In abstract
This chapter discusses the competitors-associated merger overview course of in the United States. First, it describes the establishments concerned in merger overview – primarily, the US Department of Justice Antitrust Division (DOJ) and the Federal Trade Commission (FTC) (collectively, the Agencies). Second, it outlines the authorized framework these entities apply. Third, it traces the life cycle of a typical merger overview. Lastly, it discusses merger overview enforcement below the Biden administration thus far.
Discussion factors
- The establishments concerned in merger overview: DOJ, FTC, and State AGs
- Substantive legislation: Clayton Act Section 7 and the merger tips
- The in-depth merger overview course of
- Merger enforcement below the Biden administration
Referenced on this article
- Clayton Act Section 7
- Hart-Scott-Rodino Antitrust Improvements Act
- Horizontal Merger Guidelines
- Vertical Merger Guidelines
The statutory framework for suspensory merger overview in the United States comes from the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the HSR Act). Under the HSR Act, events partaking in transactions that meet sure inflation-adjusted thresholds are required to inform each the DOJ and FTC at the very least 30 days previous to closing and pay a price based mostly on the dimension of the transaction. Failure to file can lead to penalties in extra of US$40,000 per day. At the finish of the 30 days – except the events ‘pull and refile’ to permit the Agencies a recent 30 days to overview the transaction – the events are free to shut except both of the Agencies ‘require[s] the submission of additional information or documentary material relevant to the proposed acquisition’ (generally known as a Second Request). If a Second Request is issued, then the events can not shut till 30 days after considerably complying.
At the finish of the course of, there are three fundamental outcomes: (1) the reviewing company may shut its investigation; (2) the reviewing company and the merging events may settle to resolve any issues that the reviewing company expressed, corresponding to by divesting sure services; or (3) the reviewing company may sue to dam the transaction.
Since the HSR submitting requirement applies to all transactions over a sure threshold regardless of aggressive significance, it sweeps in lots of transactions that pose no concern. Prior to January 2021, the Agencies would usually grant, upon request, ‘early termination’ for competitively insignificant transactions, permitting the events to shut previous to the expiration of the 30-day ready interval. Shortly after President Biden’s inauguration, nonetheless, the Agencies ‘paused’ early termination and, at the time of writing, present no signal of resuming.
Institutions
Structure and organisation
DOJ
As talked about, two businesses share jurisdiction over merger overview: the DOJ and FTC. The Department of Justice is an element of the govt department of the federal authorities and its chief, the Attorney General, is a member of the President’s cupboard. The DOJ is led by a presidentially appointed, Senate-confirmed Assistant Attorney General (AAG). The AAG has unilateral resolution-making authority over the Antitrust Division, however sits studies to the Attorney General via the Associate Attorney General and Deputy Attorney General. The AAG is assisted by a number of politically appointed Deputy AAGs, two or three of whom usually oversee civil issues, together with merger overview, merger litigation and worldwide relations. At the profession-employees stage, the DOJ has six civil litigating sections that conduct merger overview investigations for particular commodities. The six sections are:
- Healthcare and Consumer Products;
- Defense, Industrials, and Aerospace;
- Financial Services, Fintech, and Banking;
- Media, Entertainment, and Communications;
- Transportation, Energy, and Agriculture; and
- Technology and Digital Platforms.
Each is headed by a chief and two assistant chiefs, and staffed by roughly 20 to 25 trial attorneys and 12 paralegals. DOJ management has important flexibility in staffing issues, and, if a selected part is busy, it isn’t unusual for merger investigations to be assigned to a unique part. Personnel are additionally steadily detailed to completely different sections if there’s a explicit want. On 20 July 2021, President Biden nominated Jonathan Kanter to function AAG.
FTC
In distinction to the DOJ, the FTC is an impartial, 5-member fee. Commissioners are presidentially appointed and Senate confirmed, and not more than three commissioners could also be members of the similar political get together. The president designates one commissioner as the chair. The chair units the agenda, appoints key employees – corresponding to the management of the Bureau of Competition (BC) – and oversees the day-to-day work of the FTC, with sure key actions topic to vote by the complete Commission. For its competitors operate, the FTC’s most related bureau is BC, which is headed by a director who’s assisted by deputy administrators, and controls the authorized investigatory operate. A Bureau of Economics works with BC to judge mergers and gives impartial, financial evaluation of offers for BC and Commission overview and consideration. For merger overview, BC is split into 4 merger divisions, with the following experience:
- Mergers I opinions transactions in healthcare-associated industries, together with branded and generic pharmaceutical manufacturing and distribution, medical units, and shopper well being merchandise. It additionally handles issues involving defence, scientific, industrial, know-how and shopper merchandise.
- Mergers II opinions transactions in all kinds of industries, together with coal mines, chemical substances, leisure, and pc {hardware} and software program.
- Mergers III opinions transactions in a various set of industries from razors to on-line actual property itemizing companies, to title insurance coverage to rooftop aerial measurement merchandise, to grease and gasoline, to retail gasoline stations, terminals and pipelines.
- Mergers IV opinions transactions involving hospitals, physicians, workplace provide distribution, meals distribution, supermarkets, speciality retail shops, shopper items and casinos.
Each merger part is headed by an assistant director and two deputy assistant administrators, and staffed by roughly 30 attorneys.
President Biden inherited 4 commissioners, Democrats Rebecca Slaughter and Rohit Chopra and Republicans Noah Phillips and Christine Wilson. Shortly after inauguration, President Biden made Commissioner Slaughter appearing chairwoman. In March 2021, he nominated Lina Khan as the fifth commissioner, however was silent on deciding on a everlasting chair. On June 15, inside hours of Khan’s affirmation as a commissioner, President Biden named her as chair of the FTC. Chair Khan got here to prominence as a critic of the bipartisan antitrust consensus of the final 40 years, and is predicted to guide the FTC in a left-wing course.
Clearance
Although the DOJ and FTC share jurisdiction, the Agencies don’t concurrently examine mergers. Rather, they divide issues between themselves on the foundation of experience as half of the ‘clearance process.’ As a sensible matter, when they’re notified a couple of potential merger, every company conducts an preliminary analysis to find out if the transaction warrants additional overview and falls inside the company’s subject material experience. If these circumstances are happy, the company will search clearance from the different company and open the investigation. The course of usually easily allocates merger opinions, however sometimes a matter will fall into an space the place every company claims experience or that cuts throughout each Agencies’ experience (eg, a vertical merger the place one company has experience in the upstream market and the different has experience in the downstream market), which may end up in extra protracted negotiations and should delay the launch of the investigation. When this occurs, it will possibly put merging events in a troublesome state of affairs as a result of the reviewing company might lack the time essential to assess the transaction and should default to issuing a Second Request. To keep away from this, it isn’t unusual for the merging events to drag and refile their HSR submitting, resetting the 30-day clock to offer the investigating company extra time to judge the transaction in the preliminary levels.
International cooperation
Many massive transactions require notification in a number of completely different jurisdictions. If the transaction raises substantive competitors issues, then the Agencies steadily cooperate with international competitors businesses. This cooperation usually takes the kind of periodic calls to share updates on course of and timing, in addition to to debate info and theories. Because of statutory confidentiality necessities, merging events should waive confidentiality to ensure that the Agencies to debate confidential data with international enforcers.
State Attorneys General
Attorneys common from particular person US states (State AGs) are more and more curious about and lively on antitrust issues, together with merger opinions. Although most US states have state-particular antitrust legal guidelines, State AGs even have parens patriae standing to deliver swimsuit below federal antitrust legislation, permitting them to behave as quasi-sovereign enforcers in parallel with the Agencies. Although no US state has a common obligatory pre-merger notification requirement, public studies of transactions can appeal to State AG consideration. When there may be State AG curiosity in a merger investigation, the Agencies usually cooperate with the related State AGs, sharing procedural and substantive updates and even conducting joint conferences, with the related federal company taking the lead. But there may be the potential for divergence between the Agencies and State AGs, and State AGs have challenged mergers that the Agencies haven’t or obtained cures along with these sought by the Agencies.
Substantive authorized framework
Section 7 of the Clayton Act gives the authorized framework for substantive merger overview. Like Sherman Act Sections 1 and a couple of, the statutory textual content provides minimal steerage, offering that mergers the place the impact ‘may be substantially to lessen competition, or to tend to create a monopoly’, are prohibited. Over the years, synthesising judicial precedent and financial evaluation, the Agencies have promulgated merger tips that mirror how they consider mergers, together with lengthy-standing Horizontal Merger Guidelines (HMG) and extra not too long ago issued Vertical Merger Guidelines (VMG). In current many years, these tips, significantly the HMG, have been extremely influential in how courts apply the federal antitrust legal guidelines.
The 2010 HMG concisely lay out the Agencies’ strategy to evaluating horizontal mergers, specifically mergers between companies that compete straight. By their nature, horizontal mergers are the most probably kind of merger to attract company curiosity. The HMG begin by addressing proof of anticompetitive results. The Agencies contemplate numerous sorts of proof, starting from precise results noticed in consummated mergers, to direct comparisons based mostly on expertise, to market shares and focus, to substantial head-to-head competitors, and even to the ‘maverick’ standing of one of the merging events. The main sources of proof are paperwork and data from the merging events, clients, and different business individuals and observers.
The HMG additionally cowl market definition, together with numerous authorized and financial checks the Agencies usually use to outline the related product and geographic markets. The HMG clarify how the Agencies contemplate market individuals, shares and focus. Potential entrants might be thought-about half of the market. Shares are calculated based mostly on the greatest obtainable data, corresponding to capability or income. The Agencies use the Herfindahl-Hirschman Index (HHI) to measure focus, and contemplate mergers that end in sure ranges of focus to be presumptively anticompetitive.
The HMG focus on two broad theories of hurt – unilateral results and coordinated results. Unilateral results stem from the elimination of competitors between the merging companies impartial of every other market individuals. These ‘are most apparent in a merger to monopoly in a relevant market, but are by no means limited to that case’. Coordinated results happen when a merger ‘diminish[es] competition by enabling or encouraging post-merger coordinated interaction among firms in the relevant market that harms customers’.
The HMG additionally focus on numerous defences. Powerful consumers might constrain the skill of merging events to lift costs, doubtlessly decreasing hurt. If entry by a brand new competitor into the related market put up-merger can be well timed, doubtless and ample to counteract potential dangerous results, then the merger could also be lawful. The HMG recognise that ‘a primary benefit of mergers to the economy is their potential to generate significant efficiencies and thus enhance the merged firm’s skill and incentive to compete’, leading to professional-aggressive results. The Agencies will credit score verified and quantified merger-particular efficiencies. Finally, the Agencies contemplate the chance of a failing agency the place, absent the merger, the property would exit the market, rendering an in any other case anticompetitive merger lawful.
Vertical mergers are combos between companies working at completely different ranges in associated markets (eg, producer-distributor). Although, as a category, vertical mergers have a tendency to lift fewer aggressive issues than horizontal mergers, they will hurt competitors below sure circumstances, and the Agencies have challenged vertical mergers persistently, if not steadily, over the previous 25 years.
The VMG had been adopted by the Agencies in 2020. Prior to that, the DOJ (however not the FTC) had Non-Horizontal Merger Guidelines from 1984, which had been extensively thought-about a lifeless letter. The 2020 VMG had been the first systematic joint assertion by the Agencies explaining their analytical strategy to evaluating vertical mergers. The VMG are considerably shorter than the HMG (14 pages versus 37), and explicitly state that they ‘should be read in conjunction with the [HMG]’ and that ‘[m]any of the principles and analytic frameworks used to assess horizontal mergers apply to vertical mergers’. The VMG deal with questions that come up particularly in the context of vertical mergers. For occasion, the VMG state that the Agencies, along with defining a related product market, can even specify a ‘related product,’ which may very well be ‘an input, a means of distribution, access to a set of customers, or a complement’ to the related product market.
Like the HMG, the VMG focus on each unilateral and coordinated results. The VMG establish two particular classes of unilateral results. The first is ‘foreclosure and raising rivals’ prices’, and the VMG present six illustrative examples. Those examples embody easy enter foreclosures (the merged agency limiting rivals’ entry to a important enter), enter foreclosures via elevated bargaining leverage (a model of this concept was the DOJ’s principal concept of hurt in its unsuccessful problem to AT&T’s acquisition of Time Warner Inc.), creating the want for 2-stage entry (put up-merger, a brand new entrant is unlikely to enter efficiently, except it will possibly enter at each ranges), and elevating rivals’ value of distribution (limiting entry to an vital distribution channel). The second unilateral impact is giving the merged agency entry to utterly delicate data. For instance, if a downstream rival to the merged agency had been a pre-merger buyer of the upstream agency, then the merger may give the merged agency entry to its rival’s delicate enterprise data, which may hurt competitors.
The VMG’s dialogue of coordinated results is sparse. It incorporates the HMG’s dialogue of coordinated results by reference, after which provides an instance of the merged agency’s entry to competitively delicate data higher enabling it to coordinate. Underscoring the reality-intensive nature of the evaluation, the VMG add that ‘[s]ome effects of a vertical merger may make the market less vulnerable to coordination.’
Finally, the VMG acknowledge the potential professional-aggressive results flowing from vertical mergers. Most considerably, vertical mergers can eradicate double marginalization, ensuing ‘in the merged firm’s incurring decrease prices for the upstream enter than the downstream agency would have paid absent the merger,’ which arises straight from the merger itself. The VMG state that it’s ‘incumbent upon the merging firms to provide substantiation for claims that they will benefit from the elimination of double marginalization’, however add that the Agencies will try and assess these advantages on their very own.
While the tips (particularly the HMG) mirror substantial consensus inside each the antitrust bar and federal judiciary relating to the way to analyse mergers below Clayton Act Section 7, they’ve come below criticism from each the left and the proper. Lina Khan’s elevation to the chair of the FTC is prone to end in upheaval in the close to time period and should end in a basically completely different strategy over the long run. Already, President Biden has issued an Executive Order directing the Agencies to reevaluate their merger tips, and the FTC and DOJ issued a joint assertion saying ‘a hard look to determine whether [the guidelines] are overly permissive’ and promising to ‘launch a review of our merger guidelines with the goal of updating them’. On 15 September 2021, the FTC withdrew from the VMG on a celebration-line vote. For now, the VMG stay in impact for the DOJ. Additionally, there may be pending laws that, if adopted, may change the substantive authorized normal.
In-depth merger opinions
This chapter has mentioned the establishments concerned in the merger overview course of and the authorized framework they make use of. This subsequent part describes the circulate of a typical in-depth merger overview. First, nonetheless, some context is important. US merger overview features like a funnel. The HSR Act submitting requirement is the vast mouth, capturing a big quantity of transactions, the majority of which increase no aggressive points and face no scrutiny past a overview of the submitting itself. As the funnel narrows, a small proportion, about one in 10, set off a preliminary investigation, through which the Agencies have interaction in the clearance course of. Narrower nonetheless on the funnel, a subset of these preliminary investigations draw a Second Request and a prolonged, drawn out investigation. At the very finish of the funnel, a handful every year end in some motion by the reviewing company – both a settlement or a problem.
Statistics revealed by the Agencies illustrate this level. In 2019, the most up-to-date 12 months for which statistics can be found, there have been a little bit greater than 2,000 HSR filings. Nearly three-quarters requested early termination, and the Agencies granted early termination for greater than a thousand filings. Less than 12 per cent of HSR filings resulted in a preliminary investigation. Only 3 per cent resulted in a Second Request.
For these instances that end in a Second Request, the merger overview course of might be prolonged and costly. Not occasionally, merging events topic to a preliminary investigation might pull and refile their HSR filings in an effort to reset the 30-day clock and provides the merging events extra time to influence the reviewing company {that a} Second Request is pointless or might be narrowly drawn.
Second Requests, as soon as issued, require the merging companies to supply large quantities of data and knowledge and submit enterprise folks for depositions. While any given Second Request is tailor-made to the given transaction, the Agencies have posted fashions on their web sites.
One possibility for events topic to a Second Request is to conform and certify substantial compliance, triggering 30 days for the reviewing company to determine whether or not to sue. This dangers, nonetheless, alienating the resolution-maker and incentivising the reviewing company to organize for litigation reasonably than assessing potential resolutions brief of litigation.
Another possibility is for events topic to a Second Request to interact with the reviewing company to enter right into a timing settlement, committing to rolling productions of paperwork and knowledge and giving the company extra time in alternate for sure course of ensures, together with substantive engagement with employees and audiences with resolution-makers. The DOJ and FTC have every posted mannequin timing agreements.
While each investigation is completely different, most observe the similar common sample. There is an preliminary forwards and backwards between the events and the investigating employees on info and theories. If issues will not be resolved in the course of the investigation, the employees will give the merging events suggestions on the employees’s issues, which the employees have doubtless embodied in a suggestion memorandum to the reviewing company’s resolution makers. The employees’s suggestion memoranda are steadily prolonged paperwork, virtually like abstract judgment briefs, outlining related info and theories of hurt, addressing each strengths and weaknesses. Near the finish of the overview interval, the events will meet with resolution-makers and make their case that the merger shouldn’t be challenged.
If the issues expressed by the company might be remedied (eg, overlaps in distinct geographic or product markets are generally addressed by divestitures), then the events might brief circuit this course of by providing divestitures and shifting to settlement negotiations. This usually occurs fully at the employees stage (though the resolution makers should, of course, approve any settlement), however is sometimes prompted by issues underlined by the resolution-makers.
If the issues stay and can’t be remedied, then the reviewing company might take motion to dam the deal from closing. Faced with this prospect, merging events steadily abandon their transactions, however sometimes litigate and generally prevail in courtroom.
Merger enforcement below the Biden administration
Antitrust merger enforcement coverage in the Biden administration is starting to return into focus. It is prone to be a more difficult surroundings than in the current previous for companies looking for fast, beneficial resolutions to pending mergers. President Biden himself has criticised the antitrust consensus for the previous 40 years as being too lenient and his appointments to key roles portend extra aggressive enforcement to return, together with actions associated to merger overview. Shortly after she was confirmed to the FTC after which instantly elevated to chair, Chair Khan held an open assembly and pushed via seven resolutions that recognized enforcement priorities and authorised obligatory course of for investigations into these areas. One decision particularly recognized merger investigations as a precedence space. While many of the different resolutions transcend merger enforcement, they recommend that the FTC shall be significantly centered on mergers involving know-how platforms, healthcare and prescription drugs.
Already, the Agencies have been extra prepared to impose larger regulatory prices, for instance, ‘pausing’ early termination, and have been much less sympathetic to complaints about course of and burden issues.
Relatedly, merger enforcement is prone to be much less predictable, with the Agencies exploring and even bringing novel theories. Past merger resolutions might not function helpful predictors of future resolutions. Several current FTC tendencies illustrate this level.
Pfizer/Mylan
In November 2019, Pfizer Inc and Mylan NV agreed to a transaction that mixed some of Pfizer’s property with Mylan to kind a brand new entity that may have resulted in generic drug product overlaps in 10 markets. In late 2020, in step with previous pharmaceutical merger settlements, the FTC allowed the transaction to proceed topic to the events divesting the overlapping merchandise. But Commissioner Chopra, joined by Commissioner Slaughter, dissented, criticising the FTC’s lengthy-standing strategy. Specifically, Commissioner Chopra argued that ‘the FTC’s document relating to reviewing pharmaceutical mergers means that the company will merely by no means search to dam a merger. Instead, the company’s strategy is to strike slender settlements. This encourages market actors to suggest much more illegal mergers.’ Commissioner Chopra expressed concern that ‘mergers involving companies competing across a large number of product lines can exacerbate the risk of collusive conspiracies’. Given that Commissioner Chopra is now in the majority, it’s an open query whether or not future pharmaceutical mergers involving overlaps are prone to be settled.
Illumina/Grail
Another instance is the FTC’s problem to Illumina Inc’s US$7.1 billion proposed acquisition of Grail, Inc. Illumina and Grail are in a vertical relationship. Illumina is the sole supplier of a important enter (DNA sequencing) for Grail’s non-invasive, early detection liquid biopsy check. After a bipartisan vote (4-0), the FTC sued on 30 March 2021, on a vertical concept that Illumina may increase Grail’s rivals’ prices. This represents the FTC’s first litigated vertical merger problem in a era, and the first litigated vertical merger since the VMG had been revealed. Although the FTC initially sought a preliminary injunction in federal courtroom, it dismissed its federal grievance with out prejudice as a result of ongoing overview by the European Commission prevents the events from closing the transaction. In a shock transfer, the events consummated the merger however the EC’s ongoing overview. At the time of writing, the matter is in FTC administrative litigation with an administrative trial that began on 24 August 2021.
7-Eleven/Speedway
Perhaps the most vivid illustration of lack of predictability in merger overview is the FTC’s strategy to 7-Eleven, Inc’s acquisition of Speedway, LLC. In August 2020, 7-Eleven sought to amass Speedway for US$21 billion, including over 3,800 shops. The overview appeared to proceed easily at the FTC employees stage. After 4 extensions of the timing settlement in February (twice), March, and April 2021, the FTC employees recognized overlaps and negotiated a settlement for 7-Eleven to divest 293 gasoline retailers. The FTC employees, together with then-BC management, advisable that the Commission settle for the divestitures and permit the deal to shut.
Then there was a breakdown at the Commission. On 11 May 2021, then-Acting Chairwoman Slaughter and Commissioner Chopra requested for extra time to overview the settlement. 7-Eleven refused, and closed on 14 May, however acknowledged that it deliberate to divest the 293 retailers in step with the settlement it had negotiated with FTC employees. Then-Acting Chairwoman Slaughter and Commissioner Chopra launched a press release criticising the ‘illegal deal’ and promising to proceed the investigation. Commissioner Wilson and Commissioner Phillips issued their very own assertion:
There isn’t any good cause for the Commission to be on this mess. This deal was introduced final August, the higher half of a 12 months in the past. . . . That left loads of time for employees – who, since late January, have labored at the course of the Acting Chairwoman – and the events to barter a decision. . . . [W]e have been given no data suggesting the events did not work constructively with employees to barter a well timed and efficient decision. Yet the Commission is opting to allow the transaction to shut with out a treatment in place.
In late June, the FTC accepted the settlement with minor modifications, however the complete sequence stunned outdoors observers.
Utah Natural Gas Pipeline
Pfizer/Mylan, Illumina/Grail, and 7-Eleven/Speedway occurred previous to Chair Khan assuming management. At the time of writing, the most vital decision below her management associated to a proposed pure gasoline pipeline transaction in Utah. Berkshire Hathaway Energy Company’s Kern River Gas Transmission Pipeline tried to amass Dominion Energy, Inc’s Questar Pipeline in Utah. This acquisition, in accordance with the FTC, would have been a merger to a monopoly. In 1995, the FTC had blocked the similar transaction. The events deserted their deal after an FTC and Utah AG investigation. In response to the abandonment, Acting BC Director Holly Vedova acknowledged that ‘it is disappointing that the FTC had to expend significant resources to review this transaction when we previously filed suit in 1995 to block the same combination.’ The FTC’s resolution to dam the transaction was unsurprising, however the relaxation of Vedova’s assertion signalled that extra coverage modifications could also be contemplated by the Commission. She additional acknowledged that ‘this is representative of the type of transaction that should not make it out of the boardroom. The Bureau of Competition will be actively exploring its options on how to curtail this type of re-review to better deploy the Commission’s scarce sources.’
The day earlier than Vedova’s assertion, the FTC introduced an open assembly that included an agenda merchandise to rescind a 1995 coverage assertion relating to ‘prior approval’ and ‘prior notice’ cures in merger instances. Vedova’s assertion seems to put the floor work for the FTC to require, as a situation to settling merger investigations, that events submit future transactions for the FTC’s prior approval. On 21 July 2021, by a vote of 3-2, the FTC rescinded the assertion. Although it’s too early to opine with certainty, companies that settle for a sturdy ‘prior approval’ clause in settlements with the FTC might discover that the burden of proof for future mergers is successfully reversed. The FTC may require that companies reveal that any proposed transaction is procompetitive, reasonably than the FTC being required to show that the merger is anticompetitive.
Other merger enforcement actions in the first six months of the Biden administration have been extra conventional. The most vital is the DOJ’s problem to Aon plc’s proposed acquisition of Willis Towers Watson plc for about US$30 billion. Aon and Willis are the second and third largest insurance coverage brokers in the world, and two of the so-known as ‘Big Three’. Insurance brokers assist to match companies with the proper insurance coverage insurance policies, and the DOJ alleges that giant, refined companies want the Big Three to satisfy their wants. In mid June, the DOJ sued to dam the transaction in federal courtroom in Washington, DC, alleging that the merger will eradicate important head-to-head competitors on worth, high quality and innovation. The DOJ outlined 5 product markets, throughout massive consumers. While the case was set for trial in late 2021, the merging events deserted the transaction on 26 July 2021.