Citing findings from the Dechert Antitrust Merger Investigation Timing Tracker (DAMITT) that have demonstrated a marked increase in the duration of significant merger investigations in recent years, DOJ Assistant Attorney General Makan Delrahim and FTC Chairman Joseph Simons recently announced reforms to the U.S. antitrust merger review process. Beyond these process reforms, which appear to be significant, there is little to report on Q3 2018 significant antitrust merger investigations in either the United States or European Union, but there were some intriguing developments in U.S. merger litigation.
Through the first three quarters of 2018, the number of significant investigations is down compared to 2017 in both the U.S. and EU, with Q3 2018 representing a particularly slow quarter. In the U.S., only two significant investigations concluded during the quarter, averaging only 6.9 months from announcement to clearance — the lowest average for any quarter in the past four years. In the EU, three significant investigations — all Phase II proceedings — concluded during the quarter. These three EU cases averaged 13.5 months from announcement to clearance, which is faster than the 15.1-month average for 2017.
Two U.S. FTC merger litigations filed in 2018 (Wilhelmsen/Drew Marine and Tronox/Cristal) were concluded during Q3 2018, both resulting in preliminary injunctions blocking proposed transactions. These two litigations were decided an average of 3.5 months after the filing of the district court complaint, a pace nearly half as long as the almost seven-month average observed for complaints filed during 2016 and 2017. However, the Tronox case presented a unique procedural posture that contributed to the faster pace and may not be representative of the duration of future litigations, which is likely to remain closer to the 5-7 month range observed in the Wilhelmsen litigation and in recent years.
Acknowledging DAMITT’s findings of a trend toward longer investigations, both the head of the DOJ Antitrust Division and the FTC Chairman announced antitrust merger review reforms intended to accelerate the process. As DOJ observed, faster investigations would reduce the waste of both public and private resources, provide greater certainty to the business community and markets, and reduce risks inherent in merger delays.
DOJ Assistant Attorney General Makan Delrahim announced several process changes with the “aim to resolve most investigations within six months of filing,” a metric slightly different from the deal announcement-to-agency action measurement period used for DAMITT and which would also presumably include certain investigations not tracked by DAMITT (e.g., second request investigations closed without a public statement by the agencies). To complete an investigation six months after filing, and assuming a 60-day period after substantial compliance for agency review, merging parties would be expected to certify substantial compliance within three months after receiving the second request at the conclusion of the initial 30-day waiting period for most transactions.
While officials from three prior administrations have made more general statements about streamlining the merger review process, Mr. Delrahim presented encouraging, concrete steps that could shorten investigations and reduce second request burdens. For example, he mentioned DOJ’s plans to revise the model timing agreement to limit the number of document custodians to 20 and the number of depositions to 12, and to limit the DOJ’s time following substantial compliance to a period of 60 or fewer days. These changes would be significant. While no systematic data are available, under current practice the custodian count can be in the high double digits, the deposition count can be closer to 30 than to 12, and the post-compliance period can be closer to 100 days than to 60 days. Mr. Delrahim has authorized his deputy assistant attorneys general to raise these limits as may be needed in a particular investigation, though it is unclear how these exceptions would be applied.
To further speed up reviews, DOJ plans to offer front-office meetings with the merging companies’ key executives earlier in the process to understand the deal rationale and key facts, require faster third-party compliance with civil investigative demands, and increase international coordination to potentially accelerate action by non-U.S. antitrust authorities.
As a condition of these benefits, Mr. Delrahim told Congress that he expects parties to produce documents and data earlier in the investigation and to agree to extend the time allowed for post-complaint discovery, if the DOJ challenges a merger in court. This latter stipulation potentially could keep the few mergers that result in litigation on the same lengthy path as today, but the deferral of more in-depth discovery until litigation begins could shorten investigations for the vast majority of deals that do not reach litigation.
FTC Chairman Joseph Simons similarly responded to DAMITT’s observations by announcing that the FTC’s goal is “definitely to reduce the time it’s taking” for merger reviews. Mr. Simons and Bruce Hoffman, Director of the FTC’s Bureau of Competition, also recognized that the FTC would benefit from shorter reviews in terms of saving more resources.
Importantly, both the DOJ and FTC announced plans to track more closely the length of merger reviews to better understand ways to make them more efficient, while also identifying potential sources of delays in order to improve the overall process. The agencies will not face the same limitations as DAMITT, which relies on publicly observable events. With access to internal data, the agencies have an opportunity to identify and implement changes that will benefit all parties to a merger investigation. For example, the agencies can systematically study filing dates, the terms of timing agreements and the frequency with which they are used, the number of second request custodians and depositions, the volume of second request documents and data, the frequency and success rate of pull-and-refile strategies, and the frequency of multi-agency and multi-jurisdictional reviews. These statistics will enable the agencies to more precisely identify common attributes driving longer (or shorter) investigations. Timely and detailed public reporting of these statistics would also increase accountability and transparency, providing valuable guidance to the business community and the antitrust bar.
In light of the significant attention U.S. enforcement agencies have devoted to the merger review process, their encouraging proposed reforms, and DAMITT’s analysis below suggesting that reform efforts may already be having some effect, we expect that the duration of significant U.S. antitrust merger investigations will continue to shorten. Whether DG Competition staff will come forward with similar ideas for shortening the overall duration of significant merger investigations remains to be seen. The different articulation of EU and U.S. procedures means that U.S. reforms cannot simply translate across the Atlantic. While the evidentiary requirements applied in judicial oversight of Commission decisions have become more stringent over time, it may well be that the pendulum was given a nudge to swing too far, and that a middle ground should be identified.
Citing DAMITT, DOJ and FTC Announce New Efforts to Speed Up Merger Reviews
Acknowledging DAMITT’s findings of a trend toward longer investigations, both the head of the DOJ Antitrust Division and the FTC Chairman announced antitrust merger review reforms intended to accelerate the process. As DOJ observed, faster investigations would reduce the waste of both public and private resources, provide greater certainty to the business community and markets, and reduce risks inherent in merger delays.
DOJ Assistant Attorney General Makan Delrahim announced several process changes with the “aim to resolve most investigations within six months of filing,” a metric slightly different from the deal announcement-to-agency action measurement period used for DAMITT and which would also presumably include certain investigations not tracked by DAMITT (e.g., second request investigations closed without a public statement by the agencies). To complete an investigation six months after filing, and assuming a 60-day period after substantial compliance for agency review, merging parties would be expected to certify substantial compliance within three months after receiving the second request at the conclusion of the initial 30-day waiting period for most transactions.
While officials from three prior administrations have made more general statements about streamlining the merger review process, Mr. Delrahim presented encouraging, concrete steps that could shorten investigations and reduce second request burdens. For example, he mentioned DOJ’s plans to revise the model timing agreement to limit the number of document custodians to 20 and the number of depositions to 12, and to limit the DOJ’s time following substantial compliance to a period of 60 or fewer days. These changes would be significant. While no systematic data are available, under current practice the custodian count can be in the high double digits, the deposition count can be closer to 30 than to 12, and the post-compliance period can be closer to 100 days than to 60 days. Mr. Delrahim has authorized his deputy assistant attorneys general to raise these limits as may be needed in a particular investigation, though it is unclear how these exceptions would be applied.
To further speed up reviews, DOJ plans to offer front-office meetings with the merging companies’ key executives earlier in the process to understand the deal rationale and key facts, require faster third-party compliance with civil investigative demands, and increase international coordination to potentially accelerate action by non-U.S. antitrust authorities.
As a condition of these benefits, Mr. Delrahim told Congress that he expects parties to produce documents and data earlier in the investigation and to agree to extend the time allowed for post-complaint discovery, if the DOJ challenges a merger in court. This latter stipulation potentially could keep the few mergers that result in litigation on the same lengthy path as today, but the deferral of more in-depth discovery until litigation begins could shorten investigations for the vast majority of deals that do not reach litigation.
FTC Chairman Joseph Simons similarly responded to DAMITT’s observations by announcing that the FTC’s goal is “definitely to reduce the time it’s taking” for merger reviews. Mr. Simons and Bruce Hoffman, Director of the FTC’s Bureau of Competition, also recognized that the FTC would benefit from shorter reviews in terms of saving more resources.
Importantly, both the DOJ and FTC announced plans to track more closely the length of merger reviews to better understand ways to make them more efficient, while also identifying potential sources of delays in order to improve the overall process. The agencies will not face the same limitations as DAMITT, which relies on publicly observable events. With access to internal data, the agencies have an opportunity to identify and implement changes that will benefit all parties to a merger investigation. For example, the agencies can systematically study filing dates, the terms of timing agreements and the frequency with which they are used, the number of second request custodians and depositions, the volume of second request documents and data, the frequency and success rate of pull-and-refile strategies, and the frequency of multi-agency and multi-jurisdictional reviews. These statistics will enable the agencies to more precisely identify common attributes driving longer (or shorter) investigations. Timely and detailed public reporting of these statistics would also increase accountability and transparency, providing valuable guidance to the business community and the antitrust bar.
In light of the significant attention U.S. enforcement agencies have devoted to the merger review process, their encouraging proposed reforms, and DAMITT’s analysis below suggesting that reform efforts may already be having some effect, we expect that the duration of significant U.S. antitrust merger investigations will continue to shorten. Whether DG Competition staff will come forward with similar ideas for shortening the overall duration of significant merger investigations remains to be seen. The different articulation of EU and U.S. procedures means that U.S. reforms cannot simply translate across the Atlantic. While the evidentiary requirements applied in judicial oversight of Commission decisions have become more stringent over time, it may well be that the pendulum was given a nudge to swing too far, and that a middle ground should be identified.
Number of Q3 2018 Significant Investigations Second Lowest in Past Five Years
The number of significant U.S. antitrust merger investigations has declined in 2018. There were 15 significant U.S. merger investigations concluded by the Department of Justice (DOJ) and Federal Trade Commission (FTC) through the first three quarters of 2018, slightly behind the 18 during the same period in 2017. Only two significant investigations concluded during Q3 2018 — the lowest for any quarter in more than five years and the second lowest quarterly total since DAMITT began tracking the data in 2011. This decline in 2018 is consistent with the steady trend observed by DAMITT since 2015, when the number of significant investigations reached its peak. The decrease does not necessarily reflect a decline in enforcement or aggressiveness by the agencies, but instead could be the result of fewer antitrust-sensitive deals due to a general decline in deal volume, or as a trailing consequence of higher enforcement activity in recent years, which can have a deterrent effect.
“Significant U.S. merger investigations” include investigations of proposed Hart-Scott-Rodino (HSR)-reportable transactions that result in a closing statement, consent order, complaint challenging a transaction, or transaction abandonment for which the antitrust agency issues a press release during the year in question.
For the second time this year — and only the second time in the last three years — the agencies issued a closing statement explaining the rationale for their decision. By comparison, zero closing statements were issued in 2016 and 2017. Closing statements provide guidance to the business community and suggest an effort by the current administration to increase transparency.
Significant U.S. Antitrust Merger Investigation Outcomes (2011 – Q3 2018)