On February 4, 2021, the Federal Trade Commission (FTC) announced the temporary suspension of grants of early termination of the 30-day waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act). Until further notice, all deals will now require the full 30-day review period. The announcement, coupled with the transition to a new administration and proposed legislative reform to the antitrust laws, might foreshadow significant changes to merger review on the horizon.
The FTC’s announcement, with support from the Antitrust Division of the U.S. Department of Justice (DOJ), cited three reasons for the suspension: (1) an unprecedented volume of filings; (2) ;the ongoing COVID-19 pandemic; and (3) the transition to a new administration. In the announcement, Rebecca Slaughter, Acting Chairwoman of the FTC, stated that “[w]e, as an agency and a country, are in unprecedented times” and “[g]iven the confluence of an historically unprecedented volume of filings during a leadership transition amid a pandemic, we will presume we need [the full] 30 days to ensure we are doing right by competition and consumers.” The FTC indicated that it anticipates that the suspension will be brief. During the suspension, the FTC and DOJ will review the processes and procedures used to grant early termination under the HSR Act.
None of the three factors cited by the FTC, standing alone, has previously led to suspension of early termination for an extended period. The FTC last suspended early termination in early 2020 while it implemented a temporary e-filing system in response to unprecedented office closures and remote-work disruptions in the early days of the COVID-19 pandemic. The practice was reinstated, albeit on a more limited basis, within two weeks. There was no noticeable interruption in ET grants during the last change in Administration, when early termination was granted the day before the inauguration and again soon thereafter. With respect to deal volume, last fall, there was a significant increase in HSR filings, from 233 in October to 424 in November, representing the highest monthly total in the last 20 years. Despite the high volume of transactions, the agencies continued business as usual, including granting early termination.
The unprecedented nature of the FTC’s announcement was highlighted in a dissenting statement issued by FTC Commissioners Noah Phillips and Christine Wilson. In the statement, the Commissioners stated that that they saw “no rationale sufficient to justify suspending all grants of early termination,” noting that early termination has been available during periods of robust M&A activity and that “in more than four decades of HSR Act review, the Agencies have never suspended early termination because of leadership transitions or increased merger filings,” including after 9/11. They further noted that, during a period of economic hardship, suspending early termination would disproportionately slow the majority of deals that present no competition concerns whatsoever.
The FTC’s announcement coincides with the February 4 unveiling of the Competition and Antitrust Law Enforcement Reform Act, a bill introduced by Senator Amy Klobuchar that proposes sweeping reforms to merger enforcement. Notably, the proposed legislation would shift the burden of proof that the merger would not result in a lessening of competition onto the merger parties and identifies certain categories of transactions that would presumptively pose such a risk, including transactions involving a party with 50% or more market share, acquisitions of “disruptive firms” by competitors, and transactions valued at $5 billion or more.
These developments collectively suggest that there could be significant changes to merger review in the near future. In this regard, the FTC’s intention to review early termination “processes and procedures” could signal a “pause” to allow time for the agencies to consider the direction of enforcement and onboard new leadership. Since January 15, just before the transition to a new administration, only one transaction has received early termination – the acquisition of a COVID‑19 test maker. From a practical standpoint, the suspension of early termination will extend the review for a large category of competitively benign, reportable transactions that were previously eligible. In FY19, parties requested early termination in approximately 75% of filed transactions, and ET was granted in roughly 73% of all cases.
In light of these developments, companies contemplating transactions, including those that have minimal or no competitive overlaps, should assume a minimum 30-day review period in projecting deal timetables and negotiating agreements. While the FTC anticipates that the suspension will be brief, it is not clear how long the moratorium will last, and companies should plan accordingly.
More generally, companies should continue to track HSR developments to the extent they may shed light on broader antitrust enforcement trends.