Merger Control 2022 Comparisons

Merger Control Legislation

The primary merger control legislation in the US is the Clayton Act, which prohibits acquisitions that may substantially lessen competition. The Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act) governs the premerger notification process and is incorporated into the Clayton Act. Mergers may also be challenged under the Sherman Act, which prohibits agreements that unreasonably restrain trade (Section 1) and monopolisation, attempts to monopolise, and conspiracies to monopolise (Section 2), or the Federal Trade Commission Act (FTC Act), which prohibits unfair methods of competition. States, as well as the District of Columbia, Puerto Rico and the Virgin Islands, have their own antitrust laws, many of which are analogous to the federal antitrust statutes.

Merger Guidelines

The FTC and the Antitrust Division of the Department of Justice (DOJ) (the “Agencies”) share jurisdiction over merger review. In 2010, the Agencies jointly issued the current version of the Horizontal Merger Guidelines, which outline the Agencies’ core analytical techniques, practices and enforcement policies regarding mergers of actual or potential competitors under the federal antitrust laws.

The Agencies finalised new Vertical Merger Guidelines in June 2020, which outline the “principal analytical techniques, practices and enforcement policies” applied to analyse non-horizontal mergers such as vertical mergers, “diagonal mergers”, and mergers of complements. After the change in administration in January 2021, in September 2021, the FTC unilaterally withdrew the 2020 Vertical Merger Guidelines.

As of July 2022, the FTC and DOJ are working jointly to revise both the Horizontal and Vertical Merger Guidelines and have solicited public comment. As of July 2022, the Agencies have not announced an anticipated publication date for updated Merger Guidelines.

Agency Rules and Guidance

The FTC is authorised to issue formal regulations that are “necessary and appropriate” to carry out the purposes of the HSR Act. The “HSR Rules” are complex and extensive, and apply to reportability, exemptions, and filing procedures.

The FTC’s Premerger Notification Office also issues guidance relating to the application of the HSR Act and related regulations, in the form of both formal and informal interpretations, and as well as posts on its Competition Matters blog.

Sector-Specific Approvals

Transactions within highly regulated sectors of the economy, such as banking, healthcare, insurance, telecommunications, railroads, and defence, may also require approval from their federal or state sectoral regulators. For example:

• banking transactions may require approval by the Federal Reserve Board;
• telecom transactions may require approval by the Federal Communications Commission;
• transactions involving energy companies may require approval of the Federal Energy Regulatory Commission;
• mergers of insurance companies may require approval by state Commissioners of Insurance; and
• mergers of healthcare organisations may be subject to review and approval by state health departments and antitrust agencies.

Foreign Direct Investment

The Committee on Foreign Investment in the United States (CFIUS) may seek to prohibit acquisitions of control of US businesses by non-US persons if it believes they threaten national security. Review may be initiated by either CFIUS or the parties. Typically, CFIUS reviews transactions that involve defence-related activities, critical infrastructure or technologies, personal data collection, or properties near sensitive US governmental facilities. For example, CFIUS has pressured foreign firms to abandon plans to acquire Magnachip, a semiconductor manufacturer, and to divest the dating app Grindr, which collected information on users’ location, communications, and sexual orientation.

Although rare, the President may block any transaction after CFIUS review. Presidents have ordered foreign-owned firms to divest wind farms within observational range of a naval weapons training site, abandon a proposed acquisition of a semiconductor producer, and divest TikTok’s US operations.

Primary Enforcement Agencies

Both the FTC and DOJ enforce the federal antitrust laws and share jurisdiction over merger review under the Clayton Act and the HSR Act. The FTC also has authority to challenge mergers under the FTC Act. In addition, the FTC manages the HSR prenotification regime. Under Section 16 of the Clayton Act, state Attorneys General can also seek to enjoin mergers, as 13 states and the District of Columbia did in 2019 in New York v Deutsche Telekom AG to attempt to prevent the merger of Sprint and T-Mobile.

The Agencies allocate merger cases through a co-operative clearance process that is primarily based on the expertise of each Agency. The FTC tends to investigate mergers relating to healthcare, pharmaceuticals, professional services, retail industries, and food, whereas the DOJ typically investigates mergers relating to media and entertainment, telecommunications, insurance, aerospace, financial services, and agriculture. In other industries, such as digital platforms, responsibility is less clear and the decision about which agency will review a transaction can be more complex and may cut into the initial review period.

Courts

To block or delay closing of a proposed merger, the Agencies must obtain injunctive relief from a federal district court. Private parties, including customers and competitors, may also challenge mergers in federal courts. For example, in 2021, Steves and Sons successfully challenged and unwound rival door manufacturer Jeld-Wen’s years-old acquisition of CMI. Private enforcement actions, however, are relatively rare.

If the transaction meets the jurisdictional thresholds of the HSR Act and does not qualify for an exemption, the parties must each submit a premerger notification and observe the HSR waiting period. The parties must file their HSR Forms with both Agencies.

Failure to comply with the requirements of the HSR Act may result in civil penalties of up to USD46,517 per day. The FTC adjusts the maximum HSR civil penalty annually for inflation. In practice, parties are rarely penalised with the maximum amount.

Historically, the FTC has had an informal “one free pass” practice and generally has not sought civil penalties for a party’s first inadvertent violation if that party self-reports the violation, makes a corrective filing, and provides a detailed explanation of the circumstances that contributed to their failure to file. The FTC routinely seeks penalties of hundreds of thousands or millions of dollars in cases where the FTC suspects bad faith or a party is a repeat offender.

HSR-Reportable Transactions

The HSR Act requires that parties to certain mergers or acquisitions notify the Agencies prior to closing the proposed transaction. HSR filing requirements apply to transactions involving the acquisition of voting securities, assets, or non-corporate interests that meet certain jurisdictional thresholds. See 2.5 Jurisdictional Thresholds.

Internal Restructuring

To be HSR reportable, a transaction must result in a transfer of beneficial ownership of voting securities, assets, or non-corporate interests from one ultimate parent entity to a different ultimate parent entity. See 2.4 Definition of “Control”. Restructurings or reorganisations in which the ultimate parent entity does not change generally do not require an HSR filing.

Entity Formation

HSR notification is required for the formation of certain types of joint ventures. The formation of corporate joint ventures is treated under the HSR Rules as acquisitions of voting securities of the venture by the venturers.

The formation of non-corporate joint ventures requires HSR notification only when one of the parties will “control” the new venture. See 2.10 Joint Ventures.

“Control” is defined under the HSR Act as either:

• holding 50% or more of the outstanding voting securities of an issuer or, where an entity has no outstanding voting securities, having the right to 50% or more of the entity’s profits or, upon dissolution, its assets; or
• having the present contractual power to designate 50% or more of the directors of a corporation or of the trustees of certain trusts.

An entity or individual that is not controlled by any other entity is considered the Ultimate Parent Entity (UPE). The relevant “persons” for HSR Act purposes are the UPE of the acquiring party, together with all entities it controls directly or indirectly (the “Acquiring Person”), and the UPE of the acquired party, together with all entities it controls directly or indirectly (the “Acquired Person”).

Minority Acquisitions

Minority acquisitions of voting securities – even small percentages – may be reportable if they meet the HSR thresholds and no exemption applies. In contrast, acquisitions of non-corporate entities are only reportable if the acquisitions confer control.

Three jurisdictional tests determine whether a transaction is within the scope of the HSR Act:

• the commerce test;
• the “size-of-transaction” test; and
• the “size-of-person” test.

HSR thresholds are adjusted annually based on changes in the US gross national product. The revised thresholds are typically announced by the FTC in January and take effect 30 days later. The following discussion is based on the thresholds in effect from February 2022.

Commerce Test

The commerce test is met if either party is engaged in commerce or any activity affecting commerce; therefore, nearly all transactions will satisfy the commerce test.

Size-of-Transaction Test

The size-of-transaction test is met if, as a result of the transaction, the Acquiring Person will hold voting securities, assets, or non-corporate interests of the Acquired Person valued in excess of USD101 million. The size of the transaction includes the value of any voting securities, assets, and non-corporate interests of the Acquired Person already held by the Acquiring Person. Depending on the transaction structure, valuing the size of a transaction can be complex. See 2.6 Calculations of Jurisdictional Thresholds.

Size-of-Person Test

The size-of-person test is applicable for transactions valued at more than USD101 million but not more than USD403.9 million. Transactions valued at more than USD403.9 million will be subject to HSR notification without regard to the size of the parties if no exceptions apply.

In general, the size-of-person test is met if:

• a party with total assets or annual net sales of USD202 million or more acquires voting securities or assets of a party that is engaged in manufacturing and has annual net sales or total assets of USD20.2 million or more;
• a party with total assets or annual net sales of USD202 million or more acquires voting securities or assets of a party that is not engaged in manufacturing and has total assets of USD20.2 million or more; or
• a party with total assets or annual net sales of USD20.2 million or more acquires voting securities or assets of a party that has total assets of USD202 million or more.

There also are specific size-of-person rules applying to joint venture formations.

Exemptions

Even if a transaction meets the HSR thresholds, it may still be non-reportable if it qualifies for one of the numerous exemptions. Some key exemptions include:

• acquisitions of certain assets in the ordinary course of business, including new goods and current supplies;
• acquisitions of certain types of real property, such as certain new and used facilities, unproductive real property (eg, raw land), office and residential property, and hotels and motels (excluding ski facilities and casinos);
• acquisitions of up to 10% of voting securities of an issuer if for the purposes of investment only;
• acquisitions of voting securities of issuers or non-corporate interests in unincorporated entities that hold certain assets, the acquisition of which is exempt;
• stock dividends and splits and reorganisations;
• acquisitions of certain foreign assets and certain foreign-issuer voting securities; and
• intra-person transactions.

Size-of-Transaction Test

The size-of-transaction test is calculated based on the value of the voting securities, assets, and non-corporate interests that the Acquiring Person will hold in the Acquired Person as a result of the transaction.

• Publicly traded voting securities are valued based on the greater of the market price (generally the lowest closing quotation during the 45 days prior to closing) or the acquisition price (all consideration to be paid, whether in cash or in kind). If both the market price and acquisition price are not determined, the value of the transaction is fair market value.
• Non-publicly traded voting securities acquisitions, asset acquisitions, and non-corporate interest acquisitions are valued based on the acquisition price or the fair market value depending on the situation.

Size-of-Person Test

The size-of-person test is calculated based on the worldwide sales or assets of the Acquiring and Acquired Persons as reflected in the parties’ last regularly prepared consolidated annual income statements and last regularly prepared consolidated balance sheets. These financial statements must be no more than 15 months old. Where a person does not have a regularly prepared annual income statement or balance sheet, the UPE must prepare a pro forma balance sheet that lists all assets held at the time of the acquisition and – in the case of the Acquiring Person – excludes any cash to be used as consideration for the acquisition, any expenses incidental thereto, and any securities of the same Acquired Person. An Acquired Person’s revenues and assets include the assets and/or revenues of the target.

The size-of-person assessment should reflect the annual net sales and total assets of all controlled entities at the time of the proposed acquisition. If there is a change of business between the date of the last balance sheets and time of filing – such as an acquisition or divestiture – it must be taken into account.

Sales or assets recorded in a foreign currency should be converted to US dollars based on the interbank exchange rate.

Whether an entity meets the HSR size-of-person threshold is based on the revenues and assets of the Acquiring and Acquired Persons. See 2.6 Calculation of Jurisdictional Thresholds.

Certain foreign-to-foreign transactions and acquisitions of foreign assets or voting securities by US entities that are otherwise covered by the HSR Act may qualify for an exemption. These exemptions are intended to exclude from HSR reportability acquisitions that may have limited significance or impact in the USA.

Under the HSR Rules, a foreign person is an entity whose Ultimate Parent Entity is not incorporated in the United States, is not organised under the laws of the United States, and does not have its principal offices within the United States, or in the case of a natural person, a person who is not a citizen of the United States and who does not reside in the United States.

Asset Acquisitions

Acquisitions of assets located outside the USA that generated aggregate sales in or into the USA of USD101 million or less in the most recent fiscal year are exempt. This exemption applies to acquisitions by both US and non-US acquirors.

Asset acquisitions valued at USD403.9 million or less are exempt where both the Acquiring and Acquired Persons are foreign persons under the HSR Rules, the aggregate sales of the Acquiring and Acquired Persons in or into the USA are less than USD222.2 million, and the aggregate total assets of the Acquiring and Acquired Persons located in the USA have a fair market value of less than USD222.2 million.

Acquisitions of Voting Securities of a Foreign Issuer

Acquisitions of voting securities of a foreign corporate issuer by a US person are exempt unless the issuer holds US-based assets (excluding investment assets, voting or non-voting securities of another person, or certain credits or obligations related to joint ventures) with a fair market value of over USD101 million, or made sales in or into the USA, on an aggregate basis with its controlled entities, of over USD101 million in the most recent fiscal year.

Acquisitions of voting securities of a foreign corporate issuer by a foreign Acquiring Person are exempt unless the acquisition will confer control of the issuer and the issuer holds US-based assets (excluding investment assets, voting or non-voting securities of another person, or certain credits or obligations related to joint ventures) with a fair market value of over USD101 million, or made sales in or into the USA, on an aggregate basis with its controlled entities, of over USD101 million in the most recent fiscal year.

Acquisitions of voting securities of a foreign corporate issuer by a foreign Acquiring Person are exempt if the transaction is valued at USD403.9 million or less, the aggregate sales of the Acquiring and Acquired Persons in or into the USA are less than USD222.2 million, and the aggregate total assets of the Acquiring and Acquired Persons located in the USA (excluding investment assets, voting or non-voting securities of another person, or certain credits or obligations related to joint ventures) are valued at less than USD222.2 million.

Acquisitions by or From Foreign Governmental Entities

Acquisitions by or from foreign governmental entities are exempt if the Ultimate Parent Entity of either the Acquiring or Acquired Person is controlled by a foreign state, foreign government, or foreign agency and the acquisition is of assets located within the foreign state or of voting securities or non-corporate interests of an entity organised under the laws of that jurisdiction.       

The HSR Act filing thresholds do not include a market share test.       

Joint ventures are subject to specific and complex rules under the HSR Act and may be notifiable unless an exemption applies. Under the HSR Rules, the contributors to a joint venture are deemed Acquiring Persons, and the joint venture is deemed the Acquired Person.

The Agencies have authority to investigate and challenge transactions that do not meet HSR filing requirements. Although such investigations occur somewhat infrequently, the Agencies at times have acted quickly to challenge non-reportable transactions, as in the FTC’s 2021 challenge of DaVita’s proposed acquisition of 18 dialysis clinics from the University of Utah – a transaction that was ultimately subject to a consent order. Parties should not assume that non-HSR reportable transactions will escape review.

The Agencies’ power to challenge conduct under the Clayton Act, the Sherman Act, or the FTC Act does not have a statute of limitations, and therefore the potential for Agency scrutiny is indefinite. The Agencies may investigate a transaction even if they declined to challenge the transaction during the HSR review process. The FTC most notably exercised this authority in 2021 in bringing suit against Facebook, alleging, among other charges, that Facebook had consummated multiple anti-competitive acquisitions in an effort to maintain monopoly power, including its acquisitions of Instagram in 2012 and WhatsApp in 2014. In 2021, to inform ongoing discussions about the competitive effects of non-reportable transactions, the FTC issued a report examining 819 non-reportable transactions consummated by leading technology firms (Alphabet, Apple, Amazon, Google, and Microsoft) from 2010 to 2019.       

In 2021, the FTC began sending warning letters to parties emphasising its post-closing authority in cases where the FTC was unable to complete its investigation within the HSR waiting period. These letters state that the FTC may continue to investigate and challenge such transactions and note that parties who choose to close while the FTC’s investigation is ongoing do so “at their own risk.”

If an HSR filing is required, parties may not close the transaction until the expiration or termination of the waiting period. Typically, the statutory waiting period is 30 days and begins after both parties submit their HSR filings and the filing fee has been paid. For open-market purchases, conversions, option exercises, and certain other (generally, non-negotiated) transactions, the waiting period begins once the Acquiring Person submits an HSR filing.

Unless the Agencies issue a second request or sue to block the transaction, the waiting period expires automatically on the 30th day after filing at 11.59pm Eastern Standard Time (EST), and the parties may close the transaction. In cash tender offers and certain bankruptcy transactions, the waiting period is shortened to 15 days. The waiting period extends to the next business day when a waiting period expires over a weekend or on a legal public holiday.

Parties that close a transaction or transfer beneficial ownership prior to the expiration or termination of the waiting period (conduct commonly referred to as “gun-jumping”) are subject to civil penalties of up to USD46,517 per day. Although in the majority of cases the Agencies have imposed penalties substantially less than the maximum permitted by law, gun-jumping fines commonly range in the hundreds of thousands, if not millions, of dollars. See 2.2 Failure to Notify.       

There are no exceptions to the waiting requirement of the HSR Act. Parties to all reportable transactions must observe the applicable waiting period prior to consummation.

Under no circumstances will the Agencies permit closing before expiration or early termination of the applicable waiting period. Carve-outs, ring fencing, or hold-separate agreements are not permitted. Premature closing may subject the parties to civil penalties of up to USD46,517 per day of non-compliance and potential additional equitable relief.

There are no deadlines for making HSR filings; parties can submit HSR filings at any time after executing a transaction agreement or letter of intent (LOI), and for certain types of transactions (eg, tender offers, secondary acquisitions, and certain bankruptcy transactions), parties may file prior to signing.

Once the waiting period ends, the parties have one year to close the transaction before a new filing is needed. In the case of an acquisition of less than a controlling interest in a corporation, the Acquiring Person has one year to meet or cross the notification threshold (based on size-of-transaction) it reported on its filed HSR Form. Once crossed, for four more years, the Acquiring Person may acquire further voting securities from the same Acquired Person without further HSR filing as long as the sum of the initial and further acquisitions does not cross the next, higher HSR notification threshold.

A signed agreement, such as a letter of intent, merger agreement, or purchase and sale agreement typically must be submitted with each HSR filing, with the exception of certain types of transactions, such as tender offers, secondary acquisitions, and certain bankruptcy transactions. Agreements need not be formal or binding.

The size of the transaction reported on the parties’ HSR Form determines the filing fee:

• USD45,000 for transactions valued in excess of USD101 million but less than USD202 million;
• USD125,000 for transactions valued at USD202 million or greater, but less than USD1,009.8 million; and
• USD280,000 for transactions valued at USD1,009.8 million or greater.

Fees may be paid prior to or upon filing. The Acquiring Person is responsible for payment of the filing fee, although it may be allocated between the parties by agreement. Fees are payable by electronic wire transfer (EWT), bank cashier's check, or certified check. Fees must be paid in US currency.

For most transactions, both the Acquiring and the Acquired Persons must submit separate HSR filings.

A complete HSR filing consists of the HSR Form(s) (including required attachments and accompanying affidavit(s)) and the filing fee.

HSR Form

Among other requirements, the HSR Form requires each person to:

• describe the transaction’s structure;
• list US revenues for the most recent completed year by North American Industry Classification System codes (NAICS Codes) and, for manufactured products, by North American Product Classification System codes (NAPCS Codes);
• provide additional disclosures with respect to any overlapping lines of business;
• submit all documents prepared by or for officers or directors for the purpose of evaluating or analysing the transaction with respect to competition, competitors, markets, market shares, potential for sales growth or expansion into product or geographic markets, as well as all confidential information memoranda, bankers’ books, other third party consultants’ materials, and documents describing synergies and efficiencies (“4(c) and 4(d) documents”); and
• disclose information about each party’s controlled entities, significant shareholders, and minority shareholdings.

An Acquiring Person must respond on behalf of itself and all its controlled entities. By contrast, an Acquired Person’s filing is largely limited to disclosures concerning the entities or assets being sold.

Unlike antitrust or merger control filings in other jurisdictions, parties are not required to describe the transaction’s impact on the market or competition. Instead, the Agencies rely on the 4(c) and 4(d) documents to assist in the assessment of the competitive impact of the transaction.

Parties are not required to translate HSR attachments into English but must provide any English-language versions that are available at the time of filing.

The Premerger Notification Office of the FTC rejects as incomplete filings missing required information (often referred to as “bouncing” an HSR notification).

If the HSR filing is incomplete, the waiting period will not begin until the requisite information is provided. As long as parties observe the waiting period and take steps to cure any filing deficiencies, no fines will be levied.

Acquiring or Acquired Persons that consummate a reportable transaction based on an incomplete or inaccurate HSR Form may be subject to civil penalties. For example, in 2001 the DOJ obtained a penalty of USD4 million from the Hearst Corporation for 1,042 days of non-compliance with the HSR Act when Hearst failed to submit several 4(c) documents when notifying the Agencies of its acquisition of Medi-Span (a transaction that was subsequently unwound).

Additionally, an individual who knowingly signs an incomplete or inaccurate HSR Form on behalf of the Acquiring or Acquired Person may be subject to criminal punishment for perjury.

See 3.6 Penalties/Consequences of Incomplete Notification.

Initial Waiting Period

The “initial waiting period” (30 calendar days or 15 days in the case of cash tender offers and certain bankruptcy transactions) begins when both parties have filed their HSR Forms (or when an acquirer files in the case of acquisitions of voting securities or non-corporate interests from third parties). If the initial waiting period expires without either Agency taking any action, the parties may consummate the transaction.

During the initial waiting period, either Agency may open a preliminary investigation of the proposed transaction to identify competitive issues and determine if further information is required. An Agency may request briefings with the parties and/or request that the parties provide additional information on a voluntary basis. Preparing for and co-operating with these requests increases the likelihood that staff will be able to resolve outstanding questions about the transaction during the initial waiting period.

Under the HSR Rules, parties to a transaction may restart the waiting period with no additional filing fee by withdrawing the filing and refiling within two business days. This “pull-and-refile” process effectively extends the initial waiting period by an additional 30 days to allow time to address unresolved issues and potentially avoid a second request.

Second Request

Before the end of the initial waiting period, the reviewing Agency may choose to issue a “second request” formally requesting additional documents and information. The issuance of a second request suspends the waiting period while the parties respond and certify substantial compliance. Second requests are burdensome and typically add months to the review timeline. Once each party has substantially complied with its second request, a second waiting period begins (typically 30 days, or 10 days in the case of a cash tender offer or bankruptcy filing). Parties to the transaction may enter into timing agreements with Agency staff that typically add 30 to 60 days to the review process after the statutory waiting period expires. If the reviewing Agency does not seek to block the transaction during the second waiting period, the parties may consummate the transaction.       

For most transactions, pre-notification discussions with the Agencies are not required. When a transaction is likely to raise significant competitive concerns, parties may engage the Agencies in pre-notification discussions to provide additional time to review the transaction and reduce the risk or narrow the scope of a second request.

Voluntary Access Letter

If the reviewing Agency opens a preliminary investigation, the reviewing Agency may issue a “voluntary access letter” (also called a “voluntary request letter”) during the initial waiting period. A voluntary access letter requests information that is not required in the HSR filing, such as strategic and market plans, information on overlapping products, market share information, top customer contact information, customer win/loss data, competitor and supplier lists, and other information. Parties should be prepared to respond to a voluntary access letter within a few days. Prompt co-operation increases the likelihood that the reviewing Agency will be able to resolve competitive concerns within the initial waiting period.

Second Request

If competitive concerns are not resolved at the end of the initial waiting period, the reviewing agency may issue a “second request,” which extends the waiting period until 30 days after compliance. A second request is a voluminous demand for documents and data as well as detailed interrogatories. Second requests are extraordinarily burdensome and costly. A typical second request response includes millions of pages of documents and compliance may take several months. Both Agencies have published model second requests that provide examples of the type of information typically requested.

Parties that receive second requests may enter into a timing agreement with the Agency establishing protocols for compliance with a second request, milestone dates for events leading up to substantial compliance, and extensions of time for the Agency to make an enforcement decision after waiting period expiry. Both Agencies have published model timing agreements on their websites.        

All transactions subject to HSR notification requirements must complete an HSR filing. There is no short form or simplified procedure.

Historically, the Agencies granted “early termination” of the initial waiting period for transactions that posed little competitive risk. If early termination is granted, the names of the parties to the transaction are published in the Federal Register and posted on the FTC’s website.

In February 2021, the Agencies announced they would temporarily stop granting early termination. As of July 2022, the Agencies have not resumed granting early terminations.

A detailed guide to the Agencies’ recent approach to merger analysis is contained in the Horizontal and Vertical Merger Guidelines, although enforcement policies are in flux. In 2021, the FTC withdrew from the 2020 Vertical Merger Guidelines, and the Agencies have launched a joint public inquiry to revise and modernise the Guidelines.

In general, the Agencies review a proposed transaction to determine whether the transaction will create, enhance, or entrench market power or facilitate its exercise. The Agencies consider whether a transaction is likely to reduce competition or negatively impact consumers (eg, result in increased prices or reduced output, quality, or innovation) either because (i) the merged firm will have sufficient market power such that raising prices or reducing output, quality, or innovation will be profitable, or (ii) there will be so few firms left in the market that the remaining firms will be able to co-ordinate their conduct. The Agencies also consider vertical issues of whether a transaction will combine market power at different levels of the supply chain in a manner that might create the incentive and ability to disadvantage rivals, or provide access to competitively sensitive information of competitors.

To block a transaction, the Agencies must show in court that a transaction is likely to substantially reduce competition.

Affected markets are defined on both a product and geographic dimension. In general terms, relevant product markets comprise all the products and services that customers perceive as close substitutes; a geographic market is that area where customers would likely turn to buy the goods or services in the product market. In addition to econometric analysis, the Agencies also consider a variety of qualitative factors, such as industry recognition of the product as its own market and whether the product has peculiar characteristics and uses, unique production facilities, distinct customers, distinct prices, and/or specialised vendors.

There is a significant body of merger jurisprudence in the US courts. The Agencies do not rely on case law from other jurisdictions in making enforcement decisions, but may co-ordinate with foreign competition authorities on individual merger investigations.

The Agencies have traditionally investigated mergers under theories of unilateral effects, co-ordinated effects, the elimination of potential competition, and vertical merger theories of foreclosure of competitors and raising rivals’ costs. The current leadership has expressed interest in moving away from the traditional “consumer welfare” standard (which focused on impacts on consumers from increased prices, lower quality, and reduced innovation) to considering a broader range of factors, including harms to workers, monopsony, conglomerate effects, aggregation of data, exclusionary practices, cross-market effects, and increased ownership by private equity firms.

Labour market issues are a particular priority for the Biden administration, and consequently impacts on workers have become significantly more important in merger reviews and challenges over the last two years. At the FTC, merging parties report labour markets being an area of inquiry in many initial investigations, and the Agency has recently considered bringing cases based on reduction of competition for nurses in hospital merger challenges. While DOJ’s labour market antitrust enforcement has been focused more on employer collusion cases, it is also considering labour market impacts in merger cases, such as its 2021 case to block the merger of publishers Penguin Random House and Simon & Schuster, where it claimed that their merger would depress payments to authors. The Agencies have solicited public comment regarding how to revise their joint Merger Guidelines to better analyse a merger’s effect on labour markets.

The Agencies will consider economic efficiencies generated by a transaction as a potential offset to competitive concerns. Both Agencies have expressed scepticism about efficiency justifications, however, and the “efficiencies defence” has not been routinely accepted by courts.

The burden on parties to demonstrate efficiencies is significant, and when a reviewing agency believes a transaction would harm competition, even well-documented and substantial efficiencies are unlikely to fully resolve concerns.

Parties must provide evidence that the asserted efficiencies are likely to occur, cannot be accomplished through other means, and are sufficient to counteract the proposed transaction’s harm to consumers. For efficiencies to be recognised, they must be verifiable and merger-specific and cannot result in any anti-competitive reduction in output or service. The Agencies will not consider vague or speculative claims.

Historically, the Agencies have not considered non-competition issues when analysing proposed transactions. The current leadership, however, has expressed a broader view of the role of antitrust than previous administrations, arguing that vigorous antitrust enforcement plays a role in supporting the “preservation of our democratic political and social institutions”. In addition to considering a broader range of competition effects and a focus on labour markets (see 4.4 Competition Concerns), the Agencies have suggested that they will consider impacts of transactions on a variety of factors, including the environment, social and racial inequity, and privacy.

The Agencies typically review joint ventures (JVs) by analysing their overall competitive effect. JVs may be pro-competitive if they allow participants to provide goods or services that are less expensive, more valuable to consumers, or brought to market faster than would be possible without the JV. JVs may harm competition if they reduce the JV parties’ incentives to compete against one another, if the parties’ independent decision-making is limited outside of the JV because of combined control or combined financial interests, or if the JV facilitates collusion.

The judicial processes that each Agency may pursue to block a transaction differ.

DOJ

To obtain an order to either block a proposed transaction or unwind a completed transaction that may violate Section 7 of the Clayton Act, the DOJ must file in federal district court a complaint and motions for a preliminary injunction (if the transaction has not closed) and a permanent injunction.

To obtain a preliminary injunction to prevent a transaction closing pending a decision on the merits, the DOJ must show that its likelihood of success on the merits and the threat of irreparable harm outweighs any potential harm to the defendant and any opposing public interest in granting the injunction. To prove a Section 7 violation and obtain a permanent injunction, the DOJ has the burden to demonstrate with a “reasonable probability” (ie, greater than a “mere possibility” but less than a “certainty”) that the merger will, or currently does, substantially lessen competition. Frequently, courts collapse the preliminary and final injunction hearings into one. The losing party may appeal to the federal court of appeals.

FTC

The most common path that the FTC follows to challenge a proposed merger is to seek a preliminary injunction in federal district court under Section 13(b) of the FTC Act, while simultaneously filing an administrative complaint under Part 3 of the FTC Rules seeking an order that the transaction violates the FTC Act (“Part 3 proceedings”). If a transaction has already closed, the FTC proceeds under Part 3 only. If the FTC fails to obtain a preliminary injunction (and does not appeal or loses an appeal of the preliminary injunction decision), its current policy is to discontinue Part 3 proceedings unless continuing to do so would serve the public interest.

To obtain injunctive relief under Section 13(b), the FTC need only make “a proper showing that, weighing the equities and considering the Commission’s likelihood of ultimate success, such action would be in the public interest.” This is understood to be a lower standard than the “balancing of the equities” standard applying to DOJ preliminary injunction cases.

Administrative complaints are litigated before an administrative law judge (ALJ), an FTC employee appointed by the Office of Personnel Management. The ALJ’s initial decision and order may be appealed to the full Commission, whose decision may then be reviewed by the federal courts of appeal.

The Agencies have traditionally accepted remedies to address competitive concerns. Over the last several years, both Agencies have expressed a strong preference for structural remedies and scepticism of the effectiveness of behavioural remedies. See 9.2 Recent Enforcement Record.

While remedy discussions may take place at any stage in the review process, they rarely begin before the Agency staff have investigated the transaction and identified concerns. In transactions with narrow but obvious concerns, parties may approach the Agency early with a pre-arranged “fix”. See 5.4 Typical Remedies.

In September 2020, the DOJ issued its most recent Merger Remedies Manual, which states the DOJ will insist on a remedy that preserves competition and resolves the anti-competitive problem. Similarly, the FTC’s 2012 Negotiating Merger Remedies Statement notes that “acceptable” remedies must “maintain or restore competition in the markets affected by the merger.”

Remedies may be either structural or behavioural.

When the Agencies determine that a horizontal merger is likely to have anti-competitive effects, the Agencies generally prefer structural remedies consisting of divesting an ongoing standalone business unit. Structural divestitures consisting of less than a standalone business must include all assets (or licences to those assets) necessary for the divestiture purchaser to be an effective, long-term viable competitor of the merged entity. The FTC’s 2012 Negotiating Remedies Manual and DOJ’s 2020 Merger Remedies Manual provide insight into the Agencies’ negotiating process and requirements, but may not fully reflect the preferences of the current administration.

The Agencies accept behavioural or conduct remedies in very limited circumstances and have increasingly expressed scepticism about whether behavioural remedies are effective.

The DOJ notes in its 2020 Merger Remedies Manual that conduct remedies alone are only appropriate when the parties prove that the transaction generates merger-specific efficiencies, structural relief is not possible, the conduct remedy is sufficient to cure the anti-competitive harm, and the remedy is effectively enforceable.

In very rare cases, the Agencies have also pursued disgorgement of profits in consummated mergers as a remedy. In 2015 in US v Twin America, the DOJ obtained disgorgement in a consent decree regarding a consummated joint venture. The FTC similarly obtained disgorgement in a consent decree regarding a consummated merger in FTC v Hearst Trust in 2001. (Note that the FTC’s authority to obtain disgorgement is currently in question under a recent Supreme Court ruling.)

The Agencies have different procedures for accepting and finalising negotiated remedies.

FTC

The parties and the FTC staff negotiate a proposed consent agreement that is incorporated into an Agreement Containing Consent Order (ACCO) and provisional Decision and Order (D&O), which must be signed by the staff and merging parties, approved by the Director of the Bureau of Competition, and approved by a majority of the Commissioners. At this point, the parties are usually permitted to close their transaction. The FTC then opens a 30-day public comment period, issuing a complaint, provisional D&O, and an Analysis of Proposed Consent Order to Aid Public Comment. Following the public comment period, the FTC can accept the D&O as final, reject it, or revise it.

DOJ

The parties and the DOJ staff negotiate a consent agreement in the form of a Proposed Final Judgement (PFJ). Once the PFJ has been approved by the Assistant Attorney General, the Agency files in federal district court a complaint, the PFJ and a competitive impact statement. The court makes a preliminary order accepting the PFJ, which usually permits the parties to close the transaction. Under the Tunney Act, the DOJ must publish the PFJ and related materials for a 60-day public-comment period, following which it submits a report to the court that the PFJ is in the “public interest” and the court makes the PFJ final. The Tunney Act proceeding is usually uneventful; however, in one notable recent case (CVS/Aetna, 2019), a judge did ask the parties to hold the acquired business separate pending public comment, and conducted hearings with live witnesses before concluding that the settlement was in the public interest.

Conditions and Timing

Where a settlement requires a divestiture, the Agencies typically require the parties to obtain prior approval of a contractually bound buyer for the divested assets before they will approve the consent agreement.

The parties typically may close the merger upon entry of the consent agreement for public comment.

Monitoring and Enforcement

The Agencies monitor and enforce compliance with negotiated remedies. Where provided in the consent agreement, the Agencies may also appoint monitors to ensure the compliance and effectiveness of the remedy.

At the FTC, the Bureau of Competition Compliance Division monitors and enforces merger remedy compliance. Failure to comply with a remedial agreement is a violation of Section 5(I) of the FTC Act and may result in civil penalties of up to USD46,517 per day of non-compliance as well as injunctive and other equitable relief. In 2020, Alimentation Couche-Tard Inc and CrossAmerica Partners LP settled allegations that the two had violated a 2018 consent order for USD 3.5 million. The DOJ recently established the Office of Decree Enforcement and Compliance to monitor and enforce consent decree compliance.

The Agencies do not affirmatively approve proposed mergers. They simply allow the HSR waiting period to expire, or terminate the waiting period early. Occasionally, for significant transactions, the Agencies will issue a press release when closing an investigation and/or a “closing statement” explaining the reasons for closing the investigation, such as the DOJ’s July 2020 statement on the closing of its investigation of London Stock Exchange Group and Refinitiv.

Challenges to mergers are public. Complaints are filed in federal district court (or in the case of the FTC, Part 3), and appear on public court and agency dockets. In addition, the Agencies make press releases when challenging mergers. Court and Part 3 decisions in merger challenges are on the public record.

The Agencies may seek remedies or challenge foreign-to-foreign transactions where the transactions impact US markets.

For example, in June 2021, the DOJ filed suit to block UK firm Aon PLC’s proposed USD30 billion acquisition of UK company Willis Tower Watson, alleging the transaction would eliminate competition in US markets by merging two of the “Big Three” global insurance brokers. The DOJ rejected Aon and Willis’ proposed US-focused divestitures as “wholly insufficient” to address the DOJ’s concerns, and noted that it also viewed divestitures accepted by other international competition authorities in connection with the proposed transaction as inadequate. Shortly after the DOJ filed suit to block the transaction, Aon and Willis abandoned the merger.       

Parties must submit the transaction agreement as well as any agreements not to compete and any other agreements between the parties with their HSR filings. The Agencies will review the transaction as a whole, and may raise concerns about ancillary restraints in the review process. Recently, employment-related non-compete agreements have been a particular focus of review. Typically, parties amend ancillary agreements rather than jeopardise clearance of the entire transaction. Even if no concerns are raised during the merger review process, the Agencies maintain the discretion to challenge any ancillary restraints or collateral agreements at a later time.

Complaints and Agency-solicited input from customers, suppliers, competitors, and other industry participants often meaningfully inform merger review. Customer complaints are typically most influential; however, input from other industry participants can also be important in identifying non-reportable transactions or causing the Agencies to look more closely at certain aspects of a transaction.

Information can be obtained from third parties informally through phone calls and meetings, as well as through formal Civil Investigative Demands (CIDs). Third parties may be identified by the merging parties in responses to a voluntary access letter or otherwise. The confidentiality of the identity of third parties and information provided by third parties under either process is statutorily protected. The extent of these protections varies depending on which Agency obtained the information, and how and for what purpose the information was obtained. When information submitted to the Agencies is not statutorily protected from disclosure, parties can request and typically receive assurances from the Agencies that information provided will not be publicly disclosed or disclosed without advance notice.

The Agencies routinely seek input from customers, suppliers, competitors, and other third parties to confirm or complement staff’s competitive analysis of proposed transactions or remedies. The Agencies frequently interview customers, suppliers and competitors. The Agencies may also issue subpoenas for depositions (DOJ) or investigational hearings (FTC) and frequently request documents and information from third parties either voluntarily or through CIDs and subpoenas.

All materials submitted by the Acquiring and Acquired Persons under the HSR Act are confidential under the Freedom of Information Act, subject only to public disclosure if the transaction is challenged by one of the Agencies. The “fact of filing” is also confidential, unless disclosed by the parties themselves, or unless early termination is requested and granted, in which case the parties’ names are published in the Federal Register and on the FTC’s website. Additionally, such confidential information may be disclosed to a committee or subcommittee of Congress.

The USA has bilateral co-operation agreements including commitments to consult and co-operate on competition matters and to properly maintain the confidentiality of shared information with 11 jurisdictions: Germany, Australia, the EU, Canada, Brazil, Israel, Japan, Mexico, Chile, Colombia, and Peru. The Agencies have also entered into less formal, non-binding memoranda of understanding with competition agencies in Russia, the People’s Republic of China, India, and South Korea.

When competition issues span multiple jurisdictions, the Agencies may exchange views and information with their foreign counterparts; however, to share information submitted by the parties, the Agencies must first obtain a waiver of confidentiality. Parties typically agree to such waivers to appease enforcers and potentially avoid incompatible remedies. The Agencies have released a joint model waiver of confidentiality.

As discussed in 5.1 Authorities’ Ability to Prohibit or Interfere With Transactions and 5.7 Issuance of Decisions, the Agencies must seek a preliminary or permanent injunction in federal district court to stop a proposed transaction from closing after the expiration of the HSR waiting period. The parties or the Agencies may appeal this decision to the federal court of appeals. The parties may also appeal adverse FTC Part 3 decisions to the full Commission and appeal Commission decisions to the federal court of appeals.

Appeals can take many months to conclude. For example, in 2022, Hackensack Meridian Health, Inc and Englewood Healthcare Foundation abandoned their proposed merger after spending over six months unsuccessfully appealing a preliminary injunction that blocked their proposed merger before the US Court of Appeals for the Third Circuit.

Third parties do not have the right to appeal an Agency’s decision not to challenge a transaction. Third parties with standing may, however, bring a private action against the merging parties under the Clayton Act or Sherman Act. See 1.3 Enforcement Authorities.

The HSR thresholds are adjusted annually, and changes in the interpretations of the HSR Act and its regulations – issued by the Premerger Notification Office of the FTC – are common.

Policy Changes

As noted in 3.11 Accelerated Procedure, in February 2021, the Agencies announced they would temporarily stop granting early termination during the initial HSR waiting period.

In October 2021, the FTC announced a policy of requiring all merging parties subject to a Commission remedy order to obtain prior approval for a minimum of ten years before closing any future transactions affecting any relevant markets for which a violation was alleged. Prior approval requirements may extend beyond the narrow markets affected by the original transaction, and the FTC has claimed they may pursue prior approval requirements even if a transaction is abandoned. Transactions subject to prior approval will not benefit from HSR Act review timelines or the ability to force the FTC to sue to block a deal, and accordingly prior approvals may take significantly longer than traditional HSR review. Additionally, all buyers of divested assets must seek prior approval before selling assets acquired through consent decrees for a minimum of ten years.

Legislation

Recent years have spawned multiple proposals and bills to reform the merger review process.

• The SMARTER Act, having been passed by only the House in 2018 (H.R. 5645), was reintroduced in the Senate in 2020 (S. 4876) by Senator Mike Lee. It would subject the FTC to the same standards as the DOJ when seeking to block proposed mergers and prohibited the FTC from continuing administrative litigation after seeking a preliminary injunction in federal court.
• In March 2022, Senator Warren and Representative Jones introduced the Prohibiting Anti-Competitive Mergers Act (S.3847, H.R.7101), which would prohibit deals valued over USD5 billion; deals resulting in market shares above 33% for sellers or 25% for employers; and deals resulting in highly concentrated markets under the Agencies’ 1992 Merger Guidelines, which relied on the Herfindahl-Hirschman Index (HHI) to measure market concentration.
• In February of 2021, Senator Klobuchar introduced the Competition and Antitrust Law Enforcement Reform Act (S.225), which would amend Section 7 of the Clayton Act to prohibit mergers that “materially” (rather than “substantially”) lessen competition or otherwise unfairly lower wages by creating monopsony power. Sufficiently large deals would also shift the burden of proof onto the merging parties.
• In 2021, Senators Klobuchar and Cotton and Representative Jeffries introduced the Platform Competition and Opportunity Act (S.3197, H.R.3826), which would prohibit certain large online platforms (measured by their active user base, the size of the parent company, and the platforms’ sales or supply of products on their own platform) from engaging in acquisitions, among other reforms.

Remedies

Under the Biden administration, both Agencies have noted that they prefer to block transactions outright rather than accept remedies that do not fully preserve competition. The Agencies have expressed scepticism that remedies effectively preserve competition and have increasingly rejected the use of behavioural remedies.

In 2021, all accepted consent agreements contained some form of divestiture. For example, in US v S&P Global, Inc, the DOJ conditioned S&P’s USD44 billion acquisition of IHS Markit Ltd on the divestiture of three of its price-reporting agencies and the waiver of certain non-compete contracts. In 2022, for In the Matter of JAB Consumer Partners, the FTC conditioned a USD1.1 billion acquisition of a competing veterinary clinic operator on the divestiture of certain clinics and the promise to seek prior approval before further qualified acquisitions.

The Agencies have rejected numerous offers for behavioural remedies, leading to the abandonment of multiple transactions including Nvidia’s USD40 billion proposed acquisition of Arm, and Lockheed Martin’s proposed USD4 billion acquisition of Aerojet.

Enforcement Actions

Between 1 January 2021 and 25 June 2022, the FTC and DOJ publicly announced 34 new challenges to proposed transactions. Of these:

• 19 complaints were filed as part of a negotiated consent decree package;
• one deal (involving two non-US entities) was restructured in response to DOJ concerns and prior to the issuance of a complaint;
• seven transactions were abandoned before a preliminary injunction hearing; and
• seven challenges are ongoing as of June 2022.

During the same period, the FTC and DOJ also continued to pursue 13 challenges initiated prior to 2021. Of these:

• seven complaints were filed as part of a negotiated consent decree agreement;
• two transactions were abandoned prior to a preliminary injunction hearing (Visa/Plaid and Proctor & Gamble/Billie);
• an ALJ dismissed one FTC challenge (In the Matter of Altria Group/Juul Labs);
• one transaction was abandoned after a preliminary injunction was granted (FTC v Hackensack Meridian Health & Englewood Healthcare Foundation);
• one closed after a preliminary injunction was denied (Jefferson/Einstein); and
• one case is ongoing (Facebook).

Fines

As discussed in 2.2 Failure to Notify, the FTC routinely seeks penalties for repeat offenders who fail to file a required HSR Notification. In 2021 in US v Clarence L Werner and US v Biglari Holdings, Inc, the DOJ settled claims that the defendants had unlawfully failed to report their acquisitions for USD486,900 for 4,708 days of non-compliance and USD1.4 million for 126 days of non-compliance, respectively.

The Biden administration has taken an aggressive stance on antitrust enforcement and sought to embolden federal antitrust agencies in challenging mergers and other potentially anti-competitive conduct. President Biden issued a sweeping executive order in July 2021 addressing competition issues across the economy and embraced reformists pushing for more vigorous and unorthodox enforcement.

The Agencies have also advocated for a departure from the economic analysis and principles that have driven case law over the last 40 years that sought to analyse or predict actual market effects from mergers and other business conduct. Instead, Agency leadership has signalled a focus on the impacts of overall consolidation on workers and small businesses and scepticism of claimed pro-competitive benefits such as economies of scale or elimination of double marginalisation.

Continuing trends towards more aggressive enforcement and risk-taking that began during the last administration, the Agencies have also challenged vertical deals (rejecting offers for behavioural remedies) and acquisitions of nascent competitors.

DOJ

At the DOJ, Assistant Attorney General Kanter’s enforcement agenda includes: championing a move away from the consumer welfare standard (which focuses on a transaction’s effects on output, price, and quality) towards an approach that focuses on rivalry and competition; reassessing “outdated” precedents in light of “new market realities”; litigating rather than settling cases with the intent to establish new case law; and bringing more monopolisation cases.

Under Kanter’s leadership, the DOJ has challenged or threatened to challenge multiple transactions, causing several deals to be abandoned, including Verzatec/Crane, Cargotec/Konecranes, and US Sugar/Imperial Sugar.

FTC

At the FTC, Chair Khan has set out an aggressive enforcement agenda. Her broad vision for the Commission calls for a strategic approach that, among other things, targets “root causes” of harm, focuses on “structural incentives that enable unlawful conduct”, and implements forward-looking action, particularly regarding next-generation innovation and nascent industries. Under Chair Khan, the FTC has implemented wide-ranging policy changes designed to discourage mergers. The agency has challenged multiple transactions, causing several deals to be abandoned, including NVIDIA/Arm and Lockheed Martin/Aerojet Rocketdyne.

Limits to US Enforcement Efforts

The Agencies’ aggressive and emboldened enforcement approach will be constrained by the courts. Previous administrations’ enforcement decisions were heavily influenced by litigation risk and the strength of a case on the merits. The Agencies may face significant obstacles in the courts if they attempt to assert unconventional theories of harm that run counter to modern antitrust precedents.