The U.S. Federal Trade Commission (“FTC”) and the U.S. Department of Justice’s Antitrust Division (“DOJ”) recently issued their Hart-Scott-Rodino ("HSR") Annual Report for Fiscal Year 2014 (the “Report”).1 The key takeaways from the Report are:
- Notified transactions were up 25%, reflecting the ongoing surge in M&A activity.
- The increase in activity is being driven in part by large deals: notified transactions with a deal value exceeding $1 billion increased by 58%.
- Despite these increases, there has been no appreciable increase in overall enforcement levels. Similar to years past:
- The overwhelming majority (83%) of notified transactions were not even subject to an initial investigation by the antitrust agencies;
- A very small percentage (3%) of notified transactions were subject to detailed Second Request investigations; and
- 80% of early termination requests were granted.
- Remedies are required in most transactions where a Second Request is issued.
Click here to view image.
Total HSR filings up 25%. According to the Report, in FY 2014, a total of 1,663 transactions were notified. This represents a 25.4% increase from the 1,326 transactions notified during the previous fiscal year (see Figure 1 below). The significant increase in notified transactions corresponds with the widely reported increase in merger activity. Still, the level of filings remains below pre-recession levels.
Transactions Reported and Percentage of Transactions Resulting in Second Requests Fiscal Years 2005–2014
Click here to view image.
More big deals. The growth in merger filings is being driven in part by very large deals. The number of notified transactions with a deal value exceeding $500 million increased 34% and the number of transactions with a deal value of over $1 billion increased 58%. Big does not necessarily mean bad, however. While the percentage of deals over $1 billion that received a Second Request is larger than for smaller deals, the overall percentage of Second Request investigations associated with large deals stayed flat at approximately 7%. Indeed, as discussed below, despite this surge in activity, enforcement remained largely consistent with prior years.
More than 80% of transactions received no further scrutiny from the antitrust agencies. Through a process known as “clearance,” representatives of both the FTC and DOJ meet to assign transactions raising potential competition concerns to either agency for the purpose of conducting an initial investigation. Clearance to conduct an initial investigation was granted to the FTC or DOJ in only 274 out of 1,618 cases (16.9%).2 Clearance was granted to the FTC in 181 transactions and to the DOJ in 93 transactions. All other transactions (83.1%) completed the HSR process without either agency initiating a preliminary investigation. These percentages are identical to those in FY 2013.
Level of Second Requests remains low. Of the transactions for which one of the agencies conducted an initial investigation, approximately 19% (51 out of 274) were subject to a detailed Second Request investigation; 30 Second Requests were issued by the FTC (16.6% of the FTC’s 181 investigated transactions) and 21 were issued by the DOJ (22.6% of the DOJ’s 93 investigated transactions). In FY 2013, a total of 47 Second Requests were issued. The overall percentage of Second Requests issued each year out of the total number of transactions has remained relatively constant at 3.2%.
FTC issued many more Second Requests than DOJ. In FY 2014, the FTC issued 3 Second Requests for every 2 issued by the DOJ—out of 51 Second Requests, the FTC issued 30 and the DOJ issued 21. In FY 2013, the FTC/DOJ split was about even at 25/22. The split tends to fluctuate year to year with the FTC leading the charge some years, the DOJ leading the charge other years and the agencies evenly split in still other years. The increased number of Second Requests issued by the FTC in FY 2014 may be explained in part by the higher percentage of transactions in the Health Services and Consumer Goods & Services industries.3
Majority of early termination requests are granted. Early termination of the HSR waiting period was requested in a total of 1,274 transactions and granted in 1,020 of those transactions. The percentage of early termination requests granted out of the total requests made decreased very slightly from 80.5% during FY 2013 to 80.1% in FY 2014.
Merger challenges decreased although HSR filings increased. A total of 33 merger enforcement actions4 were brought in FY 2014—17 by the FTC and 16 by the DOJ.5 By comparison in FY 2013, 38 merger enforcement actions were brought, 23 by the FTC and 15 by the DOJ. Despite the overall decrease in merger challenges, the number of challenges brought by each of the FTC and DOJ in FY 2014 roughly approximates the average number of challenges brought on an annual basis by each respective agency over a 10-year period (FY 2005 – FY 2014),6 with the DOJ exceeding its 10-year average and the FTC falling short of its average. The number of enforcement actions brought by the DOJ in FY 2014 is 7% above its 10-year annualized average, while the number of enforcement actions brought by the FTC is 13% below its 10-year annualized average. As in prior years, most enforcement actions are resolved through consent decrees where the parties agree to divestitures and other remedies as a condition of clearance.
* * * * *
About the HSR Act. The HSR Act requires parties to certain mergers and acquisitions to file a notification with the FTC and DOJ prior to consummating the proposed transaction. Upon filing, a 30-day waiting period (15 days in the case of a cash tender offer or bankruptcy sale) begins during which the parties may not close the transaction. During this window, the antitrust agencies assess whether the transaction is likely to have any anticompetitive effects. If deemed necessary, the FTC and DOJ are authorized to extend the waiting period by issuing a Second Request for additional information and documents. If after the Second Request review there are still concerns at the agencies, the FTC or DOJ may seek a consent order from the parties or bring a court action challenging the merger.