How could the government shutdown affect your M&A transactions?  Understand the ramifications of the shutdown through the lens of antitrust, securities and exchange commission, CFIUS, export controls and economic sanctions and FCC and government contracts.

Antitrust Implications

• HSR filings are continuing to be accepted. However, no early terminations are being granted.
• Transactions that raise antitrust questions/issues will face delay. The FTC and DOJ are operating on a triage basis – only essential staff are working/not furloughed – and staff is only being devoted to matters where there is a time constraint.
• Initial HSR filings that raise questions are more likely to receive a Second Request or require a pull/refile.
• Second Request reviews will take longer.
• After a Second Request is issued, the antitrust agencies will not be negotiating the scope of the request.
• Ongoing Second Requests will be governed by existing timing
  If the government is required to act per the terms of the timing agreement, it will direct staff to that matter. Otherwise, parties should expect delay.

Securities and Exchange Commission

• The SEC is not reviewing registration statements.
• Traditionally, all merger Form S-4s for stock deals have included a legend delaying effectiveness until the SEC declares the registration statement effective.
• It is technically possible to remove the legend and have a Form S-4 go effective automatically after 20 days, and we have seen some companies take this approach.
• For cash deals (i.e., public company being acquired for cash), all that is required is a proxy statement. If the proxy statement is not reviewed after 10 days, then a company can mail and assume no review – this could present a timing advantage to companies proceeding on that basis.
• Tender offers for public companies are subject to review throughout the tender period – accordingly, a company could end up having to extend the offer if the SEC comes back during the 20-business day period and issues comments.
• Financing for M&A transactions should largely be unaffected.
  • A WKSI can complete debt or equity financings on a registered basis with no impact.
  • For companies that already have effective shelf registration statements, the shutdown will not have an impact.
  • For companies without a shelf registration statement, the Rule 144A market should be readily available for note financings.
  • Equity offerings could be more complex, though they are unusual for non-WKSIs to use to finance an M&A transaction.

CFIUS, Export Controls and Economic Sanctions

• The statutory deadlines for all in-process CFIUS reviews of pending transactions are tolled until the shutdown ends.
• CFIUS theoretically is allowing parties to submit draft filings for CFIUS review and comment, but:
  • there is only a skeleton staff to review them, and
  • even if CFIUS provides comments to the draft filings that parties then address and resubmit as a final filing, CFIUS does not appear to be formally “accepting” those filings because it cannot start the statutory review period.
• CFIUS is already prone to delays. For voluntary notices, more parties may decide to forego filing those transactions while the government is shut down; however, CFIUS now requires parties to notify the Committee of certain foreign investments in U.S. “critical technology” businesses, but CFIUS is unlikely to “accept” those mandatory filings except in time-sensitive or national emergency situations (e.g., the 2018 proposed Broadcom takeover of Qualcomm).
• If parties need approval from the Department of Commerce’s Bureau of Industry and Security, the Department of State’s Directorate of Defense Trade Controls, or the Department of the Treasury’s Office of Foreign Assets Control to undertake an investment, to close an acquisition (e.g., the State Department must approve foreign acquisitions of U.S. targets that produce defense articles or data), or to transfer export licenses as the result of a merger or acquisition, those processes have almost completely ground to a halt.
• Online systems for these agencies may appear to be functional, but it is unclear whether agency staff are reviewing electronic submissions. In addition, certain agency filing processes are analog, and agencies may return hard copy filings because the employees who would receive and sign in the packages are furloughed.

FCC AND Government Contracts

• Licenses issued by the FCC cannot be issued or transferred during the shutdown, likely hindering TMT transactions.
• Firms with existing government contracts may not be able to transfer those agreements if the relevant agency is shut down, thereby complicating Business Services or Aerospace/Defense transactions.