The U.S. Federal Trade Commission (“FTC”) and the U.S. Department of Justice’s Antitrust Division (“DOJ”) recently issued their Hart-Scott-Rodino Annual Report for Fiscal Year 2016 (the “Report”).1 The key takeaways from the Report are:
1. Notified transactions were up slightly by 1.7% from last fiscal year, reflecting the steady rise in M&A activity.
2. Merger enforcement levels remain steady relative to previous years, with the antitrust agencies granting early termination in the vast majority (80.2%) of transactions in which early termination was requested and issuing detailed Second Requests in only a small number (3.0%) of notified transactions.
3. The industries with the most notified transactions were consumer goods & services (representing 29.3% of total notified transactions), manufacturing (13.6%) and information technology (10.3%).2
4. Remedies were required in most transactions where a Second Request was issued.
5. The agencies were more active in investigating and challenging mergers compared to the previous fiscal year, with the agencies issuing 54 Second Requests, initiating 47 merger enforcement challenges, and bringing 9 actions in federal court (compared to 47 Second Requests, 42 challenges, and 5 cases brought in federal court in FY 2015).
6. The agencies brought 3 civil enforcement actions for violations of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), reflecting the agencies’ continued focus on HSR compliance.
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Total HSR filings up nearly 2%
According to the Report, in FY 2016, a total of 1,832 transactions were notified under the HSR Act. This represents a 1.7% increase from the 1,801 transactions notified during the previous fiscal year (see Figure 1 below).
Figure 1: HSR Merger Transactions Reported and Percentage of Transactions Resulting in Second Requests
More than 86% of transactions received no further scrutiny from the antitrust agencies
Through a process known as “clearance,” representatives of both the FTC and DOJ meet to assign transactions raising potential competition concerns to either agency for the purpose of conducting an initial investigation. Clearance to conduct an initial investigation was granted to the FTC or DOJ in only 238 out of 1,772 cases (13.4%).3 Clearance was granted to the FTC in 176 transactions and to the DOJ in 62 transactions. All other transactions (86.6%) completed the HSR process without either agency initiating a preliminary investigation. These figures are largely comparable to the percentages from FY 2015.
Level of Second Requests remains low
Of the transactions for which one of the agencies conducted an initial investigation, 22.7% (54 out of 238) were subject to a detailed Second Request investigation; 25 Second Requests were issued by the FTC (14.2% of the FTC’s 176 investigated transactions) and 29 were issued by the DOJ (46.8% of the DOJ’s 62 investigated transactions). The overall percentage of Second Requests issued each year out of the total number of transactions has remained relatively constant.
DOJ issued more Second Requests than FTC
The DOJ continues to investigate more cases than the FTC, issuing Second Requests in nearly half of the transactions in which it opened a preliminary investigation.
Majority of early termination requests are granted
Early termination of the HSR waiting period was requested in a total of 1,374 transactions and granted in 1,102 of those transactions, a percentage (80.2%) that has remained relatively stable over the years.
Uptick in merger challenges
A total of 47 merger enforcement actions4 were brought in FY 2016—22 by the FTC and 25 by the DOJ. By comparison in FY 2015, 42 merger enforcement actions were brought—22 by the FTC and 20 by the DOJ.5 As in prior years, most enforcement actions are resolved through consent decrees where the parties agree to divestitures and other remedies as a condition of clearance.
Increase in merger litigation
During FY 2016, the FTC and DOJ filed 9 preliminary or permanent injunction actions in federal court to prevent problematic mergers. This represents a significant increase in the level of merger litigation compared to FY 2015, in which the agencies sought to enjoin 5 transactions.
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About the HSR Act
The HSR Act requires parties to certain mergers and acquisitions to file a notification with the FTC and DOJ prior to consummating the proposed transaction. Upon filing, a 30-day waiting period (15 days in the case of a cash tender offer or bankruptcy sale) begins during which the parties may not close the transaction. During this window, the antitrust agencies assess whether the transaction is likely to have any anticompetitive effects. If deemed necessary, the FTC and DOJ are authorized to extend the waiting period by issuing a Second Request for additional information and documents. If after the Second Request review there are still concerns at the agencies, the FTC or DOJ may seek a consent order from the parties or bring a court action challenging the merger.
Footnotes
1. Fiscal year 2016 covers the period of October 1, 2015 through September 30, 2016.
2. Based on the industry group of the acquired entity.
3. Of the total number (1,832) of notified transactions, 1,772 were subject to HSR review. Notified transactions that are not subject to HSR review include: (i) incomplete notifications, (ii) exempt transactions (e.g., which are reviewable by another federal agency but are still subject to filing with the FTC and DOJ), (iii) non-reportable transactions and (iv) withdrawn transactions.
4. Enforcement actions brought by the agencies include instances where (i) the parties settled with the agencies, (ii) the transaction was abandoned or restructured due to concerns raised during the investigation and (iii) the agencies filed a complaint in federal court or initiated an administrative proceeding.
5. The FY 2016 merger enforcement actions identified in the Report include non-reportable transactions.
