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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.



2020 Health Antitrust Year in Review

The federal antitrust enforcement agencies brought three hospital merger challenges and three criminal antitrust enforcement actions in healthcare in the past year. Combined with the incoming Democratic administration, healthcare antitrust enforcement is likely to remain strong in 2021.

Our Health Antitrust Year in Review:

  • Examines specific antitrust challenges and enforcement actions that impacted hospitals and health systems, payors and other healthcare companies in 2020;
  • Offers lessons learned from these developments in the midst of the COVID-19 pandemic; and
  • Provides analysis of the enforcement trends, federal guidelines and state policy updates that are likely to shape the healthcare antitrust landscape in 2021.

Alexandra Lewis, an incoming associate in our Chicago office, also contributed to this Special Report.

Read the full report.




New German Merger Control Thresholds: A More Business-Friendly Approach?

What Happened:

  • On January 19, 2021, major changes to German antitrust/competition law, i.e. the 10th Amendment Act to the German Act Against Restraints of Competition (ARC) entered into force.
  • In addition to introducing stricter abuse control, in particular over digital companies with a strong market position (so much so that one may refer to the act as the “ARC Digitisation Act”) and effecting changes to procedural rules and cartel prosecution, the new law also introduces substantive changes in merger control rules which may bring significant relief for international transactions. More information on the ARC Digitisation Act and other altered antitrust/competition rules  will follow in this blog.
  • The thresholds of German merger control have traditionally been very low in comparison to other international regimes. The German legislator has now decided to significantly increase the domestic turnover filing thresholds. Last week’s discussions in the German parliament and in its economic committee surprisingly resulted in even higher thresholds than originally proposed in the bill presented by the German government.

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Health Antitrust Litigation Update for Providers | 2020

In 2019, the total number of antitrust cases filed against providers dropped to 20 after the 2018 bump (27 cases). In the latest Health Antitrust Litigation Update for Providers, we discuss what kinds of cases were brought over the past two years and how they were decided, and what cases warrant particular attention in 2020.

Read the full report.




Antitrust M&A Snapshot | Q3 2020

In the United States, mergers and acquisitions appear to be bouncing back after a muted start to the year due to COVID-19. Hart-Scott-Rodino (HSR) filings in Q3 2020 were up significantly over Q2, but still down from the mergers & acquisitions (M&A) boom we saw in Q3 and Q4 of 2019. Against the backdrop of a pandemic, we also saw significant developments in the approaches taken by the Federal Trade Commission (FTC) and Department of Justice (DOJ) in reviewing proposed acquisitions. The FTC has recently announced an intention to expand its retrospective analysis of consummated mergers; DOJ has restructured its merger review operations to reflect changes in how the economy operates and to allow the regulator to further specialize its review efforts; and the regulators jointly proposed amendments to the HSR premerger notification regulations that are likely to increase the number of filings required for private equity organizations.

In Europe, as a result of the ongoing pandemic, the European Commission (EC) received a lower number of notifications (78) compared to the same period in 2018 and 2019 (106 and 116 respectively). In August, however, the number of notifications made to the EC returned to a level that has been seen in previous years (30). That being said, in September, the number of notifications fell again (24). In terms of key cases, the EC approved the acquisition of Bombardier Transportation by Alstom. With respect to policy and legislative developments, the EC announced a new policy of accepting referrals from national competition authorities in cases where the national thresholds for notification have not been met. This new policy is expected to be implemented by mid-2021. The EC also plans to introduce changes to the merger control procedural rules with a view to bringing more deals within the ambit of the EC’s simplified procedure, and to reduce the amount of information that parties are required to provide.

Access the full issue.




Federal Trade Commission Zeroes in on Problematic Non-Competes

Non-compete provisions help protect a buyer’s significant investment in an acquired business. Although non-compete clauses often play a vital role in M&A deals, they are not immune from antitrust scrutiny.

Since September 2019, the FTC has challenged noncompete provisions in at least three transactions. These demonstrate that the Commission and other antitrust enforcers are closely scrutinising non-competes and will not hesitate to challenge problematic provisions, even when the underlying transaction raises no substantive antitrust issues or when the provision relates to minority investments.

Parties to a commercial transaction can easily manage this scrutiny by tailoring the scope.

Click here to read the full article in our latest International News.




Proposed HSR Rule Changes Likely to Increase Filings and Information Requirements for Private Equity Firms

What Happened:

  • The FTC and DOJ proposed new Hart–Scott–Rodino (HSR) rules that, if issued in final form, will significantly change HSR practice for Private Equity (PE) companies.
  • The Proposed Rules are subject to comment for 60 days after they are published in the Code of Federal Regulations (CFR) and will not go into effect until after that comment period, when they could be issued as proposed, modified, or simply not issued.
  • Under the current rules, HSR focuses on the Ultimate Parent Entity (UPE). For LLCs and partnerships, that means that each fund in a family is normally its own UPE.  Other funds managed by the PE sponsor are deemed “associates” of the UPE, but are not part of the UPE or “Person” making the filing.  Only limited information needs to be provided about “associates,” and only if the associate operates in a similar field to the target company.  The proposed rules will treat all funds and portfolio companies, as well as the PE sponsor, as part of the same “Person” for purposes of determining the filing requirements, and also for completing the HSR form.
  • There is also a proposed exemption for acquisitions of less than 10% of an issuer, regardless of investment intent, if the acquiring person is not in a competitive relationship with the target.  This might reduce filing obligations for companies like hedge funds that might take actions that disqualify themselves from the current investment only exemption.

 

What This Means:

The Proposed Rules change the calculus on whether filings may be required and what needs to be reported if a filing is required as “Associates” would now be deemed part of the same “Person” for the purposes of the HSR Act. Filings are evaluated based on what an “Acquiring Person” will hold.  This is not a change, but changing who is deemed to be in the “Person” could affect transactions in a number of ways.  Below are some examples of the potential impact.

More transactions are likely to require filings

  • For example, if a sponsor manages Fund 1 and Fund 2 and the sponsor arranges a transaction for Fund 1 to acquire USD $80 million of target stock, Fund 2 to acquire $60 million, and co-investors to acquire USD $20 million, currently no filing would be required, while under the Proposed Rules a filing would be required.
  • Currently, no HSR filing is required because Fund 1 is its own “Person” and its acquisition does not exceed the transaction filing threshold (USD $94 million). The same would be true for Fund 2’s acquisition of the USD $60 million—also below the threshold.
  • Under the Proposed Rules, an HSR filing would be required because the “Person” would include the sponsor, Fund 1 and Fund 2 (altogether). The “Person” would be acquiring USD $140 million in stock and that acquisition would exceed the USD $94 million size of transaction filing threshold.
  • Another scenario not currently requiring a filing, but would [...]

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European Commission Announces New Approach to Merger Review Referrals Falling Below Thresholds

Under current EU merger control rules, whether a concentration has to be notified to the European Commission (“Commission”) depends, among other things, on the level of revenue generated by the parties worldwide and in the European Union.  A key question that has sparked considerable debate in recent years is whether the current merger control thresholds cover all transactions that have the potential to harm competition, or whether there is a so-called “enforcement gap”.

On September 11, during the International Bar Association’s 24th Annual Competition Conference, Competition Commissioner Margrethe Vestager announced that the Commission intends to change its approach towards referrals to the EU from national competition authorities. Commissioner Vestager noted that although the current, revenue-based thresholds set out in the EU Merger Regulation generally work well, revenue does not always reflect a company’s significance – particularly in innovative sectors, such as the pharmaceutical and digital sectors. In other words, innovative firms with low revenues may have a significantly out-sized market presence.

This issue is not entirely new, and has been debated in recent years – for example, in connection with possibly amending the thresholds set out in the EU Merger Regulation.  On this point, however, Commissioner Vestager pointed out that “changing the merger regulation, to add a new threshold like this, doesn’t seem like the most proportionate solution”.

Instead, as a solution to this shortfall, Commissioner Vestager stated that the Commission intends to broaden its approach to cases referred to it from one or more EU Member States, stating that the Commission will “[…] start accepting referrals from national competition authorities of mergers that are worth reviewing at the EU level – whether or not those authorities had the power to review the case themselves”.

The current referral system set out in the EU Merger Regulation enables the Commission to review concentrations that fall below the EU thresholds. Indeed, in recent years, certain significant transactions have been reviewed by the Commission only after an upward referral, as they did not fulfil the jurisdictional thresholds of the EU Merger Regulation, including for example Apple/Shazam (2018), Microsoft/GitHub (2018) and Facebook/WhatsApp (2014). Under the current rules, the Commission can review transactions which fall below the EU merger control thresholds on the basis of referrals from national competition authorities where:

  • the concentration is notifiable in at least three Member States; or
  • where the concentration affects trade between Member States and threatens to significantly affect competition within the Member State(s) making the request for a referral.

The Commission has discouraged national competition authorities from referring cases to the Commission  in instances when they themselves did not have the power to review because national merger control thresholds were not met.

The proposal announced by Commissioner Vestager would change this approach, and would allow a broader universe of cases – including those which fall below national thresholds – to be referred to the Commission.  Ms. Vestager explained that “those referrals could be an excellent way to see the mergers that matter at a European scale, but [...]

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Antitrust M&A Snapshot | Q2 2020

In the United States, despite requesting additional time to review pending mergers, the US antitrust agencies have continued their work through the COVID-19 pandemic. The Department of Justice (DOJ) and Federal Trade Commission (FTC) reached settlements with a number of merging parties during Q2 2020, and the FTC is proceeding to trial in several merger cases. Both the FTC and the DOJ are conducting investigational hearings and depositions via remote videoconferencing technology such as Zoom. The FTC also announced it prevented 12 deals from closing in 2020 despite the COVID-19 pandemic. Five of the transactions were blocked and another seven were abandoned due to antitrust concerns, putting the FTC on pace for one of its busiest years for merger enforcement in the past 20 years.

In Europe, in light of the COVID-19 outbreak, the European Commission (EC) warned that merger control filings would likely not be processed as swiftly as usual. The EC encouraged parties to postpone merger notifications because the EC envisaged difficulties, within the statutory deadlines imposed by the EU Merger Regulation, to elicit relevant information from third parties, such as customers, competitors and suppliers. In addition, the EC foresaw limitations in accessing information on a remote basis. This period thus saw a drop in merger notifications to the EC; however, notifications increased in June and July.

Access the full issue.




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