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 2017 (the "Report"). The key takeaways from the Report are:
1. Notified transactions increased by 12.0% from last fiscal year, with the number of HSR reportable transactions increasing over 50% in the past five fiscal years.
2. Merger enforcement levels were down slightly relative to previous years, with the antitrust agencies granting early termination in the vast majority (78.6%) of transactions in which early termination was requested and issuing detailed Second Requests in only a small number (2.6%) of notified transactions.
3. Similar to last year, the industries with the most notified transactions were consumer goods & services (representing 25.9% of total notified transactions), manufacturing (14.4%) and information technology(10.7%).
4. Remedies were required in most transactions where a Second Request was issued.
5. Though the number of HSR reportable transactions increased, the agencies were less active in investigating and challenging mergers compared to the previous fiscal year, with the agencies issuing 51 Second Requests, initiating 39 merger enforcement challenges, and bringing 3 actions in administrative or federal court (compared to 54 Second Requests, 47 challenges, and 8 cases brought in administrative or federal court in FY 2016).
6. The agencies brought 4 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.
Total HSR filings up 12.0%. According to the Report, in FY 2017, a total of 2,052 transactions were notified under the HSR Act. This represents a 12.0% increase from the 1,832 transactions notified during the previous fiscal year (see Figure 1 below).
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 277 out of 1,992 cases (13.9%). Clearance was granted to the FTC in 205 transactions and to the DOJ in 72 transactions. All other transactions (86.1%) completed the HSR process without either agency initiating a preliminary investigation.
Level of Second Requests remains low. Of the transactions for which one of the agencies conducted an initial investigation, 18.4% (51 out of 277) were subject to a detailed Second Request investigation; 33 Second Requests were issued by the FTC (16.1% of the FTC’s 205 investigated transactions) and 18 were issued by the DOJ (25.0% of the DOJ’s 72 investigated transactions). Compared to previous years, there was a slight decrease in the percentage of Second Requests issued out of the total number of transactions and out of transactions in which an initial investigation was initiated.
DOJ issued a higher percentage of Second Requests than FTC. The DOJ continues to investigate more cases than the FTC, issuing Second Requests in one-quarter 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 1,552 transactions and granted in 1,220 of those transactions, a percentage (78.6%) that has remained relatively stable over the years.
Decline in merger challenges. A total of 39 merger enforcement actions were brought in FY 2017—21 by the FTC and 18 by the DOJ. By comparison in FY 2016, 47 merger enforcement actions were brought, 22 by the FTC and 25 by the DOJ. 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.
Decrease in merger litigation. During FY 2017, the FTC and DOJ filed litigation in administrative or federal court to challenge 3 problematic mergers. This represents a significant decrease in the level of merger litigation compared to FY 2016, in which the agencies filed litigation in administrative or federal court with respect to 8 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.
1 Fiscal year 2017 covers the period of October 1, 2016 through September 30, 2017.
2 Based on the industry group of the acquired entity.
3 Of the total number (2,052) of notified transactions, 1,992 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 (1) the parties settled with the agencies, (2) the transaction was abandoned or restructured due to concerns raised during the investigation and (3) the agencies filed a complaint in federal court or initiated an administrative proceeding.
5 The FY 2017 merger enforcement actions identified in the Report include non-reportable transactions..
