The U.S. Federal Trade Commission (“FTC”) and the U.S. Department of Justice’s Antitrust Division (“DOJ”) recently issued their Hart-Scott-Rodino Annual Report for Fiscal Year 2018 (the “Report”).1 The key takeaways from the Report are:
- Notified transactions increased by 2.9% from last fiscal year, with the number of HSR reportable transactions increasing nearly 60% in the past six fiscal years.
- Merger enforcement levels were down slightly relative to previous years, with the antitrust agencies issuing detailed Second Requests in only a small number (2.2%) of notified transactions, the lowest percentage in almost two decades.
- Similar to last year, the industries with the most notified transactions were consumer goods & services (representing 31.0% of total notified transactions), manufacturing (13.6%) and information technology (8.7%).2
- Remedies were required in most transactions where a Second Request was issued.
- Though the number of Second Requests issued dropped compared to the previous fiscal year, the percentage of Second Requests resulting in challenges increased as did the number of actions brought by the agencies in administrative or federal court, with the agencies issuing 45 Second Requests, initiating 39 merger enforcement challenges, and bringing 6 actions in administrative or federal court (compared to 51 Second Requests, 39 challenges, and 3 cases brought in administrative or federal court in FY 2017).
- For the first time since FY 2011, the agencies did not bring a single civil enforcement action for violation of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”).
More than 85% 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 286 out of 2,028 cases (14.1%).3 Clearance was granted to the FTC in 208 transactions and to the DOJ in 78 transactions. All other transactions (85.9%) completed the HSR process without either agency initiating a preliminary investigation. These figures are largely comparable to the percentages from FY 2017.
Level of Second Requests remains low. Of the transactions for which one of the agencies conducted an initial investigation, 15.7% (45 out of 286) were subject to a detailed Second Request investigation; 26 Second Requests were issued by the FTC (12.5% of the FTC’s 208 investigated transactions) and 19 were issued by the DOJ (24.4% of the DOJ’s 78 investigated transactions). Compared to previous years, there was a slight decrease in the percentage of Second Requests issued out of the total number of transactions and out of transactions in which an initial investigation was initiated.
DOJ issued a higher percentage of Second Requests than FTC. The DOJ continues to issue a higher percentage of Second Requests compared to the FTC, issuing Second Requests in nearly one-quarter of the transactions in which it opened a preliminary investigation.
Majority of early termination requests were granted. Early termination of the HSR waiting period was requested in a total of 1,500 transactions and granted in 1,170 of those transactions, a percentage (78.0%) that has remained relatively stable over the years.
Merger challenges remain steady. A total of 39 merger enforcement actions were brought in FY 2018—22 by the FTC and 17 by the DOJ. This total number of merger enforcement actions remains unchanged from FY 2017, in which 39 merger enforcement actions were brought, 21 by the FTC and 18 by the DOJ. 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.
Increase in merger litigation. During FY 2018, the FTC and DOJ filed litigation in administrative or federal court to challenge 6 problematic mergers. This represents a significant increase in the level of merger litigation compared to FY 2017, in which the agencies filed litigation in administrative or federal court with respect to 3 transactions.
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.