those risks,” officials said, adding, “Alternatively, complete divestitures of all relevant stand-alone business units necessary to fully compete may have diminished those risks significantly. Based on the totality of circumstances and risks associated with this litigation, however, the United States has agreed to the proposed Final Judgment, which includes additional provisions and protections to address some of the concerns identified … The United States believes the court will conclude the proposed Final Judgment is in the public interest under the Tunney Act.”
According to the proposed Final Judgment, Assa Abloy is now required to make certain divestitures to Fortune Brands Innovations Inc., or to another entity to be approved by the U.S. in its sole discretion. A monitoring trustee will track the acquirer’s “success in competing in the market for residential smart locks with the assets divested,” court documents state. In the process, Assa Abloy must take steps to preserve and maintain the full economic viability, marketability and competitiveness of divested assets until the divestitures ordered in the proposed Final Judgment are deemed complete.
Divested assets include, among other things, Assa Abloy’s “Premium Mechanical Divestiture Business,” which consists of the Emtek and Schaub brands, and “Smart Lock Divestiture Assets,” including the August and Yale brands, but not the Yale-branded commercial business.
The proposed Final Judgment also contains provisions intended to facilitate any acquirer’s efforts to hire certain employees, and requires Assa Abloy, at an acquiring company’s option, to enter into a supply contract for all products necessary to operate the divested businesses and related brands.
The settlement mandates a shortened transition period between Assa Abloy and an acquirer, subjecting the company to “significant daily penalties if it fails to transfer certain smart lock assets located in Vietnam by December 31, 2023.”
Under the Clayton Act and the Antitrust Procedures and Penalties Act (APPA), proposed Final Judgments, or “consent decrees,” are subject to a 60-day comment period, after which the court determines whether a Final Judgment is in the public interest. The deal is expected to close by the end of June 2023, officials for Assa Abloy said.