Antitrust Update: Changes at FTC Could Impact Merger Review
Antitrust remains a hot topic in the media, and the Federal Trade Commission (FTC) in particular has garnered significant coverage due to a series of recent public announcements. While change has become the new normal at the FTC, we caution, as we have in our prior alerts, against overreaction to these announcements. In our view, three changes the FTC has implemented are most likely to impact its merger review process.
Reinstated Prior Approval and Prior Notice Provisions
Prior to 1995, if a merger resulted in an enforcement action (e.g., a consent decree), the FTC typically imposed prior approval and notice provisions on the merging parties. These provisions required the merging parties to notify and seek prior approval from the FTC for any related future deals, even if the transaction was not HSR-reportable. On July 21, 2021, the FTC rescinded a 1995 policy statement that had reduced the number of instances in which the FTC imposed prior notice or approval provisions, which in turn reduced the burden on repeat players. With the rescission of the 1995 policy statement, the FTC is now poised to impose prior approval and notice requirements on a more routine basis.
Sends Warning Letters Cautioning Companies to Close Deals at Own Risk
On August 3, 2021, the FTC began sending form letters to companies with HSR filings for deals that the FTC "cannot fully investigate within the requisite timelines." Typically, merging parties must stand by during the 30-day HSR waiting period before closing a deal. If the 30-day waiting period expires without the FTC issuing a second request, the companies are free to close the deal. Citing resource constraints, however, the FTC stated that it commenced sending "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 real-world impact of such letters remains to be seen.
Voted to Rescind the Vertical Merger Guidelines
On September 15, 2021, the FTC voted 3-2 to withdraw its approval of the 2020 Vertical Merger Guidelines (VMGs), which it issued jointly with the Department of Justice (DOJ) just a year earlier. The 2020 VMGs served as guidance for the business community for how both agencies would evaluate vertical mergers (e.g., a supplier purchasing a customer, or vice-a-versa). The DOJ is conducting its own review of the 2020 VMGs, but will continue to rely on these guidelines in the interim.
The FTC's vote to withdraw its approval of the 2020 VMGs fell along party lines, with the majority stating: "The 2020 VMGs contravene the text of the [Clayton Act], devoting a whole section to the discussion of procompetitive effects, or efficiencies, of vertical mergers. This approach is legally flawed because the statute does not provide for a balancing test where an 'efficient' merger is allowed even if it may lessen competition."
The rescission of the 2020 VMGs may also be just the beginning of guideline revisions, as Chair Lina Khan has recently suggested that she plans to re-evaluate the DOJ and FTC’s joint horizontal merger guidelines, which have guided agency practice since 2010.
- Companies entering a merger agreement should be mindful of prior enforcement actions against either party to the deal. A prior alleged violation by either party could require FTC notice and approval before closing, even if the transaction is not HSR-reportable.
- The FTC is resource-constrained and, as a result, sends letters warning companies that investigations may continue past the HSR waiting period. The FTC has always had the authority to challenge consummated mergers and these letters do not expand that power. Whether the FTC will challenge consummated mergers at an increased rate remains to be seen.
- Vertical mergers may pose a heightened risk of enforcement action, at least before the FTC. At a minimum, the FTC's vote to rescind the 2020 VMGs signals that future vertical deals may receive greater scrutiny and lower odds of settlement than in past administrations.