Building material supplier TopBuild got stuck with a $23 million fee for terminating its contract to buy a rival supplier after it couldn't get the deal through Hart-Scott-Rodino antitrust review on terms that the company and the Department of Justice could agree to.
The sticking point appeared to be over deal changes DOJ wanted in order to allay its concerns that a combination between TopBuild and the target company, Speciality Products and Insulation, would overly concentrate the market for metal building insulation.
“Because the parties were not able to agree to terms at a value that worked for both parties and that would be likely to obtain regulatory approval within the DOJ’s view of the MBI business, we have agreed to terminate the transaction,” Robert Buck, TopBuild CEO, said in announcing his company’s decision April 22.
The company and DOJ spent months trying to find a way to modify the deal, but the agency applied what Buck called a narrow definition of the metal building insulation business, making it hard to change the terms of the acquisition in a way that kept the deal attractive. “We worked cooperatively to explore alternatives,” Buck said.
Jonathan Kanter, DOJ’s antitrust chief, said the deal would have been bad for competition. The companies are “two of the largest providers of important building insulation products and [would have eliminated] fierce head-to-head competition between them,” he said.
TopBuild was planning to buy SPI for $960 million, giving it access to the company’s businesses for spray foam and mechanical systems insulation as well as metal building insulation.
Among other things, TopBuild was hoping to tame the cyclicality of its business by tapping into SPI’s strong recurring revenue.
The deal was announced last year in July. By the early part of this year, TopBuild’s executives had a sense that DOJ’s review was taking longer than it usually did, which Buck attributed to the agency’s stepped-up antitrust focus.
“If you take the environment today with the DOJ — I mean, this is part of the normal process today,” Buck said on the company’s fourth-quarter earnings call. “One, the process [is] taking longer, asking for more information…. They’re trying to do their part to understand [the three businesses SPI competes in] and, just given the environment, it’s just a longer process.”
TopBuild pulled out despite the hefty contract termination fee it would trigger.
“You can kind of get a flavor, given the environment,” Buck said in the earnings call, referring to the stepped-up process companies face trying to get deals through today.
On the same day, the Federal Trade Commission, which also conducts HSR reviews, announced it was blocking the proposed merger between Tapestry, which owns the Coach and Kate Spade fashion brands, and Capri, which owns the Michael Kors brand.
