On August 3, 2021, the United States Federal Trade Commission (FTC) announced the latest in a series of important updates to antitrust enforcement under the Hart-Scott-Rodino (HSR) Act. This new announcement comes on the heels of the Biden Administration’s July 2021 Executive Order on Promoting Competition in the American Economy that emphasized the Administration’s focus on “fair and vigorous” enforcement of U.S. antitrust laws and the FTC’s recent suspension of early termination of HSR filings (the practice of granting early termination of the 30-day waiting period under the HSR Act).

Enforcement Updates

Citing a “tidal wave” of merger filings that are “straining the agency’s capacity to rigorously investigate deals ahead of the statutory deadlines,” this recent announcement provides that, for transactions that the FTC cannot fully investigate with the 30-day waiting period under the HSR Act, it has “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.”

Here’s what the FTC had to say:

“The FTC reviews mergers per the HSR Act, which requires that companies provide the FTC and Department of Justice (DOJ) with advance notice of certain transactions above a certain threshold.  (The current minimum size-of-transaction threshold is $92 million.) After the merging parties submit a filing with information about the transaction, the statute generally gives the agencies 30 days to pursue an initial investigation and determine whether additional information is needed to evaluate the transaction. If the FTC or DOJ seeks additional information through what’s known as a “second request,” the deal is then put on hold until the companies have fully complied with the additional investigatory request. Once the parties have submitted all of the additional information, the reviewing agency has a limited number of days to file a complaint challenging the proposed merger ahead of its consummation. The purpose of this process is to give the FTC and DOJ time to identify illegal mergers prior to their consummation. However, the law permits the antitrust agencies to determine that a merger is illegal even after the companies have merged and even if the merger was subject to premerger review. When 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. The FTC always has the right to take such further action as the public interest may require.”

A form of the letter that may be sent can be found here.

The Risk

As the FTC notes: “Companies that choose to proceed with transactions that have not been fully investigated are doing so at their own risk. Of course, this action 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.”

Implications for M&A Activity

In this new environment, careful consideration must be given to purchase agreement provisions.

Closing conditions that are triggered by expiration of the HSR waiting period may be satisfied even if the form letter is issued. However, closing conditions requiring that there be no open government antitrust investigations would not be satisfied if the form letter is issued by the FTC.  Companies should also carefully consider the impact of the FTC’s announcement on provisions relating to the obligations of buyers to make divestitures or restrict business activities in order to receive antitrust clearance. The inclusion of a buyer obligation to divest of assets or restrict business activities if required to obtain antitrust clearance (known as a “hell or high-water provision”) may provide additional comfort to sellers that a transaction would not be unwound post-closing if the form letter was issued.  On the other hand, the express inclusion of a provision providing that a buyer is not obligated to make divestitures or to agree to activity restrictions in connection with obtaining antitrust clearance may no longer provide the protection for buyers that it used to if the FTC requires such actions after the transaction has closed.

Companies involved in merger and acquisition activity subject to antitrust filings should continue to pay close attention to closing conditions as the Biden Administration and regulators are focused on more vigorous enforcement of the antitrust laws.

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