• The Federal Trade Commission, citing capacity constraints, has begun sending warning letters to deal parties when it does not complete merger investigations within the waiting period established under the Hart-Scott-Rodino Act. The letters state that the parties consummate transactions in these circumstances “at their own risk” if they do so prior to the completion of the Commission’s investigation.
  • While the FTC has always had the ability to challenge transactions post-closing where warranted, such challenges have been extremely rare. The new policy of sending warning letters does not in and of itself create additional risk of such challenges, though prior statements of certain Commissioners suggest that the FTC may be more likely to bring post-closing challenges than in the past.
  • The receipt of a warning letter from the FTC likely would not excuse the parties from their obligation to close unless the governmental approvals closing condition broadly covered the absence of pending or threatened investigation or review by a governmental authority (which is not common).

In a blog post today, Holly Vedova, the Acting Director of the Federal Trade Commission (FTC) Bureau of Competition, wrote that “for deals that we cannot fully investigate within the requisite [statutorily-set] timelines, we have begun to send standard form letters alerting companies that the FTC’s investigation remains open and reminding companies that the agency may subsequently determine that the deal was unlawful. Companies that choose to proceed with transactions that have not been fully investigated are doing so at their own risk.” The blog post notes that the issuance of such a letter “should not be construed as a determination that the deal is unlawful, just as the fact that we have not issued such a letter with respect to an HSR filing should not be construed as a determination that a deal is lawful.” The practice of sending these form letters is new.

Today’s blog post states that “the FTC has been hit by a tidal wave of merger filings that is straining the agency’s capacity to rigorously investigate deals ahead of the statutory deadlines.” Under the Hart-Scott-Rodino (HSR) Act, parties to acquisitions meeting certain thresholds must make a filing with the federal antitrust agencies and then observe a waiting period before they close the transaction. (For most deals, this waiting period is thirty days, which the parties can choose to extend for an additional thirty days.) During that time period, the agency with responsibility for reviewing the transaction decides whether to issue a “second request” for information and documents to the parties. If this happens, under the HSR Act, the waiting period is extended for thirty days after the parties comply with the second request, a process that can take several months. If the initial waiting period expires and no second request is issued, parties can close their transactions and be confident that in all but the most unusual situations, the FTC will not take further action.

Post-consummation merger challenges have been exceedingly rare and, when they do occur, generally involve challenges to transactions that were not reportable under the HSR Act. Today’s blog post does not in and of itself create additional risk of such challenges, though prior statements of certain Commissioners suggest that the FTC may be more likely to bring post-closing challenges than in the past. Regardless, today’s announcement serves as a reminder that, as the blog post states, “[w]hen the FTC does not challenge a transaction prior to its consummation, this does not constitute an ‘approval’ or ‘clearance’ of the deal, and the agency maintains the right to challenge a deal regardless of whether it was initially investigated.” Indeed, the FTC’s form letter notes that “in keeping with its commitment to aggressive enforcement, the Commission may challenge transactions – before or after their consummation – that threaten to reduce competition and harm consumers, workers, and honest businesses.” One other note: the receipt of a warning letter from the FTC likely would not excuse the parties from their obligation to close unless the governmental approvals closing condition broadly covered the absence of pending or threatened investigation or review by a governmental authority (which is not common).

Paul, Weiss was recognized by the Global Competition Review (GCR) Awards in the “Litigation of the year – Cartel Prosecution” category for the firm’s involvement in the Blue Cross Blue Shield antitrust litigation. Paul, Weiss represents a putative class of Blue Cross/Blue Shield individual customers and small-employer insureds, and is on the plaintiff steering committee; litigation partner Bill Isaacson filed the first case in 2012. In October 2020, the parties reached a $2.67 billion settlement that would eliminate practices that have restricted competition in the healthcare marketplace.

The GCR Awards honor the world’s leading antitrust lawyers, economists, enforcement officials and academics, as well as the biggest matters from 2020.

  • The Federal Trade Commission rescinded a policy statement which limited the use of provisions in orders in merger cases requiring parties to provide prior notice or receive prior approval before engaging in future transactions.
  • Now, companies that become subject to FTC orders in merger cases (whether by consent or as the result of an adverse ruling) should expect that these orders will very likely contain provisions requiring prior notice and prior approval of future acquisitions, including acquisitions that do not meet HSR reporting thresholds.

On July 21, the Federal Trade Commission (FTC), in a 3-to-2 vote along party lines, rescinded its 1995 Statement Concerning Prior Approval and Prior Notice Provisions in Merger Cases. This action could result in onerous requirements for companies that become subject to orders of the Commission relating to mergers, requiring them – outside of the HSR process – to provide notice to the FTC and seek its approval before engaging in future deal activity. Companies subject to a prior approval provision may face the burden of proving to the FTC that a proposed transaction is not anticompetitive. Under normal circumstances, the FTC has the burden of proving that a proposed transaction may substantially lessen competition.

As the FTC described in the now-rescinded Statement, prior to 1995, “Commission orders entered in merger cases generally . . . contained a requirement that the respondent seek the Commission’s prior approval for any future acquisition over a de minimis threshold within certain markets for a ten-year period.” Additionally, in certain cases, the FTC required notice of transactions not reportable under the Hart-Scott-Rodino (HSR) Act. (The HSR Act requires that parties to transactions meeting certain thresholds must make an HSR filing and observe a waiting period before closing the transaction.)

In 1995, recognizing that “prior approval provisions . . . may impose costs on a company subject to such a requirement” and that the utility of the HSR notification and waiting period framework “has proven to be an effective means of investigating and challenging most anticompetitive transactions before they occur,” the FTC “concluded that a general policy of requiring prior approval is no longer needed.” Instead, the Commission’s 1995 policy limited prior approval requirements to narrow situations where it believed parties to mergers that the FTC found to be anticompetitive would “attempt the same or approximately the same merger” with “essentially the same relevant assets.” And it limited prior notice requirements to situations in which it believed “there is a credible risk that a company that engaged or attempted to engage in an anticompetitive merger would, but for an order, engage in an otherwise unreportable anticompetitive merger.”

In a press release discussing the rescindment, the FTC said that the Statement “made it more difficult and burdensome to deter problematic mergers and acquisitions” and that “the Commission has been forced to re-review the same transaction on numerous occasions at considerable expense.”

The FTC did not provide guidance about when it would seek to include prior notice and approval provisions in orders in merger cases. Nevertheless, with the rescindment of the Statement, companies should expect that if they become subject to FTC orders in merger cases, these orders will very likely contain provisions requiring prior notice and prior approval of future acquisitions (including acquisitions that do not meet HSR reporting thresholds). A prior-approval provision could impose a significant burden on companies to prove that their transaction is not anticompetitive.

The risks and burdens of such provisions on potential future transactions are factors to consider both for cases fully litigated before the Commission as well as cases settled with a consent order. In cases which might be resolved with consent orders, the FTC may be unwilling to agree to a settlement without notice and approval provisions. If so, parties will have to weigh the costs and risks of settling and agreeing to the provisions against the costs and risks of not settling and fully litigating the FTC’s case. In cases headed to litigation, parties will have to weigh the downside of abandoning a transaction and potentially avoiding a final order against the costs and risks of losing the case and being subject to notice and approval provisions for future deals.