Merger review has long been the aspect of antitrust law most visible in the general media – and the run-up to the November election was no exception. While the premerger notification process – with its preclosing review of forms and documents – has been relatively constant since the late 1970s, each review is inherently uncertain as it involves a prediction of the transaction’s future competitive effects made by political appointees. That uncertainty is even greater now as several antitrust enforcer positions remain unfilled. There are even whispers of potential changes in the long-standing review process. As a result, companies considering large transactions need to pay attention to signals from the new administration.
The Three Most Famous Names in Merger Review – Hart, Scott, and Rodino
While various parties can challenge mergers, nearly all the reviews and challenges are done by the Federal Trade Commission (FTC) and Department of Justice (DOJ) Antitrust Division through the process established by the Hart-Scott-Rodino Antitrust Improvements Act of 1976. HSR requires the buyer and seller to file certain forms and documents prior to closing on most large acquisitions. The FTC and DOJ then have a chance to review the submissions and gather information from others in the industry to predict the potential impacts of the transaction. Most reviews are quick, but some can take more than a year and require massive submissions. At the end of the process, the agencies can allow the transaction or challenge it. Parties to a challenged transaction can abandon it or try to negotiate divestitures or other fixes to the perceived antitrust problem. If no compromises can be reached, the challenge goes to a court.
In practice, the overwhelming majority of transactions under HSR are allowed to proceed with little or no further information requested. Most transactions subjected to further inquiry or challenge are abandoned or modified by the parties. Very few merger challenges generate court opinions. Therefore, the final opinion on most mergers comes from the FTC and DOJ staff. Fortunately, their well-respected guidelines describe their respective merger review process.
Merger Review Received Even More Publicity Than Usual in 2016
In the months before the November 2016 election, several mainstream media outlets blamed lax antitrust enforcement, especially merger review, for increased concentration and sluggish economic growth. For instance, The New Republic cited weak review of a “tsunami of mergers” as leading to increased concentration and income inequality – in short, “the root of our economic evils.” The Obama White House joined the chorus calling for executive branch agencies to develop ideas on how to better enforce antitrust laws. Candidate Trump even got in on the act, commenting that the proposed AT&T-Time Warner transaction involved “too much concentration of power in the hands of too few.”
But not everyone thought lax merger enforcement was “the root of our economic evils.” FTC commissioners from both parties defended recent antitrust enforcement. Many mergers were in fact successfully challenged by the FTC and DOJ in recent years. For instance, in 2016 alone the FTC successfully challenged the Staples-Office Depot merger, caused the abandonment of two other transactions, and obtained modifications in 15 other transactions.
Merger Review Policy Still Uncertain Post-Election
Companies in the U.S. considering a large merger might be disappointed that the uncertainty created by the election campaign continues to this day. As we reported earlier, many of the leadership positions at the FTC and DOJ remain unfilled, although the Trump Administration has nominated Makan Delrahim as head of the DOJ Antitrust Division. Until those positions are filled by permanent – not acting – appointments, the administration’s long-term approach to merger review will not be clear.
The reviews required by HSR continue, despite the vacancies. Some proposed mergers that have been in front of the agencies for months, like Walgreens-Rite Aid, remain under investigation as company executives and investors impatiently wait. Others seen as raising antitrust issues, like ChemChina-Syngenta, have been allowed to proceed with some modifications. So the few tea leaves suggest business as usual.
While there have been no shocking merger review decisions, there are some signs that the HSR process might be in for some changes. FTC Acting Chairman Maureen Ohlhausen has said that she wants to look at reducing any “unnecessary and disproportionate cost on business” from FTC requirements. In an earlier dissent regarding an HSR violation action, she advocated for expanding the “investment only” exemption to HSR filing requirements. Similarly, Tad Lipsky, the FTC acting director of the bureau of competition, called HSR “the poster child for agency ‘mission creep’ and crushing procedural burdens” and, before assuming his current position, advocated for considering “ways to limit the number of filings . . . and reduce cost, delay and other burdens.” Sen. Amy Klobuchar has suggested increasing the HSR fees required for the largest mergers.
Of course, what has received the most media attention regarding the HSR merger review process is the possibility that officials outside the antitrust agencies, up to and including President Trump, might play a greater role in the negotiations that are part of the most contentious merger reviews.
In sum, merger review decisions under HSR are always uncertain because they involve predictions by political appointees of future effects on competition. The uncertainty that comes with any change in administration has been increased by the Trump Administration’s mixed signals and slow appointment process. Even the HSR process itself might be in for some adjustments. So companies considering a large transaction will need to watch for further clues from the new administration.