Federal Trade Commission Will No Longer Provide Preliminary Review for All Eligible Mergers & Acquisitions

The Federal Trade Commission (“FTC”) does not have the capacity to review every eligible merger and acquisition (i.e. with a value of $92 million or more) in thirty days or less because of a recent surge that observers have attributed to the pandemic. (Siri Bulusu, Bloomberg Law). The announcement came as a surprise to companies and their counsel who have come to rely on this convenience for more than forty years. (John Stern, National Law Review).

The Hart-Scott-Rodino Antitrust Improvement Act (“HSR”) was introduced and enacted in 1976. Id. HSR compels companies to observe a thirty-day probationary period prior to consummating a merger or acquisition with a value of $92 million or more. (Lauren Feiner, CNBC). Value is either determined by the market (i.e. fair market value) or the price paid (i.e. contract price). (Valuation of Transaction Reportable Under “HSR” Act). For example, if a company is purchasing an asset, the value is the price paid unless the price paid is less than the fair market value. Id. If a company is purchasing stock, the value is the price paid so long as the stock is publicly traded. Id. Otherwise it is fair market value. Id.

Prior to the pandemic, the FTC had the resources required to conduct a complete and comprehensive preliminary review during the aforementioned thirty-day probationary period, but now the FTC can only offer a brief letter warning companies to proceed “at their own risk” because of the pandemic and the fallout thereafter.” (Lauren Feiner, CNBC). The FTC has always been able to review a merger or acquisition whenever it would like, but companies and their counsel have traditionally felt some semblance of safety proceeding after surviving a thirty-day preliminary review. (Siri Bulusu, Bloomberg Law). Surviving a preliminary review was typically an indication that the FTC had concluded their investigation and would not interfere in the future. Id. 

Companies and their counsel, especially those familiar with mergers and acquisitions, are concerned that they will have to incorporate new language into their contracts to “allocate risk” in the event a transaction is subsequently declared unlawful. Id. Fees will rise as a result. Id. Others are of the opinion that the risk is now too great and companies will in turn abandon large acquisitions and mergers altogether. (Lauren Feiner, CNBC). Although, some do not think this announcement will have any impact.  (John Stern, National Law Review).

Congress could resolve this issue with the stroke of a pen by providing the FTC with adequate resources. The FTC has pled with republicans and democrats on Capitol Hill on several occasions.  (Lauren Feiner, CNBC). It is unclear why this issue has not already been addressed. The companies concerned with the lack of a thirty-day probationary period can exert pressure in pursuit of their own interests. However, is possible that the FTC would object. (Siri Bulusu, Bloomberg Law). FTC Chairwoman Lina M. Khan is an outspoken critic of mergers and acquisitions. Chairwoman Khan has even urged the FTC to interfere more often, but the position the White House would ultimately take is not entirely clear. (David McLaughlin, Bloomberg Law). If congress refuses to act or the White House interferes, these entities will have to decide whether the risk is too great to pursue these transactions in the future.