NEW YORK ( The Deal) -- NetScout Systems (NTCT - Get Report) has told the Department of Justice it will not close its planned $2.6 billion acquisition of the communications business of Danaher (DHR - Get Report) until late May unless the DOJ provides antitrust clearance before then.
NetScout said in a preliminary proxy statement for the deal filed with the Securities and Exchange Commission Monday that it and Danaher certified substantial compliance with the DOJ's antitrust investigation on March 19. But rather than put the DOJ on a 30-day clock for ruling on the deal -- as they were statutorily entitled to do -- the parties entered a timing agreement with the DOJ's Antitrust Division in which they agreed not to consummate the merger before the 70th day after certifying substantial compliance, unless the Antitrust Division notifies them that it has closed the investigation. The 70-day period would end May 28.
The DOJ extended its investigation of the deal when it issued a second request for information on Dec. 24. The companies have said they expected to close the transaction in mid-2015, and the merger agreement contains a termination date of October 12.
NetScout is acquiring three lines from Danaher: Tektronix, which specializes in test, measurement and monitoring; Fluke Networks, which focuses on network management and monitoring; and Arbor Networks, which is aimed at network security and built its reputation around denial-of-service attack mitigation.
Although there are many competitors in the overall market for network security, the DOJ is believed to be looking at one of the sub-markets in which NetScout and Danaher compete. The most likely area is the market for telecommunications service providers, where according to NetScout's most recent annual report, the company's primary large competitors are Tektronix, one of the divisions of Danaher it's acquiring; and JDS Uniphase (JDSU). There are also a number of smaller private companies and new market entrants serving that segment.
The company has considered that it might need to sell some operations in order to secure antitrust approval, as the merger agreement obligates NetScout to accept antitrust divestitures as long as the assets covered do not in the aggregate account for more than 10% of the merged company's gross revenues. The timing agreement would buy NetScout time to find a buyer for any assets it must divest.
In the Oct. 13 conference call announcing the merger, NetScout co-founder and CEO Anil Singhal conceded that at first glance, there may appear to be overlap between his company's customers and Danaher's. But "in places where [customers] are buying both products, they are buying for two very different reasons," he said. "Our product is mostly bought for monitoring, and Tektronix's product is mostly bought for troubleshooting. So, I think that's going to continue to be the case, and customer will get more than one plus one for the price of two."
NetScout and Danaher each filed the merger notifications with U.S. antitrust officials on Oct. 24. The application was withdrawn on Nov. 24 and refiled on Nov. 26 to provide the antitrust agencies more time to review the transaction without issuing a second request, but the DOJ request came anyway.