‍For most major mergers and acquisitions, the law requires merging parties to submit a Hart-Scott-Rodino pre-merger notification to the FTC and DOJ. These agencies use the HSR notification as a way to check the proposed deal for anti-competitive risk. In certain cases, the DOJ and/or FTC may make a second request (which acts like a subpoena) to more fully understand the proposed merger.

In the DOJ/FTC's most recent annual report released for fiscal year 2022, the agencies found that about 75% of deals subjected to a second HSR request were voluntarily abandoned or restructured. As the report continues, "During fiscal year 2022, the Commission brought 24 merger enforcement challenges: eleven in which it issued final consent orders after a public comment period; seven in which the transaction was abandoned or restructured as a result of antitrust concerns raised during the investigation; and six in which the Commission initiated administrative or federal court litigation. The 24 merger enforcement challenges the Commission brought in fiscal year 2022 is the second-highest figure in the last ten years," behind only the 2020 fiscal year.

In an analysis by Legal Dive, second request reviews were only issued in 1.6% of deals subjected to HSR during the first two years of the Biden Administration. This rate is inline with the Obama Administration, and remains relatively low. "What has appeared to change, though, is the rate at which the agencies seek settlements with companies whose deal is subject to a second request," Legal Dive continues. "Of the almost 9,000 HSR filings, only 0.39% were subject to settlement, a big drop from 1.04% during the last administration and 1.42% during the second Obama term."

"Perhaps because formal settlements with the agencies are an unlikely outcome, there has been a recent uptick in parties taking matters into their own hands to avoid litigation: either by abandoning or restructuring their transactions in response to antitrust scrutiny," an analysis by Morgan Lewis states. "In fact, recent data suggests that over the past year or two, roughly 35–45% of all transactions in which a Second Request has been issued now end in abandonment as a result of an antitrust investigation prior to litigation, and even more are restructured."

Parsing the data further shows that certain industries are more likely to receive Second Requests during a proposed merger/acquisition. "Machinery Manufacturers" were nearly double as likely to receive Second Requests during fiscal year 2022, while Hospitals were roughly five-times as likely, and broadcasting companies saw their likelihood at nearly seven times other industries.

Program Changes

Last summer, the FTC and DOJ proposed changes to the HSR pre-merger program that would slow the process down and require more effort by businesses to receive approval. "The proposed changes to the HSR Form and instructions would enable the Agencies to more effectively and efficiently screen transactions for potential competition issues within the initial waiting period, which is typically 30 days," the FTC wrote in a press release. In its own white paper, Jones Day notes that the new administrative burden "is not likely to lead to increased deal risk, and in many cases this additional information is not the kind of information that an agency would factor into its review."

THE VERDICT:

The Biden Administration has been clear from Day One that it will pursue antitrust cases and work to break-up monopolies in the US economy. FTC Chair Lina Khan has been particularly vocal about this. However, the probability of a second request for mergers and acquisitions subject to HSR review remains low, yet parties should be prepared for ways to handle such requests and outline possible voluntary restructurings of their deal.