DAMITT Q3 Update: Significant US Antitrust Merger Investigations and Complaints Are Down Sharply But Taking Longer

by Dechert LLP
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Fast Facts

  • The number of significant merger investigations was down 25% on both a YTD and RTM basis
  • Only one significant investigation resulted in a complaint in 2017 YTD (two on an RTM basis), down about 80%
  • Although fewer in number, significant merger investigations and complaints took nearly 20% longer—11.6 months for 2017 YTD and 11.2 months on an RTM basis
  • The time between deal announcement and the issuance of a second request continued to creep up—from 72 to 81 days on a YTD basis and from 69 to 87 days on an RTM basis
  • Companies do not appear to be responding to the longer duration of significant merger investigations and litigations by allotting more time in transaction agreements for antitrust review

The Dechert Antitrust Merger Investigation Timing Tracker (DAMITT) for Q3 2017 recorded a 25% decline in the number of significant merger investigations and an 80% decline in the number of complaints challenging proposed Hart-Scott-Rodino (HSR)-reportable deals compared to the prior year, on both a year-to-date (YTD) and a rolling 12 months (RTM) basis. At the same time, merging parties were giving the agencies more time from the date of announcement to the issuance of second requests—81 days in 2017 YTD (up from 72 days during the same period in 2016) and 87 days on an RTM basis (up from 69 days in the prior 12 months). Despite this added time at the outset, the duration of significant merger investigations continued to grow, hitting 11.6 months for 2017 YTD and 11.2 months on an RTM basis, both of which exceed the longest full year on record by nearly 20%. The changes over the same period last year are so pronounced that they are difficult to chalk up to randomness. But it is unclear whether the extended significant investigations reflect delays caused by the transition in administrations, a policy shift of the Trump administration, or some other systemic change.

Decline in Significant Investigations and Complaints Filed

The number of significant U.S. merger investigations concluded by the Department of Justice (DOJ) and Federal Trade Commission (FTC) has declined during 2017 YTD and on an RTM basis. “Significant” merger investigations include proposed HSR-reportable transactions resulting in a closing statement, consent order, complaint challenging a transaction, or transaction abandonment for which the antitrust agency issues a press release. There were 18 significant investigations that concluded in the first three quarters of 2017, down 25% from the same period in 2016. Over the RTM ending Q3 2017, there were 27 significant investigations, which was also 25% lower than the 36 significant investigations in the prior 12-month period.

The number of significant investigations resulting in a complaint was down about 80%—from 5 complaints during the first three quarters of 2016 to only 1 during 2017 YTD, and from 9 complaints during the 12 months ending Q3 2016 to only 2 complaints over the RTM ending Q3 2017.

Given that the number of U.S.-targeted transactions announced in 2017 YTD is up by about 18% from a year ago according to Thomson Reuters, the declines in significant investigations and resulting complaints could be the result of less aggressive enforcement, companies avoiding risky deals as a result of the increase in the number of complaints filed in CY2015 and CY2016, or some combination of these factors.

Significant U.S. Antitrust Merger Investigations (2011  Q3 2017)

The Average Length of Significant Investigations Has Continued to Increase, with 2017 Producing the Three Longest in DAMITT History

Despite the decline in the number of significant merger investigations, those concluding during the first three quarters of 2017 averaged 11.6 months, nearly two months longer than the 9.7 month average during the first three quarters of 2016. For the 12 months ending Q3 2017, the average duration was 11.2 months, as compared to 9.5 months over the prior 12 months ending Q3 2016. These increased durations are partially driven by the fact that 2017 has produced the three longest significant investigations since DAMITT began tracking the data in 2011—Walgreens/Rite Aid, Abbott/Alere and DaVita/Renal Ventures. However, the trend toward longer significant investigations is not driven solely by a small number of record-setting transactions—50% of the significant investigations concluding in 2017 YTD persisted for at least 10.3 months, a length that would best the previous DAMITT record annual average duration of 9.9 months set in 2016.

The exact cause of this continued upward trend is unclear, though it could be some combination of delays caused by the transition in administrations, a policy shift of the Trump administration, or some other systemic change.

Average Duration of Significant U.S. Antitrust Merger Investigations (2011 – Q3 2017)

Average Time Between Deal Announcement and Issuance of Second Request Increased

Officials at the antitrust agencies have suggested that merging parties are waiting longer to make their pre-merger HSR filing or are more frequently using the one-time-only pull-and-refile procedure. This suggestion is supported by the DAMITT data. Based on publicly available data for about 60% of the significant merger investigations comprising the DAMITT database, the average time between deal announcement and the issuance of second requests increased to 81 days in 2017 YTD (up from 72 days during the same period in 2016) and 87 days on an RTM basis (up from 69 days in the prior 12 months). These durations are at least a month longer than the 51 day average in CY2011.

Under the HSR Act, the initial waiting period is 30 days (15 days for cash tender offers or bankruptcy situations) from the time of filing unless early termination is granted by the government or the acquirer “pulls and refiles,” which restarts the initial waiting period. Merging parties often delay filing or pull and refile in the hope that the additional time up front will enable the staff to streamline and shorten the investigation. This strategy may reflect a concession to the reality of the longer investigation process or it may constitute a response to increased staff requests that parties pull and refile. Regardless of the explanation, parties allocating more time prior to the issuance of a second request do not necessarily face longer—or shorter—overall investigations than parties that allocate less time pre-second request.

Percentage of Divestiture Consents Requiring Upfront Buyers Remains Steady

The agencies’ consent orders continued to reflect a high frequency of upfront buyer requirements. The percentage of divestiture consent orders requiring upfront buyers was 79% for 2017 YTD (compared to 81% for the first three quarters of 2016) and 84% on an RTM basis (compared to 83% in the prior 12 months). These figures are up sharply from the 43% average between CY2011 through CY2013 when post-order buyer consents were more common.

When an upfront buyer is required, before the merging parties can consummate their transaction, they must find a willing and able buyer, negotiate a purchase agreement with that buyer for the divested assets, and present that purchase agreement, the buyer’s business plan, and other information to the agency as part of the approval process. This process can add significant time to the investigation. Between 2011 and 2017 YTD, DAMITT has observed that investigations ending with consents requiring upfront buyers lasted about two months longer than those with consents permitting the merging parties to find and negotiate with divestiture buyers after consummating their transaction.

Upfront vs. Post-Order Buyer Trend (2011 – Q3 2017

No New Data Available on the Length of Antitrust Merger Litigation Filed in 2017

In addition to investigations taking longer, prior DAMITT analyses found that antitrust merger litigation was trending longer, too. However, as there have not been any merger litigation cases filed in 2017 that have reached a decision, no new data are available for analysis in this update.

Merging Companies Do Not Appear to Be Adjusting to Increased Durations by Using Longer Termination Periods in Transaction Agreements

Despite the increasing length of significant merger investigations and litigations, DAMITT’s analysis of publicly available transaction agreements for deals involved in significant merger investigations suggests that merging parties may not be responding with longer termination periods. The average time period from deal announcement to the final termination date in transaction agreements among parties involved in significant merger investigations that concluded in the RTM ending Q3 2017 was 14.2 months, down from 15.7 months in the 12 months ending Q3 2016. The average was 14.6 months for 2017 YTD, down from 16.8 months during the same period in 2016.

Time from Announcement to Final Termination Date (Months)
Significant Antitrust Merger Investigations in 2015

Time from Announcement to Final Termination Date (Months)
Significant Antitrust Merger Investigations in 2016

Time from Announcement to Final Termination Date (Months)
Significant Antitrust Merger Investigations in 2017 YTD

Conclusion

Although the number of significant investigations has declined in 2017, the duration of significant merger investigations and subsequent litigation continues to trend upward to record levels. While the circumstances of future antitrust-sensitive transactions may lead to results above or below DAMITT averages, the latest trends suggest that parties to the hypothetical average “significant” deal would have to plan on approximately 12 months for the agencies to investigate a transaction and another seven months if they want to preserve their right to litigate an adverse agency decision. Even more time may need to be allotted going forward if the current trends toward longer investigations and litigations continue.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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