FTC Makes Major Changes to Extend Pre-Approval of Merger Consents, Creating Increased Risk for Merger Parties Subject to FTC Merger Review | Akin Gump Strauss Hauer & Feld LLP
[co-author: Taylor Daly]
On Monday, October 25, the Federal Trade Commission (FTC or “Commission”) issued a policy statement announcing that the Commission will require all parties entering into a merger consent agreement to agree that the parties will seek and obtain prior FTC approval for at least ten years before entering into any future transactions affecting each relevant market for which a violation has been alleged. Unlike reviews under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (“HSR Act”) which provide a legal time limit for the review by the US antitrust agency of proposed transactions and therefore some certainty in time for the parties to the transaction. merger, the pre-approval arrangements provided by the FTC will have no statutory or other delay for transactions to receive pre-approval. Thus, any company whose transaction is subject to pre-approval will face much greater time uncertainty.
The FTC policy statement also states that the FTC may require companies that enter into merger consent orders to agree to a pre-approval provision that covers product and geographic markets beyond those affected by fusion. When making such further relief decisions in the future, the Board’s policy statement indicates that the agency will consider several factors, including (1) the nature of the transaction; (2) the level of market concentration; (3) the degree to which the transaction increases concentration; (4) the degree to which one of the parties held market power prior to the acquisition; (5) the acquisition history of the parties; and (6) evidence of anti-competitive market dynamics.
Additionally, in the policy statement, the FTC announced that it would require buyers of divested assets subject to a merger consent order to agree to seek prior approval of any future sale of those assets. for at least ten years. This will discourage some buyers from divestment and likely reduce the value of the transferred assets. Finally, the Commission’s policy statement indicated that in cases where the Commission files a complaint and the parties subsequently withdraw from the transaction, the agency will decide on a case-by-case basis whether to seek a pre-approval order. This would require a court order or an agreement between the parties.
The Department of Justice (DOJ) Antitrust Division did not join the FTC’s announcement of its pre-approval policy, creating an area of further divergence between the DOJ’s merger review policies and practices and the FTC – a divergence that could have a significant impact on transactions. .
What this means for companies considering mergers
While the FTC is likely to be the antitrust agency responsible for reviewing the transaction, companies considering a merger or acquisition should carefully assess the risk that the Commission will require a consent order to resolve a competition issue and will companies to agree to any pre-approval arrangements that the FTC will require. If you are likely to make a consent order, expect the costs and time associated with obtaining regulatory approval for the transaction to increase. Additionally, accepting the pre-approval arrangements will have a long-term impact on the time and expense associated with future transactions.
For parties whose transactions have largely no competition concerns but may have a separate product or geographic competition issue, the merging parties may want to sign a definitive divestiture agreement before completing an HSR dossier to create a “Fix it first”, allowing them to present the FTC with a transaction that does not have a competitive overlap or other problem. Additionally, for transactions that are likely to be reviewed by the FTC and that may have a competition issue that can be resolved by recourse, the parties may want to ensure that any merger agreement provides time to litigate the transaction, in order to make sure they have time to go to court rather than entering into a consent order with a pre-approval condition. This can include companies that ‘plead the solution’ (that is, have signed an agreement to divest some or all of the assets that the Commission order would have covered, but without being bound by a condition. prior approval).
Context of the policy statement and first order in accordance with the policy statement
The new policy follows the Commission’s vote at its July 2021 session public meeting to cancel his 1995 policy statement, which only required pre-approval and notice provisions when there was a “credible risk” of a future illegal merger, the idea being that pre-merger notification requirements under the HSR Act would suffice for all other transactions.
The new Commission policy statement was accompanied by a proposed order placing limits on future acquisitions by DaVita, Inc. of dialysis clinics in the state of Utah. The Commission’s complaint, resolved by the consent order, alleged that the company’s proposed acquisition of the University of Utah Health dialysis clinics would reduce competition in outpatient dialysis services in the Provo market. , in Utah. The ordinance covers a wider geographic area than the markets directly affected, as it requires the company to receive prior approval from the Board before acquiring a new stake in a dialysis clinic anywhere in the state during ten years.
The agency voted to approve the new policy statement by a 3-2 vote, with Commissioners Noah Phillips and Christine Wilson voting against the policy statement. They said they planned to issue a joint dissenting statement. While former Commissioner Rohit Chopra stepped down from his post with the FTC on October 8, 2021 to serve as director of the Consumer Financial Protection Bureau (CFPB), the FTC press release indicated that the vote on the policy statement pre-approval was 3-2, indicating that he understood his vote (as did the vote on the DaVita consent order which was 5-0) and that the vote took place before Commissioner Chopra left .