On July 8, 2022, the U.S. Department of Justice (DOJ) filed a motion for an emergency preliminary injunction to abrogate Booz Allen Hamilton Holding Corporation's (Booz Allen's) merger agreement with EverWatch Corp. (EverWatch), and prevent the parties from proceeding with their proposed merger.1 The DOJ's motion comes nine days after it filed a complaint alleging the proposed merger would substantially lessen competition for an upcoming National Security Agency (NSA) contract award for signal intelligence operational modeling and simulation support services (Optimal Decision). Due to the timing of the proposed merger and the imminent NSA timeline for accepting bids, the DOJ argues the preliminary injunction is necessary to ensure the companies to independently submit bids for Optimal Decision.
The motion alleges:
- A condition in the merger agreement requiring EverWatch not to enter into any contract with the government worth $500,000 or more without Booz Allen's consent effectively gave Booz Allen final control on any bid by EverWatch for the Optimal Decision contract. The DOJ alleges that the condition removed any incentive for both parties to provide a competitive bid because Booz Allen and EverWatch were aware they were the only two companies bidding for the contract.
- EverWatch's attempt to avoid antitrust scrutiny by proposing to remedy the DOJ's concerns by replacing EverWatch as the prime contractor on its bid was merely a "shell game." Due to the complexity and number of resources needed to compile a bid, the DOJ alleges EverWatch's proposal would not suffice in creating a competitive bid to Booz Allen without EverWatch's resources.
The new motion is noteworthy because the DOJ's novel argument that the proposed merger agreement violated Section 1 of the Sherman Act stems largely from the condition that EverWatch must not enter into any contract with the government worth $500,000 or more without Booz Allen's consent. The DOJ appears to be focusing on the effects on competition of including such a provision when two companies are competing against each other for a government contract. Provisions like these are typical in merger agreements. Going forward, companies should consider whether these provisions could affect any ongoing competition with merger partners, and thereby invite government scrutiny of their mergers.
Also of note, in response to the DOJ's motion, EverWatch filed a motion for sanctions against the DOJ alleging the DOJ's motion included highly confidential investigative materials in violation of the Antitrust Civil Process Act.2 EverWatch said that the DOJ improperly quoted from an email exchange between a company executive and private equity owner, which the company had marked "highly confidential" when it was produced. The motion requests the court enter a protective order to prevent the DOJ from publicly filing or disclosing any more of EverWatch's confidential documents and to admonish and sanction the DOJ. EverWatch's motion also claims the DOJ encouraged Everwatch's proposal to assuage the DOJ's concerns by replacing itself as prime contractor on its bid. The DOJ has since responded to EverWatch's motion, claiming that the "highly confidential" designation was unjustified and that the law permits the DOJ to disclose the materials. The DOJ further argued it never encouraged EverWatch's proposed remedy.
For more information on the DOJ's complaint, please contact Michelle Yost Hale, Ben Labow, or another member of the firm's antitrust and competition practice.
[1] Motion for a Preliminary Injunction, United States v. Booz Allen Hamilton Corp., et al, No. 1:22-cv-01603-CCB, (4d Cir. July 08, 2022), available at https://www.law360.com/articles/1510038/attachments/0.
[2] Motion for Protective Order and Sanctions, United States v. Booz Allen Hamilton Corp., et al, No. 1:22-cv-01603-CCB, (4d Cir. July 11, 2022), available at https://www.law360.com/articles/1510038/attachments/1.
