The Federal Trade Commission (FTC) announced a new temporary suspension of grants of early termination for Hart-Scott-Rodino (HSR) waiting periods, effective February 4, 2021, while the FTC and the Department of Justice Antitrust Division (DOJ) review the “processes and procedures” used in granting early terminations. In announcing its decision to suspend early terminations, the FTC cited the unprecedented volume of premerger notification filings coinciding with the transition to the new Biden administration amid the ongoing pandemic.
The HSR Premerger Notification Program requires companies to report certain proposed mergers, acquisitions and other large transactions to the FTC and the DOJ before they are consummated, to give the agencies the opportunity to review and, if necessary, challenge those deals that have the possibility to substantially lessen competition in the marketplace. During the agencies’ preliminary review period, the parties typically must wait 30 days (or 15 days in the case of a cash tender or bankruptcy transaction) before closing their deal. However, under usual circumstances, a filing party may request the termination of the applicable waiting period before its end. A request for “early termination” can be granted only after all parties have made their required HSR filings, and both the FTC and the DOJ have completed their review and determined neither will extend its review. According to the FTC and DOJ’s most recently published HSR Annual Report for deals that occurred during the 2019 fiscal year, early termination was requested in 74.2% of reported transactions, and of those requests, 73.4% were granted.
Speaking about the temporary suspension of granting early terminations, Rebecca Kelly Slaughter, acting chairwoman of the Federal Trade Commission, stated: “The law provides 30 days for the agencies to review the competitive implications of transactions. Given the confluence of an historically unprecedented volume of filings during a leadership transition amid a pandemic, we will presume we need those 30 days to ensure we are doing right by competition and consumers.”
News of the suspension is likely to cause frustration among parties engaged in negotiating a deal with no competitive concerns, as many of them would typically seek — and be granted — early termination. Nevertheless, Acting Chair Slaughter subsequently tweeted a reminder of the discretionary nature of the early termination practice: “As the FTC has made clear for years: parties are not entitled to early termination of the HSR Act’s required waiting periods. Under the law ET may be granted at any time during the waiting period, or not at all.”
Early termination was previously suspended on March 13, 2020, to allow the Premerger Notification Office to implement its new e-filing system. Although that suspension was expected to be in effect through the end of April 2020, it was lifted on March 27, 2020. The FTC and the DOJ anticipate that the current suspension will be brief, although no timeline has been announced.
The early termination suspension follows the February 2, 2021, announcement of adjusted HSR thresholds, which decreased for the first time since 2010 due to reductions in gross national product (GNP) in the wake of the global pandemic.
At the same time those adjusted HSR thresholds were announced, the FTC also announced reduced thresholds for interlocking directorates under Section 8 of the Clayton Act. Like the HSR Act, Section 8 requires the FTC to adjust the applicable thresholds annually based on changes to GNP.
Section 8 generally prohibits an individual from simultaneously serving as an officer or director of two competing corporations if each corporation has capital, surplus and undivided profits of more than $37,382,000 (down from $38,204,000). However, Section 8 provides for several exceptions where competitive overlaps are “too small to have competitive significance.”
For example, the parties will not violate Section 8 where (1) the competing sales of either corporation are less than $3,738,200 (down from $3,820,400); (2) the competitive sales of either corporation are less than 2% of the corporation’s total sales; or (3) the competing sales of each corporation are less than 4% of the corporation’s total sales. The revised thresholds are effective as of January 21, 2021.
Failure to comply with the premerger notification requirements and the antitrust laws may have serious consequences for businesses and individuals. Businesses should consult with antitrust counsel if they have any questions or concerns about how these new announcements will impact their legal obligations.