FTC Expands Corporate Merger Arsenal with Prior Approval AnnouncementOctober 29, 2021
On October 25, 2021, the Federal Trade Commission announced that it will begin incorporating prior approval and notice provisions in consent orders settling merger investigations. Going forward, these provisions will mandate that merging parties that were subject to such orders seek the approval of the FTC before completing any deal in the relevant market for a minimum of ten years after the order is entered. The announcement, which was adopted by a 3-2 vote along partisan lines, restores a practice the FTC had commonly used until 1995.
How Prior Approvals Affect the Merger and Acquisition Landscape
In its statement, the FTC explained that the reasoning behind this shift is to discourage parties that “are too willing to roll the dice on an anticompetitive deal because there are few downsides (from their perspective) to their long-term strategy that contemplates other acquisitions down the road.” Another stated goal of the shift is to conserve FTC resources so that it does not undertake a costly analysis of a market that it has recently reviewed.
Significantly, these prior approval provisions will apply regardless of the size of the deal, allowing the FTC to exercise control over deals that previously would have been under the Hart-Scott-Rodino reporting threshold. The Commission explained that it would be less likely to require a prior approval provision from merging parties as part of a settlement if the parties abandon the transaction prior to certifying substantial compliance with the Second Request under the Hart-Scott-Rodino Act. Similarly, the Commission may not pursue a prior approval provision where parties abandon a deal after the Commission has issued a complaint.
Additionally, the FTC warned that it may seek broader prior approvals—ones that stretch beyond the product or geographic market at issue in the original transaction—in special circumstances where stronger relief is warranted. In deciding whether to require a more strict prior approval, the FTC will consider a number of factors, including the nature of the transaction, level of market concentration, the degree to which the transaction increases concentration, the degree to which one of the parties pre-merger likely had market power, the parties’ history of acquisitiveness, and the evidence of anticompetitive market dynamics.
The FTC’s new policy of requiring a prior approval provision as a condition of settling merger investigations could have significant consequences for companies contemplating certain mergers or acquisitions. Among other things, companies need to consider the effect a prior approval provision would have on their ability to pursue deals in the future, even if such deals would not otherwise implicate the HSR Act. Companies may also want to evaluate how they structure their transactions to address the possibility of an FTC prior approval order, and think ahead about the possibility of litigation to avoid entry of such an order.
Lewis Rice has extensive experience with counseling clients on the antitrust implications of a merger or acquisition. If you have any questions regarding the FTC’s new policy on prior approvals as it relates to a potential merger or acquisition, please contact a member of our Antitrust Practice Group.