Two Recent Developments Relating to the FTC’s Merger Notification and Review Process

What Happened: The FTC announced that parties may need to report certain transactions previously not considered reportable under the HSR Act.  The FTC also announced that it may continue merger investigations beyond the expiration of the HSR waiting period.

The Bottom Line: These developments might be part of a broader policy movement towards increased antitrust enforcement called for by the current administration.   

The Full Story:

Under the Hart-Scott-Rodino Act (“HSR”), merging parties and persons acquiring significant stock must notify the Federal Trade Commission (“FTC”) and Department of Justice (“DOJ”) if certain thresholds are met.  The agencies then have 30 days to review most deals.  Transactions with competitive issues may trigger even longer waiting periods.  The parties are not free to close until the waiting periods expire.

Certain debt payments need to be included when determining HSR reportability.  A recent FTC blog post put the spotlight on parties that choose not to file their notice of merger because of large debt payments.  Effective September 27, 2021, the FTC will begin to recommend enforcement action for some buyers that fail to file when retirement of debt is part of the consideration for the deal.  It has been the FTC’s position for many years that buyers could exclude from the stock acquisition price — for HSR valuation purposes — repayment of existing target debt owed to third parties.  Holly Vedova, Acting Director of the FTC’s Bureau of Competition, stated that companies have used this position to avoid filing.  In a separate but associated page, the FTC acknowledged that “not all debt retired as a part of a proposed transaction is consideration, the full or partial retirement of debt should be included in calculating the Acquisition Price in any instance where selling shareholder(s) benefit from the retirement of that debt.”  The blog post left unclear whether retired debt should be included in the acquisition price if selling shareholder(s) do not benefit from the retirement of that debt.  Until there is additional FTC guidance, parties should include in the transaction value debt taken on shortly before the transaction, debt owed to target shareholders, and debt guaranteed by a selling shareholder.

Merger review may continue after expiration of the HSR waiting period.  In early August, Holly Vedova announced in a blog post that the FTC would be sending some merging companies “close at your own peril” letters saying that the FTC’s merger investigation will extend beyond the expiration of the HSR 30-day waiting period.  Vedova stated this measure was necessary given the “tidal wave” of merger filings that is straining the agencies’ resources.  Antitrust agencies have always had the statutory authority to investigate and challenge transactions at any time and, as Vedova explained, expiration of the HSR waiting period does not constitute “approval” or “clearance” of a transaction.      

Conclusion

Clients contemplating transactions or large stock acquisitions should reach out to antitrust counsel early in the process to determine whether a filing will be required.  Missteps in HSR compliance can be costly, including fines of up to $43,792 per day.  Merging parties should also consult with antitrust counsel about the risks associated with consummating a transaction that is still under investigation.