On August 3, 2021, the US Federal Trade Commission (FTC) issued a blog post stating that it now is issuing letters to some parties that the FTC may continue to investigate a transaction even after the close of the HSR Act1 waiting period.2 Pursuant to the HSR Act, parties to deals over certain dollar thresholds must notify such transactions to the FTC and Antitrust Division of the US Department of Justice (DOJ), pay a filing fee and observe a 30-day waiting period prior to consummation.3 The blog post reports that the FTC is issuing these letters only for investigations that, due to capacity and resource constraints, it cannot complete prior to the waiting period expiration. The post, and the attached sample “Pre-consummation Warning Letter,”4 goes on to warn that closing a deal is at the parties’ own risk and that the FTC may challenge a deal, both pre- and post-consummation if the transaction raises antitrust issues.
Despite the FTC’s promise of “aggressive enforcement” and that any “inaction by the Commission should not be construed as a determination regarding lawfulness,” the FTC always has had the right to investigate transactions post-closing,5 although, absent new facts, the risk of a post-consummation investigation or challenge is rare.6 Expiration of the HSR Act waiting period simply is simply that—the end of a statutory time period that removes a legal prohibition against consummation, not an immediate grant of approval or permanent clearance for a transaction.7 The blog post and issuance of warning letters do not, in fact, change the regulatory state-of-play. At best, the post/letter signal ratcheted-up merger enforcement, but all signs have been pointing in that direction for weeks, if not months, since the Biden administration took office. The warning letter does hint at a broadening of the FTC’s views on potential theories of harm by reminding parties that the FTC may challenge deals that “threaten to reduce competition and harm consumers, workers, and honest businesses.”8 Adding in harm to both “workers and honest businesses” implies that the FTC may be considering more ways that transactions can have an adverse impact other than just harm to competition and consumers.9
Together with the FTC’s decision earlier this year to suspend granting early termination of the HSR waiting period,10 the blog post could be viewed as an attempt to modify the temporal framework of the HSR Act. For example, Commissioner Wilson expressed concern that the “HSR framework is suffering a death by a thousand cuts.”11 Prior to February 2021, 75 percent of transactions could be reviewed well within the 30-day window.12 When the early termination suspension was implemented, the FTC asserted that it needed that entire 30-day period to review deals.13 Commissioner Wilson interpreted the blog post/warning letters as an effort to “keep merger investigations open indefinitely,” arguing that “[f]or the HSR Act to retain meaning,” the FTC cannot change the HSR rules “as a matter of routine, every time there is a surge in filings.”14 Commissioner Phillips further cautioned that issuing the warning letters, and effectively expanding the 30-day framework, could be “intended to chill legal M&A across the board,” which concerned him particularly where there was no reason “to conclude that the transaction [was] illegal.”15
As with the February 2021 suspension of the early termination process,16 the FTC blamed the need for these letters on the recent “tidal wave” of filings that is “straining the [FTC’s] capacity to rigorously investigate deals ahead of statutory deadlines.”17 Through the end of July 2021, more than 2,900 transactions were reported to the FTC.18 It is not clear, however, whether these record-breaking HSR filing numbers have led (or will lead) to more deals being investigated. Historically, only about 13 percent of all deals reported are investigated in some fashion, and roughly 3 percent of all deals reported receive a more thorough, substantive review through the issuance of a Second Request.19 Even if more deals are being reported, for the majority of transactions, the HSR process is purely administrative, raising no antitrust concerns, and, theoretically, uses few, if any, agency resources.20
Whether these letters will undermine seriously the HSR Act review framework, which is intended to provide merging parties with a degree of certainty regarding whether they can proceed with their transaction, or are really much ado about nothing, the issuance of the letters may have implications for deals that potentially raise antitrust issues. First, consider drafting closing conditions that are tied to specific events that are required statutorily to occur, such as the expiration or termination of the HSR waiting period, instead of conditions that are based on actions of government officials that may not have an end date (i.e., threatened or pending investigations identified in warning letters). Second, if a buyer anticipates that a deal may raise antitrust concerns, it should consider including a provision in the deal documents that it controls the antitrust strategy and response (if any) to such warning letters.
Of course, whether to proceed to closing after receiving such a warning letter is a fact-specific assessment that is based on multiple criteria, including the underlying antitrust issues and strength (or weakness) thereof and risk tolerance. But, once the HSR waiting period has expired, there is no legal prohibition to closing the deal, whether or not a letter has been issued.
2 See Holly Vedova, “Adjusting merger review to deal with the surge in merger filings,” FTC Blog Post, Aug. 3, 2021, https://www.ftc.gov/news-events/blogs/competition-matters/2021/08/adjusting-merger-review-deal-surge-merger-filings (hereinafter “FTC Blog Post”).
3 While transactions are submitted to both agencies for review, historically only one agency will investigate a transaction if it raises substantive antitrust concerns. For now, the DOJ has not indicated that it is issuing similar letters.
4 See “Sample Pre-Consummation Warning Letter,” https://www.ftc.gov/system/files/attachments/blog_posts/Adjusting%20merger%20review%20to%20deal%20with%20the%20surge%20in%20merger%20filings/sample_pre-consummation_warning_letter.pdf.
5 See e.g., Press Release, “FTC Challenges Consummated Merger of Companies that Market Body-Worn Camera Systems to Large Metropolitan Police Departments,” Jan. 3, 2020, https://www.ftc.gov/news-events/press-releases/2020/01/ftc-challenges-consummated-merger-companies-market-body-worn.
6 See D. McLaughlin, “Ventilator Maker’s 2012 Merger Spurs Query from FTC Official,” Mar. 30, 2020,
Bloomberg, https://www.bloomberg.com/news/articles/2020-03-30/covidien-ventilator-merger-needs-new-look-ftc-official-says (quoting Commissioner Rebecca Kelly Slaughter, who stated: “When we get new information that causes us to question our original analysis, then we should absolutely go back and take a second look to find out whether there’s something we should have done differently or better”).
9 See, e.g., Jessica Maurer, “The Department of Justice Antitrust Division Targets Collusion in Labor Markets,” https://www.mayerbrown.com/en/perspectives-events/publications/2021/01/the-department-of-justice-antitrust-division-targets-collusion-in-labor-markets.
10 See “FTC, DOJ Temporarily Suspend Discretionary Practice of Early Termination,” Feb. 4, 2021, https://www.ftc.gov/news-events/press-releases/2021/02/ftc-doj-temporarily-suspend-discretionary-practice-early.
11 See M. Perlman, “FTC Warning Cos. About Unfinished Merger Reviews,” Aug. 3, 2021, Law 360, https://www.law360.com/competition/articles/1409467/ftc-warning-cos-about-unfinished-merger-reviews. Former Commissioner Joshua Wright also lamented the potential demise of the HSR framework, quipping: “RIP: HSR era of merger review. 1976-2021.” @ProfWrightGMU, Aug. 3, 2021.
15 A. Kelly, “U.S. antitrust enforcer says merger wave means slower vetting,” Aug. 3, 2021, Reuters, https://www.reuters.com/business/us-antitrust-enforcer-says-merger-wave-means-slower-vetting-2021-08-03/#:~:text=WASHINGTON%2C%20Aug%203%20(Reuters),the%20FTC%20said%20on%20Tuesday. Commissioner Wilson also warned about the impact on the business community, stating: “With rare exception, businesses that faithfully comply with the HSR process should not be trapped perpetually beneath a Sword of Damocles. Such a policy would not serve consumers or competition.” @CSWilsonFTC, Aug. 5, 2021.
16 Prior to February 2021, parties could ask for early termination of the HSR Act waiting period, which typically would shorten the 30-day calendar period to between 14-20 calendar days. See M. McCoy & W. Stallings, “FTC and DOJ Suspend Grant of Early Termination for Merger Control Filings: Sign of the Times or Sign of Trouble?” Feb. 5, 2021, https://www.mayerbrown.com/en/perspectives-events/publications/2021/02/ftc-and-doj-suspend-grant-of-early-termination-for-merger-control-filings-sign-of-the-times-or-sign-of-trouble (hereinafter “McCoy & Stallings Legal Update”).
17 FTC Blog Post, n. 1; see also L. Khan, “Transforming the FTC: Legislation to Modernize Consumer Protection,” Testimony Before the House Energy and Commerce Committee, July 28, 2021, https://www.ftc.gov/system/files/documents/public_statements/1592934/p994811commissiontestimonytransformingftc.pdf (stating that the FTC “currently is facing extremely severe resource constraints” and that “[g]lobal mergers and acquisitions have soared to new records, putting heavy stress on our ability to effectively investigate and challenge unlawful transactions”).
18 See Table titled “HSR Transactions by Month,” “Premerger Notification Program,” https://www.ftc.gov/enforcement/premerger-notification-program.
19 See “Hart-Scott-Rodino Annual Report,” FY 2019, at Table III and Figure 2, https://www.ftc.gov/system/files/documents/reports/federal-trade-commission-bureau-competition-department-justice-antitrust-division-hart-scott-rodino/p110014hsrannualreportfy2019.pdf. While in FY2019, only 11.7 percent of transactions received an initial investigation, in prior years, this percentage ranged slightly higher. See, e.g., “Hart-Scott-Rodino Annual Report,” FY 2016, at Table III, https://www.ftc.gov/system/files/documents/reports/federal-trade-commission-bureau-competition-department-justice-antitrust-division-hart-scott-rodino/p110014hsrannualreportfy2019.pdf.