On March 14, 2015, the Federal Trade Commission (FTC) announced procedural revisions governing the FTC process when it loses an injunction bid in federal court, to block the consummation of a merger pending its in-house administrative proceedings on the legality of the merger.
When the FTC seeks to challenge a merger, the FTC generally seeks an injunction in court to prevent consummation of the merger pending the outcome of an internal administrative proceeding. If the injunction is implemented, it prevents the parties from integrating the assets and preserves the FTC’s ability to effectively and efficiently fix the merger should it be warranted at the conclusion of the administrative proceeding.
Under the new rules, when the FTC loses its request for an injunction, the pending in-house administrative proceeding will be automatically withdrawn or stayed at the request of the merging parties unless the FTC determines that continuing the litigation would serve the public interest. The intention of the new procedure it to make clear that the FTC will not automatically continue its internal administrative hearing to block a merger if it fails to win an injunction in federal court.
When deciding whether to continue its administrative proceedings, the FTC will still evaluate a proposed transaction under the same factors it used before the rule change. The five factors the FTC uses to determine whether it is in the public interest to pursue administrative proceedings are: (1) a federal court’s factual findings and legal conclusions; (2) any new evidence developed during the preliminary injunction proceeding; (3) whether administrative proceedings will resolve important issues of fact, law or merger policy raised by the transaction; (4) an overall evaluation of the costs and benefits; and (5) any other matter that influences whether it would be in the public interest to continue with the merger challenge.
The FTC’s procedural revision will go into force shortly. It will, therefore, be in effect before the outcome of its preliminary injunction hearing seeking to block the merger between Sysco Corp. and US Foods Inc. pending an internal administrative proceeding. The preliminary injunction hearing is set in May 2015 before Judge Amit Mehta in the United States District Court for the District of Columbia, and the in-house administrative proceeding is set for July. If the FTC loses the preliminary injunction hearing in federal court, the new procedure will be exercised for the first time.