The Federal Trade Commission (FTC) is warning companies that it’s taking longer than normal to conduct merger reviews…
The Federal Trade Commission (FTC) is warning companies that it’s taking longer than normal to conduct merger reviews. While companies may elect to proceed with transactions without waiting for the agency to conclude its investigation, they are doing so at their own risk, according to the FTC.
FTC Facing Tidal Wave of Merger Filings
Pursuant to the Hart-Scott-Rodino Antitrust Improvements Act (HSR Act), companies proposing a merger or acquisition must notify regulators and satisfy a mandatory waiting period if the size of the parties involved and the value of a transaction exceeds certain filing thresholds, absent an applicable exemption. The current size-of-transaction threshold is $92 million.
Once the parties submit a Premerger Notification to the FTC and the Department of Justice (DOJ), the HSR Act generally gives the agencies 30 days to pursue an initial investigation and determine whether additional information is needed to evaluate the transaction. If the FTC or DOJ makes a “second request” seeking additional information, the transaction is placed on hold until the companies have fully complied with the request. Once the parties have provided all of the necessary information, the agency has a limited number of days to file a complaint challenging the proposed merger ahead of its consummation.
As set forth in a recent blog post, the FTC is currently struggling to meet these deadlines. “This year, the FTC has been hit by a tidal wave of merger filings that is straining the agency’s capacity to rigorously investigate deals ahead of the statutory deadlines,” the agency wrote.
According to the latest filing data, more than 1,700 Hart-Scott-Rodino pre-merger notices have been filed in the first six months of 2021. By comparison, the agencies received a little more than 2,000 filings in all of last year. While transactions were impacted by the COVID-19 pandemic in 2020, the average number of filings has typically been around 2,000 for the past several years.
Because the FTC is unable to fully investigate within the requisite timelines, it has started sending 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. The FTC also warns that companies that choose to proceed with transactions that have not been fully investigated are doing so at their own risk. According to the FTC, “this action should not be construed as a determination that the deal is unlawful, just as the fact that we have not issued such a letter with respect to an HSR filing should not be construed as a determination that a deal is lawful.”
The FTC blog post includes a link to a sample pre-consummation warning letter. The letter emphasizes that the FTC and DOJ are authorized to determine that a merger is illegal even after the companies have merged and even if the merger was subject to premerger review. Thus, the agency maintains the right to challenge a deal regardless of whether it was initially investigated. The letter states, in relevant part:
Please be advised that if the parties consummate this transaction before the Commission has completed its investigation, they would do so at their own risk. Any inaction by the Commission before the expiration of the waiting period should not be construed as a determination regarding the lawfulness of the transaction. Indeed, no such determination could be made unless and until the Commission completes its investigation. The parties cannot stop the investigation or avoid an enforcement action by consummating. To the contrary, and in keeping with its commitment to aggressive enforcement, the Commission may challenge transactions— before or after their consummation—that threaten to reduce competition and harm consumers, workers, and honest businesses.
Key Takeaway
While a successful premerger review isn’t akin to a rubber stamp, it does provide companies with some assurance that the transaction won’t be challenged by the FTC or DOJ. Likewise, proceeding without waiting for the agencies’ investigation to conclude does come with risks. Accordingly, we encourage businesses contemplating an M&A transaction to work with a knowledgeable attorney who can guide them through the process and determine the best course of action, particularly when challenges like this arise.
If you have questions, please contact us
If you have any questions or if you would like to discuss the matter further, please contact me, Thomas Herndon, Jr., or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.
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