As noted in the previous article, under the Biden Administration, the US has a new antitrust playbook intended to create uncertainty, heighten risk, and raise the transaction costs of doing deals.

The purpose of the new playbook is to slow the pace of US M&A, and perhaps prevent companies and investors from even getting in the game in the first place.

A primary tool the US antitrust agencies are using to accomplish this goal is challenging transactions outright rather than negotiating a remedy. It is enlightening to review the transactions challenged by the FTC and the DOJ from January 2021 to July 2022, either through the filing of a complaint and subsequent litigation, or the threat of litigation following an investigation, to identify patterns and the overall direction of agency enforcement.

Read the full article here, and watch Fred Lisa Rumin take us through some key highlights below.

Outcome of Recent Enforcement Actions

So far during the Biden Administration, 18 transactions have been challenged through litigation or the threat of litigation; see Figure 1. Challenges to two additional transactions were carried over from the previous administration and have been resolved in federal court.

Two thirds of the challenged transactions were abandoned. Eight after the FTC or DOJ initiated litigation in federal or administrative court seeking to block the parties from consummating their proposed transaction. Another four cases were abandoned by parties after the FTC or DOJ conducted a detailed investigation and told the merging parties that the agency had significant concerns with the transaction and would recommend a challenge. Merger litigation is costly, lengthy, and carries significant risk; when the FTC or DOJ challenge a transaction, the parties will often walk away.

The courts have ruled on two pre-closing merger challenges during this administration. Although the complaints were filed in 2020 during the Trump Administration, the transactions have been included in this overview because a significant portion of the litigation or pivotal decision regarding the litigation occurred after 1 January 2021. In FTC v. Thomas Jefferson University, a federal district court judge denied the FTC's motion for a preliminary injunction. The FTC appealed the district court's decision to the US Court of Appeals for the Third Circuit, which summarily denied the FTC's request for an emergency stay to prevent the transaction from closing pending the appeal. The FTC then withdrew its complaint in March 2021, allowing the merging parties to close the transaction. In the second case, FTC v. Hackensack Meridian Health, Inc., a federal district court judge granted the FTC's motion for a preliminary injunction to block the transaction in August 2021. The Third Circuit affirmed the preliminary injunction in March 2022 and, shortly thereafter, the merging parties abandoned the transaction.

Six additional transactions challenged during the Biden Administration are currently in various stages of litigation. These pending proceedings present a good opportunity to see if courts will adopt the aggressive and non-traditional theories of antitrust harm that the FTC and DOJ have pursued during the Biden era. The five federal court cases are ongoing: trials in three cases are complete (or substantially complete) and trials in the remaining three cases are scheduled for later in 2022. The sixth matter, which is proceeding in the FTC's Administrative Court, is awaiting a decision from the FTC's administrative law judge following a trial in August 2021.

Both the FTC and DOJ are seeking increased financial resources to support more vigorous merger enforcement. Leadership at both agencies has made it clear that they will continue to bring cases to preserve competition and will place less weight on cost as a gating factor to litigation. DOJ has also stated it intends to seek faster access to the courts where there is obvious harm to competition, initiating litigation even where the parties have not yet complied with a Second Request in an in-depth investigation.

Industries Implicated in Agency Challenges

Figure 2 illustrates the industries implicated in merger challenges over the last year and a half. M&A in the healthcare and biotechnology industry remains a top priority for the antitrust enforcers, so parties should expect heightened antitrust scrutiny in these sectors. The FTC and DOJ have, however, challenged a variety of transactions across a wide spectrum of industries. While the antitrust agencies may publicly claim a focus on a particular industry, no transaction is immune from scrutiny and potential litigation if the agencies perceive the transaction will result in a substantial lessening of competition.

Antitrust Enforcement Priorities

Vertical Transactions

Traditionally, the FTC and DOJ have been less likely to litigate vertical mergers or acquisitions, which combine companies at different levels in the supply chain and often result in procompetitive effects such as cost savings and other efficiencies. However, four of the 18 challenged transactions in the last year and a half were vertical transactions. A fifth was abandoned following an in-depth investigation after FTC staff recommended a challenge particularly owing to potential vertical harm.

These challenges emphasise that current FTC and DOJ leadership are more hostile to vertical transactions than they have been in decades and are rethinking the traditional approach to vertical integration. This includes continued scepticism toward efficiencies, as well as opposition to behavioural, i.e., conduct or firewall, remedies.

Innovation and Nascent Competition

The FTC and DOJ have undoubtedly increased scrutiny of transactions involving emerging competitors. They have also emphasised that the antitrust agencies need to better analyse how a proposed acquisition of a smallbut- growing company by an established firm may harm future competition. Indeed, several recent challenges involved acquisitions of a nascent or disruptive competitor or alleged harm to innovation.

FTC and DOJ officials have commented that the existing merger guidelines often fail to capture competitive harm relating to innovation and future competition owing to over-reliance on structural theories of harm. Any new merger guidelines issued by the agencies are likely to address this concern.

Labour

While the antitrust agencies have been assessing the competitive effects of mergers on labour markets for several years, it has become a high priority under the current administration. The focus is on questioning whether mergers of significant employers will lessen competition for workers and thereby reduce workers' ability to obtain competitive wages and benefits. The FTC and DOJ have investigated labour market concerns in some of the 18 transactions challenged during the Biden Administration. Recent Second Requests issued as part of in-depth merger investigations have also included demands for detailed documents, data, and other information relating to labour. Further, recent memorandums of understanding between the FTC and DOJ and the National Labor Relations Board facilitate increased information sharing and coordination between the agencies regarding competition in labour markets.

DOJ's lawsuit challenging Penguin Random House's acquisition of Simon & Schuster alleges the merger will lower compensation for authors, who rely on fierce competition between publishers to obtain fair payment. It will be interesting to see whether future FTC and DOJ merger challenges under the Biden Administration pursue more aggressive theories of harm regarding labor markets.

See here for more on how antitrust enforcers are also aggressively pursuing "naked" (standalone, not related to an M&A deal or other business collaboration) wage fixing and no-poach labour market violations.

Timeline of Challenged Transactions

Figure 3 shows the average length of time between the announcement of a transaction and the merging parties' decision to either abandon or close the transaction following agency action between January 2021 and July 2022, as well as the average time for the antitrust agencies to initiate litigation.

On average, it took around 11.5 months for the FTC and DOJ to conduct an in-depth investigation and determine that a transaction would result in a substantial harm to competition such that the agency would seek to block the transaction. This timeframe is roughly the same regardless of whether the parties decided to abandon the transaction pre-suit or if the FTC or DOJ filed a complaint initiating litigation.

Where parties abandoned a transaction after the filing of complaint, the average length of the transaction lifecycle was slightly longer, averaging 13.5 months from transaction announcement to abandonment. Parties took anywhere from 1 week to 2.5 months to abandon their transactions following suit by the FTC or DOJ to block the transaction.

For the two transactions litigated through the federal court system, it took approximately 31.5 months from the announcement of the transaction to proceed through an agency investigation and trial, receive decisions from a federal district court and appellate court, and for the losing party to either abandon the transaction (in the case of a win by the antitrust agency) or withdraw from further litigation proceedings (in the case that the merging parties prevailed). It will be interesting
to see how antitrust merger enforcement continues to evolve under the Biden Administration. But, if the first year and a half of the Biden-led FTC and DOJ is any indication, increased antitrust litigation will remain on the horizon.

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