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 2015 (the "Report"). The key takeaways from the Report are:
- Notified transactions were up 8.3%, reflecting the steady rise in M&A activity.
- Merger enforcement levels remain steady relative to previous years, with the antitrust agencies granting early termination in the vast majority (79.5%) of transactions in which early termination was requested and issuing detailed Second Requests in only a small number (2.7%) of notified transactions.
- Remedies are required in most transactions where a Second Request is issued.
- While the number of Second Requests has decreased slightly from the previous fiscal year, the number of enforcement challenges are on the rise:
- In FY 2015, the antitrust agencies initiated 42 merger enforcement challenges (compared to 33 challenges in FY 2014).
- The antitrust agencies brought a total of four merger enforcements actions in federal court and were prepared to file papers in an additional nine before the parties abandoned the transaction (compared to one possible federal court challenge in FY 2014).
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Total HSR filings up 8%. According to the Report, in FY 2015, a total of 1,801 transactions were notified under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"). This represents an 8.3% increase from the 1,663 transactions notified during the previous fiscal year (see Figure 1 below). This increase in notified transactions corresponds with the widely reported surge in merger activity, with filing activity finally beginning to match pre-recession levels.
HSR Merger Transactions Reported and Percentage of Transactions Resulting in Second Requests
Fiscal Years 2006–2015
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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 258 out of 1,754 cases (14.7%). Clearance was granted to the FTC in 179 transactions and to the DOJ in 79 transactions. All other transactions (85.3%) completed the HSR process without either agency initiating a preliminary investigation. These figures are largely comparable to the percentages from FY 2014.
Level of Second Requests remains low. Of the transactions for which one of the agencies conducted an initial investigation, approximately 18% (47 out of 258) were subject to a detailed Second Request investigation; 20 Second Requests were issued by the FTC (11.1% of the FTC’s 179 investigated transactions) and 27 were issued by the DOJ (34.1% of the DOJ’s 79 investigated transactions). In FY 2014, a total of 51 Second Requests were issued. The overall percentage of Second Requests issued each year out of the total number of transactions has remained relatively constant.
DOJ issued many more Second Requests than FTC. In FY 2015, out of 47 Second Requests, the DOJ issued 27 and the FTC issued 20. This represents a shift from last years’ activity, in which the FTC led the charge with 31 Second Requests while the DOJ came in with 21. This shift in enforcement may be explained by an increasing number of Second Requests issued in the Utilities and Transportation industries where the DOJ takes the lead.
Majority of early termination requests are granted. Early termination of the HSR waiting period was requested in a total of 1,366 transactions and granted in 1,086 of those transactions. The percentage of early termination requests granted out of the total requests made decreased very slightly from 80.1% during FY 2014 to 79.5% in FY 2015.
Merger challenges are on the rise. A total of 42 merger enforcement actions were brought in FY 2015—22 by the FTC and 20 by the DOJ. By comparison in FY 2014, 33 merger enforcement actions were brought, 17 by the FTC and 16 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.
Merger litigation is on the rise. During FY 2015, the FTC and DOJ filed four preliminary injunction actions in federal court to prevent problematic mergers and were prepared to file papers in an additional nine actions before the parties abandoned the transactions. This represents a significant increase in the level of merger litigation compared to FY 2014, in which the agencies sought to enjoin only one transaction before it was abandoned by the parties.