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FTC Shake-Up of Merger Review Process: What You Can Expect and What You Can Do

Allison W Reimann

FTC Shake-Up of Merger Review Process: What You Can Expect and What You Can Do
Andy Ryan via Getty Images

Dealmakers, take note: The unprecedented volume of merger filings over the last several months, combined with continued changes at the Federal Trade Commission (FTC) concerning merger filings, translates into increased uncertainty and potential for delay prior to closing. Below is advice about what you can expect and what you can do.

Wait Times after an HSR Filing

In February, citing the increased number of merger filings, the FTC suspended the practice of early termination. Early termination allows certain reportable deals that pose little risk of competitive harm to close before the end of the standard 30-day window after filing a notification under the Hart-Scott-Rodino Act (HSR). The suspension was described as temporary, and the FTC’s website published two early terminations in July, but the suspension has remained in effect. Until the suspension is formally lifted, transacting parties should expect to wait at least 30 days after an HSR filing before closing.

“Pull and Refile” Requests

What’s more, recent developments also call into question whether planning for just a 30-day waiting period is enough. If the reviewing agency is unable to complete its HSR review within the 30-day waiting period, parties have been asked to pull and refile their HSR forms, restarting the 30-day clock. Parties generally agree to requests to pull and refile to avoid a formal second request, which can extend the waiting period for several months until the parties have substantially complied with numerous requests for additional information and documents. 

While the pull-and-refile option has long been a part of merger practice, there have been reports that the frequency of these requests from the FTC is increasing. Considering the Biden administration’s July 9, 2021, executive order calling for increased review of proposed transactions, especially in the labor, agricultural, health-care, and technology sectors, it is particularly important for parties to consider the possibility of a pull-and-refile request early in deal negotiations—and consider building in at least 60 days for agency HSR review before closing.

“Close at Your Own Risk” Letters

On August 3, 2021, the FTC also announced that due to “a tidal wave of merger filings” this year, it has been unable to complete antitrust investigations before the end of the HSR waiting period, sometimes even after a pull and refile. The FTC has begun issuing warning letters alerting companies that choose to close before completion of the FTC’s investigation that they do so at their own risk. The FTC appears to be issuing such letters only to parties who already are on notice of an ongoing investigation of potential competitive harm. However, in some cases, these warning letters have been received after the parties have been told that the FTC has no further questions or even after the 30-day waiting period. Parties should consider in deal negotiations what, if any, impact the issuance of a “close at your own risk” letter will have on closing conditions.

Changes in FTC Guidance

In late August, the FTC further illustrated its willingness to depart from past practice, announcing that it intends to scrutinize its voluminous log of informal interpretations of the HSR reporting rules. The FTC’s informal interpretations of its highly technical rules are not binding, but they have long provided an important source of guidance in determining whether a filing is required. In making this announcement, the FTC highlighted “one initial example of where the informal interpretation program missed the mark.” As such, beginning September 27, 2021, retirement of debt now must be counted in determining reportability if it benefits the selling shareholders. The FTC has yet to provide meaningful guidance on how parties are to make this determination.

Going Forward

Companies should expect additional changes from the federal antitrust agencies going forward. In addition to the FTC’s promise to continue its review of its informal interpretations, the Biden administration’s July 2021 executive order urged the FTC to review the existing horizontal and vertical merger guidelines and revise them as necessary. In accordance with that directive, on September 15, 2021, the FTC rescinded the Vertical Merger Guidelines, which it issued jointly with the U.S. Department of Justice Antitrust Division (DOJ) just last year. Following the FTC’s announcement, the DOJ issued a statement that while the Vertical Merger Guidelines remain in place at the DOJ, the agency is “conducting a careful review of the Horizontal Merger Guidelines and the Vertical Merger Guidelines to ensure they are appropriately skeptical of harmful mergers.”