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Antitrust M&A Snapshot | Q3 2021

In the United States, the US Department of Justice’s (DOJ) challenge of American Airlines and JetBlue’s “Northeast Alliance” after the joint venture’s approval by the US Department of Transportation earlier this year demonstrates the Biden administration’s commitment to aggressive antitrust enforcement. US President Joe Biden issued an Executive Order calling for tougher antitrust enforcement, including “encouraging” the DOJ and Federal Trade Commission (FTC) to modify the horizontal and vertical merger guidelines to address increasing consolidation. At the same time, the FTC, under Chair Lina Khan, continues its rapid pace of change to the merger review process.

Under a new interpretation of Article 22 of the EU Merger Regulation (EUMR), the European Commission (Commission) asserted jurisdiction over Illumina’s acquisition of GRAIL and Facebook’s acquisition of Kustomer, even though the transactions did not meet the Commission or Member State filing thresholds. The EU General Court confirmed a significant gun-jumping fine imposed on Altice for breach of the EUMR notification and standstill obligations.

In the United Kingdom, the UK government published plans to update antitrust rules, including revising its jurisdictional thresholds and expanding the “share of supply” test to allow the CMA to more easily capture vertical and conglomerate mergers, as well as acquisitions of startups. And the Competition & Markets Authority’s (CMA) handling of the Veolia/Suez transaction demonstrates the CMA’s willingness to engage with parties to seek practical interim solutions while it is investigating a consummated transaction for potential antitrust concerns.

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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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