The FTC has issued several statements recently that have confused the market and bar as to what its merger enforcement posture will be. Among others, the FTC has suspended early terminations; has sent letters to parties after the waiting period has expired telling them that investigations are still pending and that they close "at their own risk;" is saying that parties need to provide more data and documents to negotiate the scope of second requests but don't say what data and documents they would like to see; in an informal interpretation, has suggested that parties should not rely on informal interpretations; and have revoked the vertical merger guidelines replacing them with nothing.
The bar has often called upon the Commission to make its enforcement intentions as clear as possible to afford parties the chance to avoid the cost, expense and delay of an enforcement action. See, for example, the Report of the Presidential Transition Task Force of the ABA's Antitrust Section. So far FTC is doing the opposite. What does that mean for business?
At the end of the day, the agencies still have to go to court, and the law has not changed, so neither has the ultimate risk calculus. If your deal is at the margins, it is still at the margins, and the agencies will still ask themselves, is it worth expending limited enforcement resources on a trial where it isn't clear we will win. What has changed, and what the FTC's statements suggest, however, is that enforcement is going to be much more involved, lengthy and expensive, and will lack the clarity it may have had in the past.
Build the following into your deal thesis:
- A six month outside date on a questionable transaction will almost certainly be reached. You should expect second requests to last from 18 to 24 months on questionable deals, perhaps longer if in high tech.
- The new "close at your own risk" letters do not
materially alter the antitrust risk in a deal. If you would have
closed your deal immediately if you were not subject to HSR, the
letters don't give good reason to postpone closing. The
agencies are still required to go to court to unwind consummated
deals. The courts are still reluctant to unwind closed deals. And
once a deal is closed, the time pressures of a second request are
not the same. You can compete on the merits as an integrated
company while they conduct their review.
- You do not need additional antitrust risk allocators to accommodate this new "procedure." For acquiring persons, you may receive compulsory process after consummation. This will cost the same as a second request, perhaps more given the environment. The agencies are at a far greater advantage within HSR than outside, and would likely not give up that advantage and take on added risk of trying to unwind a consummated transaction.
- Expect more discovery from more custodians on second requests. Expect more "rabbit holes"-investigations on a variety of topics including those you would not think are relevant to a substantive antitrust investigation.
- Undermining the "informal interpretation" regime serves no real purpose. A widely appreciated value to HSR was that you could typically get an answer from the FTC which would stand by it. Now, it says you can't rely on that guidance.
- he HSR rules are lagging behind international competition standards. The US could emulate something more flexible that gets better data to the agencies with less cost, something like Germany's, and hopefully this new position on informal interpretations will inspire Congress to think about that. There are options if the FTC bounces your filing or requires a filing even though past advice would disagree. One is simply to comply. If the enforcement action is particularly gratuitous, there is also 15 USC 18a(g)(2) where a party can tell the agencies that it has in fact complied with the Act and dare them to seek an injunction requiring more documents or information. This is a radical solution but it is available.
- Parties should expect more confusion and less clarity, to the extent there was clarity in the merger review process to begin with. Expectations for a quick, efficient review, particularly in high tech markets or in transactions that have the potential to be a problem, should be tempered.
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.