On August 3, 2021, the Federal Trade Commission Bureau of Competition announced what might seem like a small technical change to the Hart-Scott-Rodino merger review process: Some proposed mergers would receive form letters at the end of the 30-day initial review period saying that an antitrust investigation remains open and that the FTC might challenge the transaction if the parties close it. The FTC blamed the recent surge in HSR filings for the change. While seemingly small, the new process is another step by the FTC that reduces a major benefit of the HSR process—likely closure.
As this website has discussed frequently, the US was the pioneer among global competition law regimes in requiring parties to most large mergers and similar transactions to obtain approval from the jurisdiction’s enforcer before closing. Under HSR’s latest thresholds, both the buyer and seller for most transactions with values exceeding $92M must submit a form and certain documents and then wait for 30 days before closing the transaction.
Until recently, the reviewing agency, either the FTC or DOJ, would use that time to take one of three steps. If the agencies saw no competitive issues with the transaction and the parties requested it, the agencies would issue an “early termination” of the 30-day waiting period, post that information on the FTC website, and allow the parties to close the transaction. Second, the agencies could forego all communication with the parties and simply allow the 30-day period to expire. This “no news is good news” result also allowed the parties to close the transaction.
Third, the reviewing agency could determine that the transaction might be anti-competitive and so issue a “second request” for information to make a better determination. The prohibition on closing would continue until the parties submitted the requested information, usually months later, and waited again. (The agency usually would have expressed some interest in the transaction before issuing a second request, giving the parties one final shot at heading off the burdensome second request, as we discussed here.)
While the agencies saw the number of HSR filings significantly decline at the beginning of the pandemic, the number has been up sharply the last twelve months, often a multiple of year ago levels. To smooth the process and accommodate staffs working from home, the agencies moved to electronic submissions. Once the kinks were worked out of the system, filing parties also benefited from the streamlined process. Other actions the FTC has taken since the pandemic’s onset, however, have slowed the process and reduced the benefits parties receive from HSR.
First, the agencies suspended the early termination program early in 2021 to conserve resources. That temporary suspension continues with no end in sight. Unfortunately, because most parties request early termination and receive it, the change in policy means that hundreds of transactions that posed no competitive issues have been delayed ten days or more for an unclear benefit from a shift in agency resources.
Second, in late 2020, the FTC sued Facebook for illegal monopolization through, among other actions, its acquisitions of Instagram and WhatsApp years earlier. Those two transactions had gone through the HSR process and the FTC did not try to block them. As we have discussed and as the FTC has explicitly stated in its HSR guidance, successfully navigating the HSR process does not preclude either agency from later challenging the transaction. But in that same Introductory Guide, the FTC also recognized that “the fact that [the agencies rarely challenge reviewed mergers post-consummation] has led many members of the private bar to view [HSR] as a helpful tool in advising their clients.” HSR will be much less “helpful” if post-HSR challenges become more common and legal uncertainty increases.
That uncertainty will increase further with the August 2021 announcement from the FTC. In a new blog post, FTC Bureau of Competition Director Holly Vedova notes, “for deals that we cannot fully investigate within the requisite timelines [under the Hart Scott Rodino Act], we have begun to send standard form letters alerting companies that the FTC’s investigation remains open and reminding companies that the agency may subsequently determine that the deal was unlawful. Companies that choose to proceed with transactions that have not been fully investigated are doing so at their own risk.”
Now, some parties will no longer receive the “no news is good news” treatment at the end of the initial 30-day waiting period; instead, if the FTC is the reviewing agency, it might, or might not, issue a letter informing the parties that it has not yet determined if the transaction is anti-competitive. If it issues such a letter, the FTC will continue to investigate under some indeterminate rules for some indeterminate amount of time. While the parties are free to close the transaction, the FTC letter warns them that the FTC might later challenge the transaction and try to unwind it.
In some ways the letter is only making explicit what has always been true, though rare, under HSR: The antitrust agencies might later challenge a consummated transaction, even one that survived HSR review. But with the new letter making such a possibility explicit, it appears that such actions will become less rare. This action is yet another step that reduces the near-certainty that parties and their investors and financial institutions have enjoyed under HSR.
When HSR was passed in 1976 and fully implemented two years later, US merger review moved from litigation to regulation. The antitrust enforcers — and the consumers that they protected from anti-competitive mergers — benefited from the better review process and the end of so-called “midnight mergers.” The costs to the parties — and their customers — of competitively-benign mergers were never as small as the legislation’s sponsors claimed, as some “present at creation” pointed out long ago: Despite Rep. Rodino’s assertions during legislative debate, filings are required for many more than “the 150 largest [transactions] out of the thousands that take place every year” and the information required in the form and, especially, any second request goes well beyond “the very data that is [sic] already available to the merging parties, and has [sic] already been assembled and analyzed by them.” As a result, Rep. Rodino’s prediction that “lengthy delays and extended searches should consequently be rare” has never been accurate.
Over the years, the FTC has made many changes to HSR procedures, often streamlining the form or processes in ways that did not hinder the agencies’ investigations. For instance, one of your authors remembers the burden of collecting and maintaining base year revenues in Standard Industrial Classifications for the then world’s largest corporation. Deleting that requirement made HSR easier. These recent moves by the FTC, on the other hand, will only increase the uncertainty and costs to merging parties and their customers.