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Introduction

In 1976, the United States became the first jurisdiction with a mandatory pre-merger notification requirement when Congress promulgated the Hart-Scott-Rodino Antitrust Improvements Act (the HSR Act) to enhance enforcement of Section 7 of the Clayton Act. Under the HSR Act, the US Federal Trade Commission (FTC or the Commission) and the US Department of Justice's Antitrust Division (DOJ) (collectively, the agencies) receive such notifications concurrently and, through a clearance process, decide which agency will investigate transactions that potentially raise issues under Section 7 of the Clayton Act. The HSR Act provides both a 'size-of-transaction' test and a 'size-of-person' test for determining whether a filing is required. Subject to certain exemptions, for 2021,2 the size-of-transaction test is satisfied if the acquirer would hold an aggregate total amount of voting securities and assets of the target in excess of US$92 million. Transactions in which holdings post-acquisition will be valued between US$92 million and US$368 million are reportable only if the size-of-person threshold is also met: either the acquiring or acquired person must have total assets or annual net sales of at least US$184 million, and at least one other person must have total assets or annual net sales of US$18.4 million. Transactions valued over US$368 million are not subject to the size-of-person test, and are reportable unless otherwise exempt.

Important exemptions are provided in the implementing regulations,3 most notably for: (1) acquisitions of goods or real property in the ordinary course of business; (2) acquisitions of bonds, mortgages and other debt obligations; (3) acquisitions of voting securities by an acquirer holding at least 50 per cent of the issuer's voting securities prior to the acquisition; (4) acquisitions made solely for investment purposes in which, as a result of the acquisition, the acquirer holds 10 per cent or less of the outstanding voting securities of the issuer; (5) intra-corporate transactions; (6) acquisitions of convertible voting securities (but not the conversion of such securities); (7) acquisitions by securities underwriters in the process of underwriting; (8) acquisitions of collateral by creditors upon default; and (9) acquisitions involving foreign persons if the assets or revenues involved fall below certain adjusted thresholds that are intended to focus on assets located in the United States or for which there are sufficient sales in or into the United States. Failure to file can result in civil penalties of up to US$43,792 for every day that the person does not comply with the HSR Act.

The non-reportability of a transaction under the HSR Act does not preclude either the FTC or the DOJ from reviewing, and even challenging, a transaction under Section 7 of the Clayton Act.4 Nor does the expiry or termination of the HSR Act waiting period immunise a transaction from post-consummation challenge under Section 7.5 In addition, even in reportable transactions, state attorneys general may review, and even challenge, transactions, typically, but not always, in conjunction with the federal enforcement agency handling the transaction.6 Certain industries also require pre-merger approval from federal regulatory agencies. For instance, the Federal Energy Regulatory Commission will review electric utility and interstate pipeline mergers; the Federal Communications Commission will review telecommunications and media mergers;7 the Board of Governors of the Federal Reserve System will review bank mergers;8 and the Surface Transportation Board will review railroad mergers.

State public utilities commissions may have separate authority to review telecommunications and utilities mergers. Finally, under the Exon-Florio Act, the Committee on Foreign Investment in the United States may review acquisitions by foreign persons that raise national security issues.

Year in review

Despite the pandemic, the agencies entered into a record number of merger enforcement actions during 2020.9 The FTC uniquely possesses the ability to seek a preliminary injunction to block completion of a proposed merger in federal district court and to challenge both proposed and completed mergers in its own administrative proceeding. In addition, the FTC can enter into a binding consent decree with the transaction parties without judicial intervention. In contrast, the DOJ must bring its challenges (and file any consents) in federal district court, with a judge ultimately deciding the case. The duration of the administrative process is sufficiently long that rarely will a pending transaction survive the appeals process. For instance, the FTC's administrative challenge of a completed acquisition by Polypore International, Inc that commenced in September 2008 resulted in a March 2010 ruling by the administrative law judge that the acquisition violated the law. The transaction parties appealed the ruling to the full Commission, which held oral argument on 28 July 2010 and unanimously affirmed the decision on 8 November 2010 (over two years after the challenge commenced); the Eleventh Circuit affirmed the Commission's decision almost two years later (i.e., over four years after it challenged the merger). The US Supreme Court denied certiorari in 2013. Similarly, in the challenge of the September 2017 Otto Bock/Freedom Innovations transaction, the FTC brought its administrative challenge in December 2017, the administrative law judge ruled in May 2019 that the transaction violated the law, and the full Commission unanimously affirmed the decision on 30 December 2019. Otto Bock petitioned the DC Circuit to review the Commission's decision, but pending the DC Circuit's decision, agreed to settle with the FTC by divesting Freedom's microprocessor-equipped prosthetic knee business to Proteor on 9 October 2020 (almost three years after the FTC had commenced its challenge).

At the beginning of 2020, in addition to the Otto Bock/Freedom Innovations challenge mentioned above, the FTC had pending two merger challenges in federal district court and two M&A challenges in its administrative court. During 2020, the Commission authorised staff to challenge seven additional mergers in district or administrative court. In its district court challenges, the FTC won one10 and lost two,11 and the parties abandoned five transactions prior to the trial.12 In its administrative challenges, the transaction parties abandoned one transaction before trial.13

The FTC entered into 12 consents involving proposed mergers in 2020. In addition, the FTC reports that in 11 deals, the parties abandoned their transaction when faced with FTC opposition to the transaction.

At the beginning of 2020, the DOJ had two merger challenges pending in district court: it won one in arbitration on 9 March 2020,14 and lost the other one on 7 April 2020.15 The DOJ brought one new case during 2020; the litigation settled prior to trial.16

The DOJ also entered into 10 consents involving proposed transactions in 2020; in addition, transaction parties abandoned at least one transaction because of antitrust concerns raised by the DOJ.