Source: Australian Competition and Consumer Commission
The ACCC has instituted proceedings in the Federal Court against Cryosite Limited for alleged cartel conduct in relation to its entry into an asset sale agreement with Cell Care Australia Pty Ltd (Cell Care).
In June 2017 Cryosite signed an agreement to sell its assets in its cord blood and tissue banking business to Cell Care. On signing the agreement, Cell Care made an upfront, non-refundable payment of $500,000 to Cryosite.
Prior to their entry into the asset sale agreement, Cryosite and Cell Care were the only private suppliers of cord blood and tissue banking services in Australia. The stem cells in cord blood and tissue, which are collected at the birth of a child and then stored, can be used in the treatment of certain blood disorders.
The asset sale agreement required Cryosite to refer all customer enquiries to Cell Care after the agreement was signed but before the acquisition was completed.
The ACCC alleges this amounts to cartel conduct because it restricted or limited Cryosite’s supply of cord blood and tissue banking services and allocated potential customers from Cryosite to Cell Care.
In these proceedings, the ACCC is concerned the alleged cartel conduct amounts to “gun jumping”. Gun jumping occurs when merger or acquisition parties are competitors and they combine or coordinate their conduct before the actual completion of the transaction.
Parties to a transaction must remain independent and continue to act as competitors, even though they may have signed a merger or acquisition agreement, until completion of the deal.
“Cryosite effectively jumped the gun by referring its customer enquiries to Cell Care before the deal was completed, by ceasing to supply cord blood and tissue banking services to new customers,” ACCC Chair Rod Sims said.
“When parties implement a transaction before the regulatory approval process is finalised, they undercut the competitive process. Gun jumping undermines the effective functioning of the ACCC and the merger process.”
“This is the first court action the ACCC has taken in relation to gun jumping conduct. Gun jumping conduct is a concern for competition regulators around the world, who have taken action for similar conduct by merging parties.”
The asset sale agreement also restrained Cell Care from dealing with any Cryosite customer who had cord blood and tissue stored with Cryosite in the five years before the proposed acquisition.
The ACCC also alleges that, ancillary to the asset sale agreement, the companies agreed Cell Care would not market to Cryosite’s existing customers.
The ACCC alleges these restraints and the ancillary agreement amount to cartel conduct because they restricted or limited the supply of cord blood and tissue banking services and allocated potential customers between Cell Care and Cryosite.
The ACCC alleges senior representatives of Cryosite and Cell Care negotiated the terms of the asset sale agreement. The representatives of Cryosite included Mr Stephen Roberts, Chairman of Cryosite, and Mr Andrew Kroger, Director of Cryosite.
Although in January 2018 Cryosite announced the proposed acquisition would not be completed, it has not re-entered the market and has retained the $500,000 it received from Cell Care. Cryosite continues to store and release cord blood and tissue for customers with existing storage contracts.
The ACCC is seeking declarations, pecuniary penalties, a compliance training program and costs.
The ACCC commenced a public review into the proposed acquisition in September 2017. In December 2017, the ACCC announced it would not make a decision on whether to grant clearance for the proposed acquisition under section 50 of the Competition and Consumer Act 2010 and would discontinue its public review of the proposed acquisition. The ACCC also announced it was continuing to investigate the circumstances surrounding entry into the agreement and the closing of Cryosite’s cord blood and tissue collection operations.