On August 3, 2021, the Federal Trade Commission’s (“FTC”) Bureau of Competition Director Holly Vedova penned a blog post warning merging companies against closing transactions before the FTC has concluded its review. Citing a “tidal wave” of merger filings that has stretched the FTC’s limited resources, the agency will issue form letters alerting merging parties that the FTC may continue investigating their transactions even after the statutory wait period expires and seek appropriate remedies if the agency determines the deal could harm consumers. While the warning letters may have little practical impact—the antitrust agencies have always had the ability to challenge closed transactions—this blog post signals further potential delays and uncertainty for merging parties at a time when the FTC has already increased the length of its in-depth investigations and is under increasing pressure from the Biden Administration to ramp up antitrust enforcement.
The FTC and U.S. Department of Justice (“DOJ”) have concurrent jurisdiction to enforce the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (“HSR Act”), which requires merging companies to file a notification with the FTC and DOJ of mergers which meet certain size of transaction and size of person thresholds. The HSR Act is suspensory—it gives the agencies a 30-day period to review notified transactions. Historically, at the end of the initial waiting period, the reviewing agency would either allow the waiting period to expire — effectively approving the transaction—or issue a “Second Request”— an in-depth investigation that extends the review process several months while the parties provide the government with documents and information to further evaluate the transaction.
The FTC’s blog post comes at a time when the number of HSR filings have increased at an exponential rate. For example, the FTC reported a 100% increase in HSR filings in July 2021 (343) compared to July 2019 (170) and a 200% increase in filings compared to July 2020 (112). By comparison, the agencies experienced only an 80% increase in filings over the course of the entire preceding decade (2010-2019). Furthermore, basic investigatory processes, such as custodian negotiations, Second Request scope modifications and timing agreements, appear to be taking considerably longer than normal as the push for more aggressive enforcement from the Biden Administration heats up. Director Vedova’s blog post appears to serve as a somewhat surprising admission that between the push for more aggressive enforcement and increased HSR filings the FTC’s resources are stretched to their limit.
As a result, the FTC is warning merging companies that a lack of response by the expiration of the HSR waiting period should not be construed as the Commission’s approval of the deal or the end of its investigation, as historically has been the case. Parties that choose to close a transaction that has not been fully investigated do so at their own risk; the FTC will continue to investigate and challenge transactions it believes are likely to harm consumers. Conversely, the blog post makes clear that a warning letter is not meant to imply that the FTC believes the transaction is problematic; rather that the FTC is currently stretched too thin to fully investigate the transaction in the usual timeframe.
Practical Takeaways
In light of the FTC’s blog post, there are a number of things for companies considering a transaction:
- Parties negotiating a transaction should consider the impact of a warning letter on a transaction’s closing conditions and whether there are appropriate mechanisms to allocate the risks and costs of a post-close investigation in the transaction documents.
- This change to the FTC’s operating procedures adds an additional element of uncertainty and potential delay to an already lengthy FTC process. Parties receiving this letter must evaluate the benefits and risks of closing a transaction knowing a prolonged investigation could happen and the FTC could potentially challenge the transaction.
- Furthermore, health systems and hospitals submitting HSR filings must be prepared for potentially delayed approval and longer investigation times resulting from the delays at the FTC and the emphasis on the health care sector under the Biden Administration.
- Even though the Antitrust Division of the DOJ has concurrent jurisdiction to review HSR filings, the DOJ is not issuing similar letters at this time. While the FTC is typically the agency involved in reviewing provider mergers, the DOJ typically has jurisdiction over a number of industries critical to the healthcare industry including the pharmaceutical and insurance industries.
If you have questions about how the Agency’s new post-merger guidance could impact a potential transaction or would like additional information about this topic, please contact a member of Hall Render’s Antitrust Practice Group.
If you have any questions or would like additional information, please contact:
- William Berlin at (202) 370-9582 or wberlin@hallrender.com;
- Michael Greer at (317) 977-1493 or mgreer@hallrender.com;
- Nathan Chubb at (202) 780-2991 or nchubb@hallrender.com;
- John Bowen at (317) 429-3629 or jbowen@hallrender.com; or
- Your primary Hall Render contact.
Special thanks to Hannah Clarke, law clerk, for her assistance with the publication of this article.
A link to the FTC’s blog post is located here.
Hall Render blog posts and articles are intended for informational purposes only. For ethical reasons, Hall Render attorneys cannot—outside of an attorney-client relationship—answer specific questions that would be legal advice.
