Antitrust FAQs for merging parties
What modifications have the FTC and DOJ made for transactions reportable under the Hart-Scott-Rodino Act? Will timing to receive HSR clearance be impacted?
While the federal antitrust agencies, the Federal Trade Commission and US Department of Justice (the agencies), are still open for business, the agencies are experiencing significant disruption due to the COVID-19 pandemic. For example, like many private companies, most federal employees are already operating under mandatory work from home (WFH) protocols. In response, the agencies have already announced modifications to their policies and procedures, including putting timing and processes in place for reviewing transaction that are subject to mandatory reporting under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the HSR Act).
The HSR Act requires that parties to mergers and acquisitions, including acquisitions of voting securities and assets (which may include intellectual property licenses and executive equity compensation), file notifications with the agencies and observe a statutory waiting period, which is typically 30 calendar days, if the acquisition meets specified size-of-transaction (currently $94 million) and size-of-person (currently $18.8 million and $188 million) thresholds and does not fall within an exemption.
During the mandatory waiting period, the agencies analyze whether the transaction may substantially reduce competition and the notified transaction cannot be consummated until the agencies complete their review. This initial waiting period can be extended for an additional 30 calendar days if the parties choose to pull and refile their notification. After the initial waiting period, the agencies may issue a "second request," which extends the waiting period and prevents the companies from completing their deal until they have substantially complied with the second request and observed the extended waiting period, which can often take nine months to in excess of a year.
In normal times, the agencies may grant early termination of the waiting period if requested. In fact, the vast majority of transactions that are reported under the HSR Act do not present any substantive antitrust issues and receive early termination. In any given year, about 80% of transactions are granted early termination. Due to the challenges of processing HSR filings remotely for agency staff on WFH, the agencies have announced that no requests for early termination of the waiting period will be granted during the pendency of the COVID-19 crisis. This means that all transactions reported must plan for the full waiting period prior to closing, with no exceptions being made under the current protocol.
The new reality of WFH also creates practical challenges to agency staff's abilities to carry out their duties. To further alleviate these challenges, the agencies announced the following changes to civil merger review and investigation processes:
- The agencies will only allow electronic submission of HSR filings
- The agencies will conduct all meetings by phone or video conference to the extent possible and absent extenuating circumstances
- All scheduled depositions will be temporarily postponed and rescheduled using secure video conferencing capabilities
- The agencies are requesting that parties add 30 days to timing agreements for pending or future mergers and may revisit existing timing agreements to provide additional time to review transactions after the parties have complied with documents requests
With the changes implemented by the agencies thus far, timing and logistics for receiving HSR clearance may be more challenging, but it is by no means impossible. There are practical steps that merging parties can take to manage the risk of impact on deal certainty and timing and to best position themselves for a successful HSR process (see below).
Are there additional measures that may further impact antitrust review for merging parties?
Yes, and merging parties should be prepared for these potential changes. Congressional Republicans and Democrats are discussing legislation that would allow the agencies to extend the initial 30-day HSR waiting period during the coronavirus crisis. Options under consideration range from allowing the agencies to extend the review period for set time periods at their discretion to extending the review period for all transactions until the end of the COVID-19 national emergency.
The agencies have apparently raised concerns to Congress that they will not have time to thoroughly review transactions under the new working conditions required by COVID-19. One FTC commissioner has said that "Congress should stop the shot clock so public servants have enough time to investigate and sue to block bad deals," and another has said that the FTC is "seeking more time to ensure full review of pending deals. It will not sacrifice thoroughness of investigations that may require information from third parties focused on other priorities."
Reports suggest that there are three proposals on the table:
- Allowing either the FTC chairman or the DOJ Antitrust Division assistant attorney general to extend the initial waiting period by 15 days, with the option of additional 15-day extensions
- Allowing a 30-day extension to the waiting period that would be invoked automatically during a national emergency and could be invoked by either agency in their discretion
- An automatic tolling of all waiting periods until the end of the COVID-19 national emergency, at which point the HSR waiting period would start to run
While no announcement has been made, there is a possibility that a provision will be inserted in the $1 trillion+ coronavirus aid bill that Democrats and Republicans are negotiating. It is unclear whether, if legislation is adopted, the statutory provision would apply only to HSR filings submitted after the bill is enacted or to filings that have already been submitted. If statutory changes come into effect that provide timing relief to the agencies, it is also possible that the agencies may rescind the current protocol that does not allow for grants of early termination requests, as that measure would no longer be needed with the legislative relief. However, that remains to be seen.
Are there similar issues relating to antitrust review in countries outside the US?
Yes, and merging parties should be prepared for countries to handle matters on a case-by-case basis. More than 100 countries have merger control notification laws similar to the US, and each are adjusting to the realities within their borders. In the EU, for example, the European Commission has implemented WFH procedures for its case teams and invoked a policy of not accepting filings except in urgent cases. This means that merging parties currently engaged in pre-notification discussions or that would typically expect to informally approach the commission should expect delays to their filing timelines. Merging parties should be prepared for the commission to discourage requests to file these cases absent exceptional circumstances. While it is unclear how the commission will handle all pending cases, it has already stopped the clock in a few, and questions remain as to whether those clocks will restart prior to the resumption of normal process after the crisis has passed.
What should merging parties do to maximize success under the "new normal" antitrust review process?
Recognizing that every transaction is different and strategies vary depending on the facts and circumstances of each deal, there is no one-size-fits-all answer, but there are numerous steps that parties can take to manage the HSR process. Parties considering transactions that require an HSR filing should consult Cooley antitrust counsel early in the process to set up a strategy and devise a game plan. Options may range from filing early on a letter of intent or term sheet, to pre-notifying agency staff prior to starting the HSR clock, to earlier-than-normal engagement and advocacy to make it easier for reviewing agency staff to reach a conclusion to clear the transaction. Rather than waiting five to 10 business days after signing to submit the filing, which is typical in a normal environment, earlier submission of HSR filings may also expedite the process.
Similarly, early consideration of any filings required outside the US is highly recommended to allow time for consultation with local counsel in other countries to determine the timeline for potential clearances, which are likely to be included as conditions to closing. Merging parties must also be mindful of this fluid environment in drafting best efforts clauses, termination provisions, closing conditions regarding US and ex-US filing requirements and other related antitrust contractual provisions.
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.