How Mergers are Reviewed
Among the key provisions in U.S. antitrust law is one designed to prevent anticompetitive mergers or acquisitions. Under the Hart-Scott-Rodino Act, the FTC and the Department of Justice review most of the proposed transactions that affect commerce in the United States and are over a certain size, and either agency can take legal action to block deals that it believes would “substantially lessen competition.” Although there are some exemptions, for the most part current law requires companies to report any deal that is valued at more than $101 million to the agencies so they can be reviewed.
After the companies report a proposed deal, the agencies will do a preliminary review to determine whether it raises any antitrust concerns that warrant closer examination. Because the FTC and the Department of Justice share jurisdiction over merger review, transactions requiring further review are assigned to one agency on a case-by-case basis depending on which agency has more expertise with the industry involved. During the preliminary review, the parties must wait 30 days (15 days in the case of a cash tender or bankruptcy transaction) before closing their deal. Based on what the agency finds, it can: 1) terminate the waiting period and allow the parties to consummate their transaction (this action often is referred to as an “early termination”); 2) let the waiting period to expire, which allows the parties to consummate the transaction; or 3) if the initial review has raised competition issues, the agency may extend the review and ask the parties to turn over more information so it can take a closer look at how the transaction will affect competition (this action often is referred to as a “second request.”).
The vast majority of deals reviewed by the FTC and the Department of Justice are allowed to proceed after the first, preliminary review.
However, if a second request is issued, the companies must provide more information. Once the parties have certified that they have substantially complied with the request, the investigating agency has 30 additional days (10 days in the case of a cash tender or bankruptcy transaction) to complete its review of the transaction and take action if necessary. The agency may decide at this point to: 1) close the investigation; 2) enter into a settlement with the companies; 3) take legal action in federal district court or through the FTC’s administrative process to block the deal from going forward.
As someone deeply versed in legal and regulatory matters, particularly within the context of U.S. antitrust law and merger review processes, I've studied the intricacies of how mergers and acquisitions are scrutinized by regulatory bodies like the FTC and the Department of Justice. My understanding is grounded in both theoretical knowledge and practical insights derived from various legal analyses, case studies, and regulatory updates up to 2022.
Now, delving into the article you provided, let's break down the concepts:
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Hart-Scott-Rodino Act (HSR Act):
- This is a key piece of U.S. legislation enacted in 1976. Its primary purpose is to allow the FTC and the Department of Justice to review proposed mergers and acquisitions that might substantially lessen competition in U.S. markets.
- The HSR Act mandates that companies report certain transactions to these agencies before completion, particularly if the transaction exceeds a certain value threshold.
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Threshold for Reporting:
- As per the HSR Act, companies must notify the FTC and the Department of Justice about deals valued over $101 million (this threshold may be adjusted periodically to account for inflation and other economic factors).
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Preliminary Review:
- Once notified, the FTC and the Department of Justice conduct an initial or preliminary review to determine if there are any antitrust concerns with the proposed merger or acquisition.
- This phase allows the agencies to decide if a more detailed examination is necessary.
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Agency Jurisdiction:
- Both the FTC and the Department of Justice have shared responsibility for reviewing mergers and acquisitions. The decision on which agency reviews a particular transaction is often based on which agency possesses greater expertise or experience relevant to the specific industry in question.
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Waiting Period:
- After notifying the agencies, companies must wait for a specific period (typically 30 days) before finalizing their merger or acquisition. This waiting period ensures that the reviewing agency has adequate time to assess potential competitive concerns.
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Outcomes of Preliminary Review:
- Following the initial review, several outcomes can arise: a. Early Termination: The agency may decide that no further review is necessary and allow the parties to proceed with their transaction. b. Expiration of Waiting Period: If the agency doesn't raise concerns within the specified waiting period, the companies can close their deal. c. Second Request: If the initial review uncovers potential competition issues, the agency may extend its review and request more detailed information, termed as a "second request."
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Second Request Process:
- If a second request is issued, companies are obligated to provide more comprehensive information about their proposed transaction.
- Upon certifying their compliance with the second request, the agency has an additional period (typically 30 days) to complete its review.
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Potential Outcomes Post Second Request:
- After a second request, the agency may: a. Close the Investigation: If no competitive concerns are found. b. Settlement: Engage in negotiations with the companies to address potential antitrust issues without resorting to litigation. c. Legal Action: Proceed with legal actions in federal district court or through the FTC's administrative process to prevent the deal if it's deemed anticompetitive.
In summary, the U.S. antitrust merger review process, governed primarily by the Hart-Scott-Rodino Act, is a meticulous and structured mechanism to safeguard competition in the marketplace. Companies engaging in significant mergers or acquisitions must navigate this regulatory landscape to ensure compliance and mitigate antitrust risks.
