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Antitrust M&A Snapshot | Q2 2021

In the United States, aggressive antitrust enforcement is likely to continue with the appointment of Lina Khan as Federal Trade Commission (FTC) Chair and the nomination of Jonathan Kanter to lead the Department of Justice’s (DOJ) Antitrust Division. The premerger notification landscape continues to shift as filings reach another record high. Technology companies remain in the “hot seat” as legislators in the US House of Representatives introduced five antitrust reform bills that would change the enforcement landscape for digital platforms, including seeking to preclude large digital platform companies from acquiring smaller, nascent competitors. And the US Department of Justice is making good on President Biden’s pledge to regulate “Big Ag” by challenging Zen-Noh Grain Corporation’s proposed acquisition of 38 grain elevators from Bunge North America, Inc.

Meanwhile, in Q1 2021, the European Commission (Commission) published its Guidance on Article 22 of the EU Merger Regulation. The Guidance encourages the EU Member States to refer certain transactions to the Commission even if the transaction is not notifiable under the laws of the referring Member State(s). In Q2, not long after the issuance of the Guidance, the Commission received its first referral request to assess the proposed acquisition of GRAIL by Illumina. In light of the growing global debate on the need for more effective merger control, EU Competition Commissioner Margrethe Vestager confirmed that the Commission will not soften EU merger policy going forward. The Commission’s statement was made despite the fact no deals have been blocked by the Commission in about the last two years.

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FTC “Prior Approval” Policy for Future Transactions Raises Antitrust Risks for Buyers and Sellers

The US Federal Trade Commission (FTC) voted July 21, 2021, to repeal a 1995 policy statement that eliminated prior approval and prior notice provisions from most merger settlements. In repealing this longstanding policy—and likely insisting on the inclusion of such provisions in future settlements—the FTC will have significantly greater authority to review and block future transactions of companies who enter into consent orders with the FTC. This policy change will have significant implications for the negotiation of antitrust risk provisions in transaction agreements.

WHAT HAPPENED:

  • In its 1995 Policy Statement Concerning Prior Approval and Prior Notice Provisions in Merger Cases, the FTC announced that it would no longer routinely require prior approval of certain future acquisitions in consent orders entered in merger cases.
    • Prior to this statement, FTC consent orders to settle merger reviews routinely required parties to seek and receive the FTC’s prior approval for future acquisitions in the relevant product and geographic markets at issue in the first challenge/consent order for a 10-year period. In some cases, the FTC also included a prior notice provision obligating companies to notify the FTC of any intended transactions that were not subject to the premerger notification and waiting period of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act).
  • On July 21, 2021, the FTC voted 3-2 to rescind its 1995 policy statement, opening the door to requiring prior approval and prior notice provisions in future merger consent orders.

 
WHAT THIS MEANS:

  • This policy change substantially increases the FTC’s merger enforcement authority for companies that settle investigations with a consent order and become subject to prior approval requirements.
    • Prior approval provisions place the burden on companies to demonstrate that their transactions are not anticompetitive.
    • The FTC can deny approval for these future transactions with very little—if any—limits on its discretion.
    • This differs significantly from the enforcement regime under Section 7 of the Clayton Act, where the FTC has the burden of proving that a transaction will substantially lessen competition or tend to create a monopoly.
  • Prior notice provisions require companies to provide the FTC with advanced notice of certain transactions—even smaller transactions that typically would fall under the HSR threshold (e.g., transactions valued below $92 million). The notification requirement increases the likelihood of FTC investigation for these transactions.
  • By rescinding the 1995 policy statement, the FTC may seek to impose such provisions in its orders as a routine matter. It remains to be seen under what circumstances the FTC will insist on prior approval or prior notice (or how broad they will be crafted). In supporting the repeal, FTC Chair Lina Khan stated that the FTC will employ these provisions based on “facts and circumstances of the proposed transaction.”
    • These prior approval and/or notice provisions, when previously employed, generally lasted for the term of the order—typically 10 years.
    • Generally, the scope of these provisions was limited to the geographic and product market in which the FTC determined that the [...]

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Executive Order Encourages FTC, DOJ to Address Hospital Consolidation, Vigorously Enforce Antitrust Laws

President Biden recently issued an executive order affirming his administration’s policy of enforcing the antitrust laws to “combat the excessive consolidation of industry” and cited healthcare markets as one of several priorities. The Federal Trade Commission (FTC) and US Department of Justice (DOJ) already have been actively enforcing the antitrust laws in provider consolidation matters. The FTC is currently challenging the proposed merger of two health systems in New Jersey, and in the past year unsuccessfully challenged the combination of Jefferson Health and Einstein Health in Philadelphia and successfully challenged the proposed combination of two health systems (Methodist Le Bonheur and Saint Francis) in Memphis.

The executive order follows a proposed bill to increase budgets for the FTC and DOJ, FTC resolutions on compulsory process in healthcare investigations, congressional calls to investigate the use of COVID-19 Provider Relief Fund payments for acquisitions, the FTC physician practice acquisition retrospective and other health antitrust developments.

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Senate Passes Bill to Substantially Increase HSR Merger Filing Fees for Deals Greater Than $5 Billion

On June 6, 2021, the US Senate passed the Merger Filing Fee Modernization Act of 2021. The bill is co-sponsored by Senator Amy Klobuchar (D-MN), the Chairwoman of the Senate Subcommittee on Antitrust, Competition Policy and Consumer Rights; and Senator Chuck Grassley (R-IA).

The bill amends the premerger notification provisions of 15 U.S.C. § 18a and substantially increases the Hart-Scott-Rodino Act (HSR) filing fees for large mergers, while also effectuating a slight decrease in HSR filing fees for smaller mergers. The text of the bill can be found here.

The adjusted HSR filing fees are as follows:

The proposed HSR filing fees are subject to annual increases based on the Consumer Price Index (CPI), unless the CPI increase is less than 1%. Any changes must be published by the Federal Trade Commission (FTC) each year (no later than January 31). The HSR filing fee thresholds themselves will remain correlated to Gross National Product (GNP).

The competition agencies also stand to directly gain from the passage of this bill. Section 3 of the bill authorizes the appropriation of increased funds for both the Department of Justice Antitrust Division (DOJ) and the FTC. The bill appropriates $252 million to the DOJ and $418 million to the FTC, substantially increasing the resources at the disposal of the regulatory agencies and even exceeding the FTC’s requested budget for FY 2022.

The bill is still subject to approval in the House of Representatives and by President Biden. But given the bipartisan support for this bill, its passage appears likely, and it raises the potential for additional bipartisan antitrust legislation in the future.




Proposed Bill to Substantially Increase HSR Merger Filing Fees for Deals Greater Than $5 Billion Advances Out of Committee

On Thursday, May 13, the US Senate Judiciary Committee voice-vote approved and advanced Senator Amy Klobuchar’s (D-MN) Merger Filing Fee Modernization Act of 2021. This bill seeks to increase HSR filing fees required for mergers and acquisitions, altering fees for all transactions, and substantially increasing HSR filing fees for deals greater than $5 billion to $2.25 million. HSR filing fees have not been updated since 2001.

The proposed bill would further increase the fees each year in accordance with the Consumer Price Index. In an effort to gain bipartisan support, the bill would decrease filing fees for smaller transactions, while increasing fees significantly for all deals over $500 million. Below are tables showing the proposed HSR filing fees versus the current HSR filing fees based on transaction size.

Although no changes are imminent, the advancement of this bill indicates politicians’ continued focus on increasing the burden on mid-size and larger companies seeking to merge, while slightly reducing fees for smaller transactions.Senator Klobuchar has argued that the substantial increase in fees for larger deals is needed because of the government cost required to investigate larger deals. Further, she said she believes the affected parties, such as major technology companies, could easily handle the cost because it is a small expense compared to the amount these companies often spend on legal and professional support in effectuating the deals.




Antitrust M&A Snapshot | Q1 2021

As the United States rounds the corner toward getting the COVID-19 epidemic under control within its borders, the US antitrust enforcers have seen a major spike in Hart-Scott-Rodino (HSR) premerger filings. In addition, the healthcare and technology industries can expect to remain under close watch by US enforcement agencies as the Biden administration continues to appoint progressive antitrust scholars to key leadership and advisory roles. And for the first time in many decades, the FTC has filed suit to block a vertical merger, indicating a more aggressive posture towards vertical transactions.

Meanwhile, the European Commission is focusing on “green killer acquisitions,” highlighting the interplay between the EU competition rules and the European Union’s environmental protection objectives. The Commission also published its evaluation of the functioning of the EU merger control rules in light of rapidly changing market realities. And in parallel with the publication of its evaluation findings, the Commission issued practical guidance that has the potential to create meaningful new transaction risk for mergers by subjecting more deals to in-depth Commission review.

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New European Commission Guidance Acquisitions of Nascent Competitors on the Radar

The European Commission wants to be able to block or conditionally approve transactions, mainly in the digital economy and in the pharmaceutical sector, even when the thresholds for notification are not met. In publishing its new Article 22 Guidance, the Commission has significantly expanded its ability to review transactions. Parties to a transaction, especially in the digital economy and in the pharma sector, should bear this in mind when strategising on deal timing and any potential remedies. They will also have to take into account the possibility that the transaction will be blocked. For third parties, this opens another possibility to stop a transaction, to extract remedies from the notifying parties or to even roll back an implemented transaction.

What Happened

  • Article 22 of the EU Merger Regulation (EUMR) allows for one or more Member States to request the Commission to examine any merger that does not have an EU dimension but meets the following cumulative conditions: it affects trade between Member States, and it threatens to significantly affect competition within the territory of the Member State or States making the request (Article 22 Conditions). Fulfilment of the Article 22 Conditions ensures that a merger has a sufficient nexus with the European Union and the referring Member State(s).
  • Traditionally, the Commission has discouraged the use of Article 22 EUMR in merger cases that were not notifiable under the laws of the referring Member State(s). This is principally because the Commission considered such transactions unlikely to have a significant impact on the internal market.
  • Recently, however, there has been an increase in the number of mergers involving companies that play, or may develop into playing, a significant competitive role on the market, despite generating little or no turnover at the time of the merger. This development has been found to be particularly significant in the digital economy, where services regularly launch with the aim of building up a significant user base and/or commercially valuable data inventories, before the business is monetised, and in the pharma sector, where transactions have involved innovative companies conducting R&D with strong competitive potential, even if such companies have not yet finalised, let alone exploited commercially, the results of their R&D activities. Because of the absence of, or low, turnover of one the parties to such transactions, they invariably escape assessment under national merger control rules.
  • With a view ensuring that non-notifiable yet potentially problematic mergers do not fly under the radar of merger control review, on 26 March 2021 the Commission issued practical guidance (Article 22 Guidance) on when it might be appropriate for a Member State to refer such mergers to the Commission for merger control review.

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Antitrust M&A Snapshot | Q4 2020

In the United States, despite initial obstacles because of the COVID-19 pandemic, 2020 rounded out to be the busiest year for mergers and acquisitions (M&A) enforcement in nearly two decades. In the fourth quarter, US agencies challenged five transactions. November 2020 saw the most premerger filings in any month since 2001. Mergers and filings in the United States are predicted to remain at high levels into the new year in light of the current economic climate. The antitrust agencies have continued to maintain that their evaluation and investigation of anticompetitive harm will remain rigorous despite the uncertain times.

In Europe, the European Commission (EC) and the UK Competition and Markets Authority (CMA) had a busy last quarter of 2020. The EC completed several in-depth investigations, including the Fiat Chrysler/Peugeot merger. The EC approved this transaction with behavioural remedies. With respect to policy and legislative developments, the EC published the much-anticipated draft of the Digital Markets Act, which is intended to regulate the market behaviour of large online platforms which act as “gatekeepers” in digital markets. Given the end of the transition period for the United Kingdom’s exit from the European Union, the CMA published a guidance paper explaining how it will conduct its work following Brexit.

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Enforcement Agencies Announce Moratorium on Early Termination Program for Merger Reviews

The US Federal Trade Commission (FTC) released a joint statement with the Department of Justice (DOJ) on February 4, 2021, signaling comprehensive changes to the merger review process. In a significant development, the agencies declared a moratorium on the early termination program for merger reviews. This policy shift signals a potential sea change in antitrust enforcement under the Biden administration.

The Hart-Scott-Rodino (HSR) Premerger Notification program imposes an initial 30-day waiting period, prior to merger consummation, during which the enforcement agencies have an opportunity to evaluate the likely effects of the proposed merger and decide whether to investigate further by issuing a Second Request or ending the HSR review by letting the initial 30-day waiting period expire.

A third potential outcome of the initial 30-day waiting period is early termination. The early termination program under the HSR Act was originally established as an exception to an HSR review if the relevant parties demonstrated a “special business reason.” This policy was reversed after Heublein v. FTC (1982) and since that time early termination of the initial 30-day waiting period has become commonplace if the merger does not merit further review (in 2019 early termination was requested in 74.2% of transactions and granted in 73.5% of those instances). Further review would be merited, if the enforcement agencies determined the transaction posed a risk of a substantial lessening of competition under the Clayton Act.

Pursuant to the moratorium on early terminations, merging parties must now refrain from consummating any proposed transaction for the full initial 30-day waiting period—early termination is not a potential outcome.

The joint statement regarding the early termination moratorium provided the following justifications:

  • The early termination review was precipitated because of the transition to a new presidential administration as well as an “unprecedented volume” of HSR filings;
  • The above factors warrant the use of the full 30-day window to allow the agencies to do “right by competition and consumers;”
  • The suspension of the early termination program “will be brief.”

Past pauses in early terminations coincided with extraordinary circumstances such as the move to an e-filing system at the Premerger Notification Office (PNO) at the outset of the COVID-19 pandemic (paused from March 13, 2020, until March 30, 2020) or during periods of government shutdown. However, this current pause appears likely to endure longer than these past instances, given that this pause is driven by the confluence of a number of factors, beyond what was indicated in the joint statement, such as:

  • A longstanding agency funding drought resulting in understaffing
  • Transitioning to a new presidential administration
  • A desire to engage in more expansive investigations under the new Biden administration
  • A large influx in HSR filings in recent months (on pace for a 60% increase in 2021)

From the agencies’ point of view, these changes are necessary to meet their mandate of preventing unfair competition and anticompetitive practices. With agency resources stretched thin due to budget constraints, in addition to an increased [...]

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Notification Threshold under the Hart-Scott-Rodino Act Decreased to $92 Million

The US Federal Trade Commission (FTC) yesterday released decreased thresholds for the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR). The thresholds are indexed to changes in the gross national product (GNP). They normally increase year over year but have decreased this year because of the economic impacts of COVID-19. We last saw a decrease in connection with the 2008 recession.

Notification Threshold Adjustments

The FTC announced revised thresholds for the HSR pre-merger notifications on February 1, 2021. These decreased thresholds were published in the Federal Register on February 2, 2021, and will become effective on March 4, 2021. These new thresholds apply to any transaction that closes on or after the effective date:

  • The base filing threshold, which frequently determines whether a transaction requires the filing of an HSR notification, will decrease to $92 million.
  • The alternative statutory size-of-transaction test, which captures all transactions valued above a certain size (even if the “size-of-person” threshold is not met), will be adjusted to $368 million.
  • The statutory size-of-person thresholds will decrease slightly to $18.4 million and $184 million.

The adjustments will affect parties contemplating HSR notifications in various ways. Transactions that do not meet the current “size-of-transaction” threshold, but will meet the revised $92 million threshold, will only need to be filed if they will close after the new thresholds take effect.

The adjustments may affect HSR filing fees for certain transactions. Under the rules, the acquiring person must pay a filing fee, although the parties may allocate that fee amongst themselves. Filing fees for HSR-reportable transactions will remain unchanged; however, the size of transactions subject to the filing fee tiers will shift downward as a result of the GNP-indexing adjustments:

Filing Fee Size of Transaction $45,000 $92 million, but less than $184 million $125,000 $184 million, but less than $919.9 million $280,000 $919.9 million or more.



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