During a conference last week, Ryan Danks, Director of Civil Enforcement at the US Department of Justice’s Antitrust Division (DOJ), suggested that merging parties—not the antitrust enforcement agencies—should devise fixes for allegedly anticompetitive transactions.
Danks stated “that something is broken about the way that the antitrust community talks about remedies in the context of mergers, where parties will bring in a three-to-two or four-to-three or even a two-to-one [transactions] and say ‘now we want you, government, to work with us to figure out how to fix this’ . . . that’s not our job. Our job is to maintain competition.”
Danks added that merging parties bear the responsibility for remedying their anticompetitive transactions and have more information on the businesses, allowing them to formulate strong solutions. Such “fix-it-first” approaches may allow merging parties to complete their transactions quicker, avoiding lengthy merger reviews and consent decree negotiations.
Danks also suggested that “the simplest remedy . . . is to just stop an anticompetitive transaction from occurring,” strongly hinting that today’s DOJ would rather challenge an entire transaction than work with the parties on devising a remedy to address specific competitive concerns in limited product or geographic markets.
Jonathan Kanter, Assistant Attorney General for the Antitrust Division, conveyed similar views in two speeches last week, making it clear that merger enforcement at the DOJ will become even more vigorous.
On September 13, 2022, Kanter:
- Warned that “[c]ompanies considering mergers that may harm competition should know that the Antitrust Division will not back down from a fight so long as that threat remains.”
- Emphasized that the Clayton Act’s “expansive definition of antitrust liability” requires the government only to prove that a transaction’s effect “may be substantially to lessen competition.” According to Kanter, antitrust agencies have, for too long, “underenforced a statute that was meant to be prophylactic” by focusing on concrete evidence of a merger’s effect on prices.
On September 16, 2022, Kanter said that antitrust enforcers “can no longer be so cautious to avoid overenforcement that [they] intentionally underenforce the law.”
Moving away from negotiating settlements that allow transactions to proceed while resolving anticompetitive issues is part of a trend of dramatic policy and procedural changes at both the DOJ and Federal Trade Commission (FTC) designed to discourage mergers and acquisitions (M&A), such as:
- Suspending early termination of the Hart-Scott-Rodino Act (HSR) waiting period for transactions that do not raise competitive issues
- Sending merging parties “close at your own risk” letters, informing the parties that antitrust investigations are ongoing despite expiration of the HSR waiting period
- Insisting on inclusion of prior approval/prior notice provisions in all merger settlements
- Including new topics, such as the impact on labor and environment, in Second Requests and adding additional hurdles to modifying Second Requests.
WHAT THIS MEANS FOR MERGING PARTIES
Merging parties should increasingly consider resolving likely competitive issues with their transaction before the antitrust enforcement agencies raise concerns. To do so, parties and counsel need to perform a thorough assessment of the competitive impacts of their deal. As part of this, they should consider worst realistic case scenario planning to understand the areas in which the DOJ, FTC and state Attorneys General are likely to conclude that the transaction is anticompetitive when they conduct their investigation, including reviewing company documents and interviewing customers and competitors. A “fix-it-first” solution likely will need to resolve all problematic issues. Such “fix-it-first” approaches can be approached by:
- Structuring the transaction to exclude a sale of the problematic assets
- Eliminating any problematic overlaps (g., by divesting certain competing assets before making an HSR filing)
- Filing an HSR on the original transaction and then offering to withdraw filings and re-file the transaction after entering into private agreements, outside of a consent order process, thus resolving the agency’s concerns.
These approaches offer both potential benefits and drawbacks to merging parties.
By resolving likely competitive issues outside the consent order process before the HSR filing, merging parties can potentially avoid any significant DOJ or FTC review and speed their path to closing. However, if the structural fix is not sufficient to eliminate agency concerns, the parties may be forced to address those concerns with further steps. Acquisition agreements should leave sufficient time to allow for these various steps, including finding a buyer for the problematic assets.
Whether truly fixing-it-first or resolving antitrust agency concerns outside of a formal consent process, the merging parties can potentially avoid the implementation of onerous consent decree provisions (such as those requiring the merging parties to provide significant assistance beyond typical market terms to divestiture buyers) or provisions that limit the parties’ freedom of action related to future transactions (such as requiring agency prior notice and/or prior approval). Further, handling these issues outside the formal consent decree process can take place much quicker while also avoiding public comment and/or judicial review, which are part of the consent order process.
However, there is no guarantee that the antitrust enforcement agencies will find an executed or proposed fix sufficient to resolve competitive concerns. Merging parties may still spend several months negotiating a fix with a third party, only for the DOJ or the FTC to find the proposed divestiture insufficient or the divestiture buyer unqualified to replace competition. Further, merging parties may lose substantial timing leverage with the antitrust agencies by resolving competitive issues outside the consent decree process. The antitrust agencies typically have between 30 to 120 days after the parties’ compliance with a Second Request (depending on whether a timing agreement was entered into) to decide whether to challenge the transaction. If merging parties attempt to resolve likely competitive issues outside the consent decree process, the antitrust agencies are not subject to any similar timing pressure.
In all, the historic use of the consent agreement process was a tried-and-true means to resolving potential problems with mergers in a constructive manner between businesses and the government. The suggestion from the DOJ to resolve these concerns outside of that practice is another step by antitrust enforcers to add uncertainty and risk for parties seeking to merge while understanding that a fix is needed to gain clearance. The message from the DOJ is to fix it first yourself—and fix it sufficiently—or risk being taken to court.