The Tip of the Iceberg? Recent Developments in Merger Enforcement

Ten months into the Biden Administration, the President’s choice to lead the Antitrust Division of the Department of Justice (DOJ), former Federal Trade Commission (FTC) attorney and antitrust law practitioner Jonathan Kanter, has received Senate confirmation by a vote of 68-29. Time will tell whether Assistant Attorney General Kanter’s reputation in the legal community as an advocate for vigorous antitrust enforcement spills over into his new role, as many expect it will. In the meantime, recent developments on the merger enforcement front signal tighter oversight and will almost certainly impact merger review going forward.

The first change implicates the 30-day waiting period that begins to run when parties to a reportable transaction notify the FTC and DOJ of their intended merger, as required by the Hart-Scott-Rodino (HSR) Act. It used to be that parties could request so-called early termination of the waiting period, which on occasion the Government would grant if it was clear the merger did not trigger anti-competitive concerns, thereby obviating the need for further review. But that all changed in February, when the FTC announced it was suspending the practice of early termination, citing the transition to the new Administration and the unprecedented volume of HSR filings for the start of a fiscal year.

What was initially termed a temporary suspension has morphed into more of an indefinite one. And on its heels came a second announcement in early August, likewise spurred on by a “tidal wave” of merger filings, that the FTC would begin sending out “warning” letters to parties to some mergers alerting them that their deals will continue being investigated beyond the 30-day waiting period. In other words, not only is the option of shortening the waiting period off the table, but now parties who receive such a letter proceed to a closing at their own risk, even after those 30 days have elapsed. While the Government has always had the ability to challenge a merger after it is consummated, it has done so sparingly, and thus merging parties have taken comfort that if they hear nothing from the Government before the waiting period expires, they are clear to close their deal. The advent of these warning letters adds significant uncertainty and threatens to delay closings, requiring parties and their counsel to get creative to address these contingencies in the deal documents.

A second notable development is the withdrawal by the FTC of the Vertical Merger Guidelines that arrived to much fanfare just last year, as we posted here. In mid-September, by a vote of 3-2, the FTC rescinded this guidance, citing its “flawed discussion” of the efficiencies that these mergers between firms at different stages of the supply chain (as opposed to horizontal mergers between competitors) can create. The mere fact that a vertical merger has procompetitive effects is not reason enough to allow it if it may also lessen competition, the commissioners in the majority reasoned. Although it’s not completely back to the drawing board, the FTC pledged to issue updated guidelines in concert with DOJ to ensure that vertical merger analysis aligns with market realities.

Thus, in a year that has seen a surge in merger activity, all signs are pointing to a more aggressive enforcement regime. Whether the recent actions taken by the new Administration are a symptom of the surge or an effort to quell it, companies contemplating mergers and their advisors must be ready to meet these changes – which may be just the tip of the iceberg – head-on.

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