1 Legal and enforcement framework
1.1 Which legislative and regulatory provisions govern merger control in your jurisdiction?
Merger control is principally governed by Section 7 of the Clayton Act, which prohibits transactions where "the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly". Both the Federal Trade Commission (FTC) and the Antitrust Division of the Department of Justice (DOJ) have authority to enforce Section 7. The question of which agency will review any given merger is a matter mostly of tradition and long-term expertise, with each agency owning long-standing expertise in particular industries. Section 7A of the Clayton Act (the ‘Hart-Scott-Rodino Act') governs pre-merger notification and requires parties that meet its size-of-transaction and size-of-person thresholds to file notification forms with the FTC and DOJ and observe a statutory waiting period before consummating the transaction. While the Hart-Scott-Rodino Act determines which transactions are necessarily reviewed by the FTC and DOJ, it does not preclude the agencies from investigating transactions that fall below the relevant thresholds and thereby fail to trigger a filing requirement. The agencies, rather, are free to investigate and potentially challenge all transactions, including those that are already consummated and/or that never faced a Hart-Scott-Rodino filing requirement.
Sections 1 and 2 of the Sherman Act prohibit unreasonable restraints of trade or attempted monopolization and Section 5 of the FTC Act prohibits "unfair method[s] of competition". Among government agencies, the DOJ enjoys exclusive authority to enforce the Sherman Act, while the FTC enjoys exclusive authority under the FTC Act. Finally, private parties can challenge mergers and acquisitions, but only if they can prove injury resulting from the
1.2 Do any special regimes apply in specific sectors (eg, national security, essential public services)?
The FTC and DOJ apply the same principles to transactions regardless of the industry involved. However, certain industries can also be reviewed by other federal agencies besides the FTC or the DOJ. For example, the airlines, electric power, banking, railroad and telecommunications industries are all subject to review by the independent federal agencies that regulate their respective industries.
1.3 Which body is responsible for enforcing the merger control regime? What powers does it have?
The FTC and the DOJ (collectively, "the agencies") are responsible for enforcing the US antitrust laws governing mergers and acquisitions. DOJ is responsible for enforcing the Sherman Act while the FTC is responsible for enforcing the FTC Act and both agencies share joint enforcement of the Clayton Act. Although both agencies share jurisdiction, only one agency can review a single transaction. The agencies decide which agency will review the merger or acquisition based on prior experience or expertise.
The agencies can seek preliminary injunctions and issue both structural and behavioural remedies for mergers and acquisitions deemed anti-competitive. Structural remedies include divestures, licence or asset swaps, and special conditions imposed on the buyer, among others. Behavioural remedies impose binding commitments to mitigate the anti-competitive effects of the transaction.
Private parties and state attorneys can also challenge mergers and acquisitions in certain circumstances, but private parties must demonstrate that they will be injured by the anti-competitive effects of the transaction.
2 Definitions and scope of application
2.1 What types of transactions are subject to the merger control regime?
The US antitrust laws are not limited to certain industries or transactions. Under Section 7 of the Clayton Act, any transaction that has the potential to substantially lessen competition is reviewable by the agencies. Therefore, all kinds of transactions are potentially subject to merger review. Transactions that are typically challenged include stock and asset acquisitions, mergers, joint ventures, minority investments, and incremental investments. Additionally, the Hart-Scott-Rodino Act contains size-of-transaction and size-of-person thresholds that, if met, trigger mandatory reporting requirements to the agencies.
2.2 How is ‘control' defined in the applicable laws and regulations?
US antitrust laws do not require acquisition of ‘control' for a transaction to be reviewable by the agencies. The agencies have the authority to review any transaction with the potential to result in a substantial lessening of competition, so long as that transaction impacts on commerce in the United States.
However, ‘control' is defined in the Hart-Scott-Rodino Act because it is central to determining which companies should be considered part of the acquiring or acquired person, and because the acquisition of control triggers filing requirements in transactions involving non-corporate interests, such as partnerships or limited liability companies. The Hart-Scott-Rodino Act defines ‘control' as follows:
"(1) either (i) holding 50% or more of the outstanding voting securities of an issuer; or (ii) in the case of an unincorporated entity, having the right to 50% or more of the profits of the entity, or having the right in the event of dissolution to 50% or more of the assets of the entity, or (2) having the contractual power presently to designate 50 percent or more of the directors for a for-profit or not-for-profit corporation."
2.3 Is the acquisition of minority interests covered by the merger control regime, and if so, in what circumstances?
Acquisitions of minority interests are covered by the US merger control regime. This is true in the sense that the agencies are free to investigate virtually any transaction, regardless of whether the acquired interest is minority or majority. It is also true in the sense that mandatory filing requirements under the Hart-Scott-Rodino Act are not dependent on whether the relevant transaction involves the acquisition of a majority interest. For example, if the acquiring entity purchases $92 million worth of voting securities of a given corporation, that transaction is reportable, even if the acquired voting securities constitute only a small portion of the total voting securities of the selling entity.
2.4 Are joint ventures covered by the merger control regime, and if so, in what circumstances?
Generally, for-profit joint ventures are covered by the US merger control regime. Not-for-profit joint ventures are usually exempt, but these transactions may be reviewable if one of the Hart-Scott-Rodino Act thresholds is met. In cases where parties are contributing to a new joint venture and receiving voting securities in exchange, the transaction is treated as an acquisition of the new joint venture by the contributing parties and may face Hart-Scott-Rodino filing requirements. The same is true of an outright acquisition of a joint venture entity or the acquisition of an existing interest in a joint venture. If the joint venture is purely the product of a contractual relationship between parties (no actual contribution to a joint venture entity), the transaction is typically not subject to merger review, though it will still be generally subject to antitrust law, such as Section 1 of the Sherman Act, which prohibits any combination that unreasonably restrains trade.
2.5 Are foreign-to-foreign transactions covered by the merger control regime, and if so, in what circumstances?
Generally, foreign-to-foreign transactions trigger Hart-Scott-Rodino filing requirements only if they have a sufficient nexus with the United States, with the extent of the nexus primarily determined by the value of relevant sales into the United States or the value of relevant assets in the United States.
In transactions involving the acquisition of voting securities, the transaction is exempt from the Hart-Scott-Rodino Act unless the issuer, along with its controlled entities, either:
- holds US-based assets over $90 million; or
- made sales in or into the United States exceeding $90 million.
If the voting securities of a foreign issuer are acquired by a foreign person, the transaction is exempt unless:
- the person acquires 50% or more of the voting stock of the company; and
the target enjoys sales in or into the United States above $90 million or holds assets in the United States valued above the same threshold.
In transactions involving foreign assets, the transaction is exempt from the Hart-Scott-Rodino Act unless the relevant foreign assets generated sales in or into the United States exceeding $90 million. However, even in transactions with relevant sales above this threshold, the transaction will be exempt if it meets certain qualifications.
2.6 What are the jurisdictional thresholds that trigger the obligation to notify? How are these thresholds calculated?
The Hart-Scott-Rodino Act includes three standard thresholds or tests, which are as follows:
- The commerce test requires that one of the parties be involved in "interstate United States commerce". The terms are broadly construed under the Hart-Scott-Rodino Act and this threshold is almost always met if the other thresholds are met.
- The size-of transaction test requires that the acquiring entity would hold voting securities, assets and/or non-corporate interests in the acquired entity valued at above $90 million. The thresholds are set and adjusted every year by the Federal Trade Commission based on a formula set by the Hart-Scott-Rodino Act. For acquisitions of non-corporate interests, the acquiring party must also acquire ‘control', which is defined in this case as the right to 50% or more of the profits or a right to 50% or more of the assets upon dissolution.
- The size-of-persons test applies in the event the transaction is valued between $90 million and $359.9 million. In that case, at least one of the parties involved to the transaction must have annual net sales or total assets of $180 million and the other must have annual net sales or total assets of $18 million or more. Care must be taken in analysing the relevant assets and sales, which should include those of the ‘ultimate parent entity' and all its controlled subsidiaries, using the test for ‘control' as described in question 2.2.
2.7 Are any types of transactions exempt from the merger control regime?
Substantively, Section 7 of the Clayton Act and other US antitrust laws reach all transactions, as long as they the parties to the transaction are "in commerce or in any activity affecting [US] commerce ".
Procedurally, the Hart-Scott-Rodino Act has many exemptions to its filing requirements, including:
- acquisitions of goods and reality in the ordinary course of business ;
- transactions involving certain classes of real property ;
- acquisitions of 10% or less of an issuer made solely for purposes of investment ;
- acquisitions of 15% or less of an issuer by certain types of institutional investors; and
acquisitions of non-US issuers that do not have sufficient sales or assets in or into the United States.
3.1 Is notification voluntary or mandatory? If mandatory, are there any exceptions where notification is not required?
If the Hart-Scott-Rodino Act thresholds are met, notification under the act is mandatory. However, the notification requirements do not apply to:
- the acquisition of non-voting securities;
- certain acquisitions of voting securities ‘solely for the purpose of investment';
- the acquisition of goods or realty in the ordinary course of business;
- certain acquisitions that require the prior approval of another federal agency;
- stock dividends and splits;
- certain acquisitions by securities underwriters, creditors, insurers and institutional investors; and
- certain financing transactions where the acquiring person contributes only cash to a non-corporate entity and will no longer control the entity after it realises its preferred return.
3.2 Is there an opportunity or requirement to discuss a planned transaction with the authority, informally and in confidence, in advance of formal notification?
Yes. A party (or both parties) can always approach the agencies prior to formal notification, provided, that the merger or acquisition agreement permits that pre-filing approach. The value of doing so depends in large part on a substantive assessment of the transaction. A relatively simple transaction with limited product or geographic overlap will not likely warrant such a call, and even a more complex transaction might warrant caution if the parties believe the agencies will come to the right conclusion during their initial 30-day review and allow the transaction to close. On the other hand, a deal with obvious complexities that may very well result in an extensive ‘second request' for information may merit some attention upfront not only to alert the agencies, but also to start the process of educating the staff lawyers and economists involved on the benefits of the proposed transaction and why those outweigh any potential adverse impact.
Remember also that in the United States, merger control filings are made with both the Antitrust Division of the Department of Justice (DOJ) and the Federal Trade Commission (FTC), and the initial 30-day waiting period clock (15 days for cash tenders and bankruptcy acquisitions) does not start running until both agencies receive complete notification forms. (For that reason, it is customary to file with both agencies simultaneously.) If it is unclear which agency will ultimately gain clearance to review the transaction and which particular section within that agency will conduct the investigation, it may very well be premature to attempt to discuss the transaction in advance of any filing. However, some industries have a long history of being cleared to either the DOJ or the FTC (and to a particular section within that agency), and an early pre-filing call to alert the section management and staff, and to start the process of educating them on the particular transaction, may well be fruitful.
3.3 Who is responsible for filing the notification?
Notification forms must be submitted by both the ‘acquiring person' and the ‘acquired person' in virtually all cases; ‘person' is defined as the ‘ultimate parent entity' that controls the buyer or sell, but is not controlled by any other person in the corporate structure.
3.4 Are there any filing fees, and if so, what are they?
There are three filing fee levels for smaller, mid-sized and larger transactions. The filing fee for each is a set amount that depends on thresholds that are pegged to the value of the transaction, as adjusted each April, at the start of the government's new fiscal year, based on the US gross national product.
For the remainder of 2019 and the first three months of 2020, the filing fees and threshold are as follows: $45,000 filing fee for transactions valued above $90 million and less than $180 million; $125,000 for transactions valued at or above $180 million and less than $899.8 million; and $280,000 for transaction valued above $899.8 million.
- $45,000 filing fee for transactions valued above $90 million and less than $180 million;
- $125,000 for transactions valued at or above $180 million and less than $899.8 million; and
- $280,000 for transaction valued above $899.8 million.
Special rules apply to acquisitions of voting securities to simplify the notification and avoid redundant fees. So, for example, a party has one year from its notification to acquire enough shares to cross the value-of-transaction threshold in effect at the time of its notification. Once it does so, it may acquire additional shares at any time over the next five years up to the next threshold without any further notification. If the party fails to acquire sufficient shares to cross the threshold within one year of its notification, however, its filing will lapse and a new notification will be required if it subsequently acquires voting securities with a value above the then-applicable threshold.
The acquiring person is responsible for paying the filing fee; however, the parties can vary that by contract and it is not unusual for parties to a merger, for example, to split the filing fee evenly.
3.5 What information must be provided in the notification? What supporting documents must be provided?
Notification in the United States consists of a standard form that requires the same basic information in virtually every reportable transaction:
- a short description of the deal and the parties' corporate structure ;
- the identification of major shareholders; and
- identification of all overlapping product lines (by North American Industrial Code classification) and geographies.
In addition, the actual transaction documents must be submitted, along with certain documents called for in ‘Item 4' of the Hart-Scott-Rodino notification form. The transaction documents may contain important terms that signal how the parties view the antitrust risks of their deal – for example, an asset purchase agreement may contain risk-sharing provisions, a break-up fee or specific divestiture obligations if an agency extends its investigation beyond the initial 30-day waiting period. Accordingly, the antitrust provisions may be of great interest to the agencies and parties should factor that into their negotiation and drafting process.
Item 4 documents are of even greater importance to the agencies, potentially. Item 4, in essence, mandates that the parties hand the agencies upfront any board or executive-level assessment of the competitive effects of the transaction – for example, any impact it will have on market shares, prices, output or other elements affecting the industry's competitive dynamics, such as innovation efforts or synergy analyses. The precise definitions in Item 4 are more detailed, but the point is to allow the agencies to cut to the chase and see precisely how the parties (and, in particular, the acquirer) anticipate the transaction will affect its ability to compete. Does it anticipate having a high market share with the unilateral ability to increase prices and are those budgeted into its pro forma assessment of the transaction? Does it anticipate that industry concentration will increase to a level that makes price increases more likely or more effective? Or does it anticipate cost savings from more efficient manufacturing operations and, thus, the potential to grab market share by selling more at lower prices?
The Item 4 documents, like the transaction documents themselves, often provide the agencies with a very important ‘first impression' of how the parties view the transaction. Companies should therefore take care in preparing potentially responsive documents to make sure they fully and accurately describe the transaction's potential impact and do not leave misimpressions or inaccuracies or contain unwarranted or speculative opinions. Parties should take care to produce all Item 4 documents in their possession. The penalties for intentionally withholding responsive documents can be severe and can include significant dollar fines and ultimately jeopardize the parties' ability to close their transaction.
The filing must also be accompanied by a sworn and notarized certificate (eg, from a corporate officer or director of a corporation), stating that the submission is complete.
3.6 Is there a deadline for filing the notification?
There is no deadline for filing notification in the United States. If the parties close on their transaction without filing, however, they proceed at their peril, as both the DOJ and the FTC have unwound closed deals (‘unscrambled the eggs') and imposed significant fines for failure to file a notifiable transaction. It is therefore recommended that the parties submit their notification forms within a reasonable period after signing a definitive agreement or binding letter of intent (eg, 10 business days).
Importantly, transactions below the notification thresholds are still subject to government review. The thresholds do not immunise transactions below the thresholds; they simply require the parties to affirmatively notify the agencies of deals above the thresholds. Both the DOJ and the FTC regularly investigate transactions below the thresholds and, at times, have unwound those deals too.
3.7 Can a transaction be notified prior to signing a definitive agreement?
Yes. A transaction can be notified upon a contract or letter of intent if the party submitting the notification attests that it has a good-faith intention of completing the deal.
3.8 Are the parties required to delay closing of the transaction until clearance is granted?
Yes. The purpose and design of the Hart-Scott-Rodino Act is to ensure that the government has an opportunity to review all notifiable transactions before closing and to assess whether they will likely have an adverse impact on competition.
3.9 Will the notification be publicly announced by the authority? If so, how will commercially sensitive information be protected?
The fact of a notification is not made public by the agencies, although it is frequently announced by the parties themselves. If the parties request early termination of the initial waiting period when submitting their Hart-Scott-Rodino form and the reviewing agency subsequently grants early termination during the initial 30-day waiting period, the fact that early termination has been granted is published in the Federal Register and online.
All the information submitted by the parties in notifying the agencies (the form itself and all attachments, such as the transaction agreements or the Item 4 documents) is confidential under regulations governing the review process conducted by either agency. Likewise, the parties can invoke confidentiality over anything submitted voluntarily or pursuant to request during the initial 30-day waiting period, or pursuant to subpoena if a ‘second request' is issued.
As a result, the norm is that no information at all is public, unless the parties choose to make it so. Of course, if an investigation commences, the agencies necessarily gather documents and even testimony from other participants in the industry (competitors, customers and suppliers); and while the agencies are prohibited from disclosing any specific information provided by the parties to the transaction, those knowledgeable in the industry may, at times, be able to draw some broad inferences about the parties and/or the proposed transaction.
4 Review process
4.1 What is the review process and what is the timetable for that process?
The parties' Hart-Scott-Rodino filing triggers a 30-day waiting period (or 15 days for cash tender offers or transfers in bankruptcy). After notification is filed, the Federal Trade Commission (FTC) will review the filing and then one of the two agencies will be assigned to review the transaction. If the reviewing agency takes an interest in the transaction, an attorney from one of the agencies will then contact the parties' lawyers to request more information. Such initial requests for additional information beyond the filing are informal and responding is voluntary, though failure to respond will potentially lead to an extended review of the transaction. The initial waiting period typically ends in one of the following four ways:
- The reviewing agency grants ‘early termination'. This means that the agency has concluded that the transaction presents no competitive issue and is ending its investigation early. Parties must request early termination in their initial Hart-Scott-Rodino filing, which they almost invariably do. At the end of every month, the agencies publish a list of transactions for which they have granted early termination. Some parties interested in avoiding this publicity will forgo requesting early termination in their Hart-Scott-Rodino filings.
- The reviewing agency lets the 30-day (or 15-day, in certain circumstanced described above) clock expire. This signals the end of the agency's investigation and parties are free to close. Unlike the granting of early termination, the agencies do not acknowledge this event publicly.
- The parties to the given transaction pull-and-refile their Hart-Scott-Rodino filing. This resets the Hart-Scott-Rodino clock, giving the agencies another 30 days (or 15 days, depending on the type of transaction) to review the transaction. The ability to pull and refile a Hart-Scott-Rodino filing without paying an additional filing fee is a one-time courtesy that the agencies grant parties to a given transaction. The Hart-Scott-Rodino Act does not grant such a right to parities and the agencies cannot, under the law, explicitly request that parties pull and refile. In practice, the investigating staff at the reviewing agency signals the parties via informal communications, with the essential message being that staff has a few remaining questions about the transaction that could likely be resolved with some additional time. The practical purpose of a pull and refile is to give the agencies another 30-day waiting period with the goal of avoiding the issuance of a second request (described below).
- The last, and least favourable, end to the initial waiting period is the issuance of a second request by the reviewing agency. A second request is an extensive document, data and interrogatory subpoena, whose issuance typically signals that the reviewing agency has significant unresolved concerns about the given transaction. Response to a second request is not voluntary. Upon issuance of the second request, the waiting period is extended until the 30th day (or the 10th day for cash tender offers or transfers in bankruptcy) after the date of substantial compliance with the second request. Parties responding to a second request typically require three to five months to do so. The agencies can issue a second request at their discretion.
4.2 Are there any formal or informal ways of accelerating the timetable for review? Can the authority suspend the timetable for review?
Given the extensive burden and delay inherent in a second request, parties to any given transaction are typically highly motivated to satisfy any agency concerns during the initial waiting period. To that end, parties to transactions involving potential competitive issues will frequently approach the agencies prior to a Hart-Scott-Rodino filing , essentially inviting them to begin their review of the proposed transaction prior to the initiation of the initial waiting period. Pursuant to this strategy, parties often delay Hart-Scott-Rodino filings for a week or even a month after initially contacting the reviewing agency, thereby giving the reviewing agency more time to potentially resolve concerns and avoid the issuance of a second request, which is the only formal mechanism for suspending the review period once it officially starts with the Hart-Scott-Rodino filing.
Such pre-filing outreach to a given agency typically occurs when there is little question about which agency will ultimately review the given transaction. In the event, parties simply call the relevant staff of the particular DOJ and FTC division responsible for that industry to tell them about the pending transaction. The relevant agency must still obtain clearance to review the transaction, which can take several days. If the transaction involves an industry that is less clearly the responsibility of either the FTC or the DOJ, then such clearance may require more time.
4.3 Is there a simplified review process? If so, in what circumstances will it apply?
As indicated above, the initial waiting period is shortened to 15 days for transactions involving cash tender offers or transfers in bankruptcy. Otherwise, there is no simplified review process for transactions that trigger a Hart-Scott-Rodino filing.
4.4 To what extent will the authority cooperate with its counterparts in other jurisdictions during the review process?
The agencies generally place a high priority on cooperation with other antitrust authorities, whether those authorities are international or state level, such as the California or New York attorney general. In either case, the agencies will typically ask the merging parties to submit a waiver of confidentiality, thereby enabling the reviewing agency to communication about otherwise confidential information with the counterpart. The following is a link to the FTC's model waiver and FAQs regarding international waivers: www.ftc.gov/policy/international/international-competition/international-waivers-confidentiality-ftc-antitrust. The International Antitrust Enforcement Assistance Act of 1994 give the FTC and DOJ authority to sign official agreements with foreign jurisdictions to exchange otherwise confidential information. Internationally, the United States has signed relevant cooperation agreements that officially allow for the sharing of antitrust-related information with various countries and jurisdictions, such as the European Union, Australia, Brazil, Canada, Japan and Mexico.
The following is a link to the FTC and DOJ Protocol for Coordination in Merger Investigations, which governs cooperation between the agencies at state-level authorities: www.ftc.gov/tips-advice/competition-guidance/merger-investigations.
4.5 What information-gathering powers does the authority have during the review process?
A typical merger investigation by the FTC and DOJ begins with limited voluntary requests of information to parties, customers and, potentially, competitors. If such information-gathering efforts fail to satisfy the reviewing agency, both the FTC and DOJ have broad subpoena power to require production of documents, testimony and statements from parties and third parties. The second request is the primary example of this subpoena power. The DOJ's model second request can be accessed at www.justice.gov/atr/file/706636/download.
4.6 Is there an opportunity for third parties to participate in the review process?
Third parties can participate both voluntarily and involuntarily. Any party interested in a given transaction is free to contact the reviewing agency and express its opinion of the transaction and voluntarily submit information or advocacy supporting the same.
4.7 In cross-border transactions, is a local carve-out possible to avoid delaying closing while the review is ongoing?
In the case of an asset acquisition, the acquiring entity can close on the acquisition of any otherwise exempt foreign assets. However, in the case of a reportable acquisition of voting securities or non-corporate interests, it is illegal to carve out the US portion and close the transaction elsewhere.
4.8 What substantive test will the authority apply in reviewing the transaction? Does this test vary depending on sector?
The DOJ and FTC investigate mergers under Section 7 of the Clayton Act to determine whether they are likely "substantially to lessen competition". Section 7 prohibits transactions "where in any line of commerce or in any activity affecting commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly".
The most thorough and authoritative description of how the antitrust authorities apply and analyse the Section 7 test is found in the FTC/DOJ Horizontal Merger Guidelines. The 2010 edition is available at www.justice.gov/sites/default/files/atr/legacy/2010/08/19/hmg-2010.pdf.
4.9 Does a different substantive test apply to joint ventures?
Generally, the analysis of joint ventures tracks the analysis of a full merger; this is particularly true of any joint ventures that are intended to last 10 years and ultimately eliminate competition between parties. More limited or partial joint ventures are analysed as described in the 2000 Antitrust Guidelines for Collaborations Among Competitors, available at www.ftc.gov/system/files/documents/public_statements/300481/000407ftcdojguidelines.pdf.
4.10 What theories of harm will the authority consider when reviewing the transaction? Will the authority consider any non-competition related issues (eg, labour or social issues)?
Two primary theories of harm typically animate a merger investigation:
- Unilateral effects: This type of theory focuses on the market or pricing power gained by the merging parties due to the elimination of competition between them. As explained in the 2010 Horizontal Merger Guidelines: "The elimination of competition between two firms that results from their merger may alone constitute a substantial lessening of competition. Such unilateral effects are most apparent in a merger to monopoly in a relevant market but are by no means limited to that case."
- Coordinated effects: This type of theory focuses on the increased likelihood of collusion or coordination in the relevant market due to the loss of an acquired competitor or competitors. As the guidelines state: "A merger may diminish competition by enabling or encouraging post-merger coordinated interaction among firms in the relevant market that harms customers. Coordinated interaction involves conduct by multiple firms that is profitable for each of them only because of the accommodating reactions of the others. These reactions can blunt a firm's incentive to offer customers better deals by undercutting the extent to which such a move would win business away from rivals. They also can enhance a firm's incentive to raise prices, by assuaging the fear that such a move would lose customers to rivals."
Within these two broad categories, there are numerous sub-categories. In almost all cases, however, the relevant analysis begins with the delineation of a relevant market and an analysis of the concentration levels pre- and post-transaction within that market.
5.1 Can the parties negotiate remedies to address any competition concerns identified? If so, what types of remedies may be accepted?
The agency and parties may negotiate remedies that would alleviate the agency's concerns. The most common remedy is divesture – the acquiring company agrees to divest a certain portion of its existing assets or a portion of the assets that it will acquire. The agency can also negotiate behavioural remedies with the parties, but that is less common. Behavioural remedies impose binding commitments to mitigate the anti-competitive effects of the transaction.
5.2 What are the procedural steps for negotiating and submitting remedies? Can remedies be proposed at any time throughout the review process?
Remedies can be proposed at any time during the process and it is not unusual for parties to propose a ‘fix it first' divestiture early in the process if they know the transaction is unlikely to get approved without some divestiture. While there is no formal procedure for negotiating and submitting remedies, parties should weigh certain factors in deciding when and what to provide about remedies. For example, presenting a fix very early in the process, before the agencies have issued a second request and received documents may not save the parties too much time, as the agencies will still need to conduct a detailed enough investigation to determine whether the fix solves the issues or whether additional issues will remain. Parties should also expect that the agencies will do a ‘deep dive' into any proposed remedy to determine whether the buyer will be a sufficient owner with the right capabilities and incentives to solve any competitive issues, and will scrutinise exactly what assets will be divested, whether other or additional assets would be necessary to operate the business effectively, and how the buyer will support the business.
5.3 To what extent have remedies been imposed in foreign-to-foreign transactions?
There is no separate standard for reviewing foreign-to-foreign transactions and, while not a lot of foreign-to-foreign deals have resulted in asset divestitures outside the United States, the agencies have full authority to require divestitures to remedy likely harms in the United States.
6.1 Can the parties appeal the authority's decision? If so, which decisions of the authority can be appealed (eg, all decisions or just the final decision) and what sort of appeal will the reviewing court or tribunal conduct (eg, will it be limited to errors of law or will it conduct a full review of all facts and evidence)?
Parties can appeal decisions made by the Federal Trade Commission (FTC) or by a district court in a Department of Justice or FTC enforcement action. All aspects of the decision can be appealed, including divestiture orders and other remedial actions. The standard for the reviewing court is ‘clearly erroneous', as agencies' decisions and/or determinations are considered with a high degree of deference. However, a reviewing court is not limited to errors of law and may conduct a full review of all facts and all evidence known to the agencies at the time of the decision.
6.2 Can third parties appeal the authority's decision, and if so, in what circumstances?
Third parties do not have standing to appeal a decision by the agencies and therefore cannot appeal the agencies' decision. The only recourse that a third party has in this situation is to bring its own case against the transaction.
7 Penalties and sanctions
7.1 If notification is mandatory, what sanctions may be imposed for failure to notify? In practice, does the relevant authority frequently impose sanctions for failure to notify?
There is no specific deadline for making a Hart-Scott-Rodino filing. However, a transaction that requires a Hart-Scott-Rodino filing cannot legally close until the relevant waiting periods end. Indeed, a meaningful step towards transferring beneficial ownership of the relevant party or parties is illegal prior to the expiration of the Hart-Scott-Rodino waiting periods. Fines can be as high as $41,000 per day, adjusted annually for inflation. The antitrust agencies have frequently levied significant penalties for failing to comply with the Hart-Scott-Rodino Act, with some penalties exceeding $10 million.
7.2 If there is a suspensory obligation, what sanctions may be imposed if the transaction closes while the review is ongoing?
See question 7.1
7.3 How is compliance with conditions of approval and sanctions monitored? What sanctions may be imposed for failure to comply?
The Federal Trade Commission and the Antitrust Division of the Department of Justice subject parties to strict reporting and inspection provisions when imposing conditions or remedies on a proposed merger. In some cases, the agencies will assign a neutral monitor or, in the case of a divestiture, a trustee to better ensure compliance. In all cases, the conditions to close are associated with specific deadlines for accomplishment and with reporting requirements regarding the same. Failure to comply with the agency-defined conditions is likely to result in fines and injunctive relief.
8 Trends and predictions
8.1 How would you describe the current merger control landscape and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?
Merger control in the United States appears to be in flux. While antitrust enforcement has historically been regarded as apolitical, there is some evidence in the publicly reported enforcement data that suggests that Republican administrations have been slightly more forgiving of complicated deals, while Democratic administrations have been slightly tougher. The data for the first two years of the Trump administration is not yet in; but anecdotally, the administration is regarded as active in investigating mergers thoroughly and not simply providing ‘rubberstamp' approval. In addition, the Department of Justice challenge to the merger of AT&T, a telecommunications provider, and Time Warner, a film, television and web content company, was an aggressive (and rare) challenge to a vertical merger and indicates that this administration is not simply following a traditional Republican approach to merger enforcement.
9 Tips and traps
9.1 What are your top tips for smooth merger clearance and what potential sticking points would you highlight?
Preparation is critical. Parties should integrate their merger control strategy with their assessment of the transaction even before they approach a potential target, if possible, so that they think about how best and most accurately to analyse the transaction and what information and evidence to present to the agencies. Obviously, all interaction with the agencies – whether in writing or lawyer staff, or in face-to-face witness interviews or depositions – must consistently hit the highest level of integrity and accuracy. Helpful facts should be developed and provided, and difficult facts should be addressed, not ignored.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.