And it was the result of private litigation, not any action of the agencies that are actually supposed to protect us from monopolists.

The case involved “Door Skins” which are the inside and outside surfaces of residential doors, which over the years, through buyouts and mergers, has become a completely uncompetitive market.

After buying its biggest competitor, Jeld Wen, which also makes complete doors, cut off door manufactures from its supplies of door skins, and court has ruled that it must sell off one of its factories:

Federal antitrust enforcers have long succeeded at unwinding consummated mergers. By contrast, private antitrust plaintiffs have not successfully forced companies to break up a completed acquisition. Until now.

On February 18, 2021, the U.S. Court of Appeals for the Fourth Circuit issued a historic decision in Steves and Sons, Inc. v. JELD-WEN, Inc., affirming a district court’s remedy of divestiture after a jury found a violation of Section 7 of the Clayton Act in the door manufacturing industry. To the Fourth Circuit’s knowledge (and the consensus of the antitrust bar), the Steves and Sons case is the first time a private plaintiff has secured a federal court order compelling a defendant to divest assets acquired through a past merger.

Absent further appellate relief, the Fourth Circuit’s opinion will require that the defendant unwind a 2012 acquisition of a doorskin manufacturing plant through an auction process supervised by a court-appointed special master. The decision has put parties to corporate merger and acquisition activity firmly on notice that private antitrust litigation may lead to unscrambling the eggs of a merger years after consummation, even when federal and state antitrust enforcers do not move to block the transaction as anticompetitive.

 This is likely going to end up at the Supreme Court, given the literally unprecedented nature of the ruling.

In 2012, JELD-WEN, Inc., one of the world’s largest door and window manufacturers, acquired Craftmaster International (CMI), a competing manufacturer. Before the combination, JELD-WEN and CMI each manufactured both interior molded doors and doorskins, which are veneers that are glued to the front and back of a frame to make a molded door. CMI produced doorskins at its plants in Towanda, Pennsylvania. Before the merger was consummated, it was investigated, but not challenged, by the Antitrust Division of the Department of Justice (DOJ). After the transaction closed, only two doorskin manufacturers remained in the U.S. market (JELD-WEN and Masonite). A JELD-WEN investor later noted that this duopoly “over time will improve our pricing power.”

Based on a long-term supply contract, JELD-WEN sold doorskins to Steves and Sons (Steves), an independent door manufacturer owned and operated by the same family for 150 years. In 2014, Masonite announced it would stop selling doorskins to independent door manufacturers like Steves. Shortly thereafter, JELD-WEN exercised its right to terminate the supply contract with Steves, effective in September 2021. As JELD-WEN’s prices increased and quality issues arose, Steves asked the DOJ to reexamine JELD-WEN’s merger with CMI. In 2016, the DOJ closed its investigation. Unable to secure any enforcement action, Steves filed a complaint in the U.S. District Court for the Eastern District of Virginia, alleging, among other things, that the JELD-WEN/CMI acquisition violated Section 7 of the Clayton Act. Steves asked for equitable relief to unravel the CMI acquisition and to divest JELD-WEN’s doorskin plant in Towanda.

………

On appeal, the Fourth Circuit vacated much of the antitrust damages award, but rejected JELD-WEN’s numerous arguments related to antitrust injury, “antitrust impact,” evidentiary rulings, and the propriety of divestiture as a remedy, and held that the district court did not abuse its discretion by ordering divestiture of the Towanda plant. The appeals court noted that private lawsuits under the Clayton Act “seeking divestiture are rare and, to our knowledge, no court had ever ordered divestiture in a private suit before this case,” but that divestitures in private Clayton Act actions are based on well-established U.S. Supreme Court precedent. Ultimately, the court concluded that the Steves case “is a poster child for divestiture” given that the 2012 CMI merger had created a duopoly and the remaining suppliers “used their market power to threaten [the] survival” of independent door manufacturers like Steves.

Lots of footnotes at the link, but the this is, to quote President Biden, “A big f%$#ing deal,” at least as long as the ruling stands.

It has the potential for tying up mergers and acquisitions for months through private litigation by competitors, particularly if some well heeled groups arrange for pro bono, or at least subsidized legal action.

This is why I expect the Supreme Court to rule on this, and I’m not optimistic about the outcome there.

H/t Matt Stoller’s Big.