SECTION 1: Overview
1.1 Please provide a brief overview of your jurisdiction's
merger control legislative and regulatory framework.
Section 7 of the Clayton Act sets forth the substantive
legal standard under which mergers and acquisitions that affect
US commerce are reviewed. Section 7 prohibits mergers and
acquisitions where the effect of such transaction 'may be
substantially to lessen competition, or tend to create a
monopoly'. The Hart-Scott-Rodino Antitrust Improvements Act of
1976 (HSR Act) and the rules promulgated under the HSR Act
provide the procedural framework for the US merger control
regime, including the requirements and thresholds for
pre-merger notifications. A third statute, Section 5 of the
Federal Trade Commission Act, grants the Federal Trade
Commission (FTC) the authority to challenge transactions that
will constitute an 'unfair method[s] of competition'. The
Sherman Act may also be applicable to merger transactions, and
each of the individual states has its own respective antitrust
laws. However, enforcement under these statutes is far less
common than under the Clayton Act and FTC Act.
The two federal antitrust enforcement agencies with primary
responsibility for enforcing the federal antitrust laws are the
Antitrust Division of the Department of Justice (DOJ) and the
FTC. The FTC and DOJ have concurrent jurisdiction, meaning that
either agency has the authority to review transactions subject
to the federal antitrust laws. However, both agencies cannot
review the same transaction, so that in practice, the agencies
will decide between them whether the FTC or DOJ will review a
particular transaction, typically based on prior industry
experience. In addition, individual state attorneys general may
have jurisdiction to enforce both federal and state antitrust
laws. Private parties also have the right to bring enforcement
actions seeking to block mergers if they can demonstrate injury
under the antitrust laws.
1.2 What have been the key recent trends and developments
in merger control?
US merger enforcement has been extremely active,
particularly over the past decade when antitrust leadership
under the Obama administration brought an unprecedented number
of merger challenges. Under Obama, the DOJ and FTC remained
focused predominantly on horizontal mergers –
consolidation between two firms that compete directly in the
same competitive space – and were particularly
sceptical of mergers between competitors selling products to
customers with specialised needs. For example, in 2015, the FTC
blocked Sysco/US Foods on the grounds that it would
have combined the only two broadline foodservice distributors
equipped to serve large national customers. Similarly, in 2016,
the FTC successfully challenged Staples/Office Depot
on the basis that it would significantly reduce competition in
the market for the sale and distribution of consumable office
supplies to large business customers in the US. And while
merger enforcement occurred across a variety of industries, the
healthcare industry has been a major focus of US merger
enforcement in recent years. The agencies challenged several
proposed transactions involving hospitals, pharmaceuticals, and
health services and insurance providers, including proposed
mergers between Aetna/Humana and
Anthem/Cigna.
1.3 Briefly, what is your outlook for merger control and
antitrust over the next 12 months, including any foreseeable
legislative reform/revisions?
Recent nominations and appointments by the Trump
administration may suggest that merger enforcement in the Trump
administration will follow a mainstream Republican antitrust
policy, which has tended to be less interventionist than
Democratic administrations. However, there are signals that
merger enforcement will be more active under the Trump
administration than under past Republican administrations. US
regulators recently challenged AT&T/Time Warner,
despite the fact that the government has not attempted to block
a vertical merger in decades. And though challenges to
transactions that have received HSR clearance are extremely
rare, US enforcers also sued to unwind Parker-Hannifin's
acquisition of Clarcor, a deal that previously received HSR
clearance. Both actions suggest that the Trump administration
is unlikely to be lax in its merger enforcement.
Consistent with the agencies' broader focus on health care,
transactions involving insurance, hospitals, pharmaceuticals
and medical devices will likely continue to be area of active
merger enforcement. Further, authorities will continue to see
fines in cases where parties fail to satisfy HSR reporting
requirements, irrespective of any substantive antitrust
issues.
SECTION 2: Jurisdiction
2.1 What types of mergers and transactions are caught by
the rules? What constitutes a merger and how is the concept of
control defined?
The HSR Act requires parties to certain mergers and
acquisitions to submit a notification and wait a specified
period of time before closing the transaction. The HSR Act
applies to transactions involving the acquisition of assets,
voting securities, or non-corporate interests (NCIs). The Act
typically applies to transactions effecting a transfer of
control or merger of two distinct entities, but the Act can
apply regardless of whether the transaction involves the
transfer of control, confers a majority or minority interest,
creates a joint venture (JV), or constitutes a complete merger
of two entities. However, acquisitions of a minority interest
in a non-corporate entity are not subject to the HSR Act's
filing requirements.
2.2 What are the jurisdictional thresholds for
notification? Can the authorities investigate a merger falling
below these thresholds?
The HSR Act sets forth three tests for determining whether a
transaction is required to be notified to the FTC and DOJ: the
size-of-transaction test, the size-of-person test, and the
commerce test. The FTC adjusts the original dollar thresholds
of the HSR Act annually to reflect changes in the gross
national product. Under the current dollar thresholds effective
February 27 2017, merging parties must file notice of a
proposed transaction if, as a result of the transaction: (1) at
least one of the merging parties is engaged in an activity
affecting US commerce; (2) the size of the transaction is
valued at more than $80.8 million; and (3) if the transaction
is valued between $80.8 million and $323 million, one of the
parties had sales or assets of at least $161.5 million in its
most recent fiscal year and the other party had sales or assets
of at least $16.2 million. The size-of-person test does not
apply if the transaction is valued in excess of $323
million.
The HSR Act is a procedural statute and even if a
transaction is not reportable under the HSR Act, Section 7 of
the Clayton Act makes clear that the DOJ and FTC may still
investigate and challenge transactions falling outside these
thresholds. There is no statute of limitations on the agencies'
ability to investigate a transaction. Indeed, in Parker
Hanifan/Clarcor, the DOJ challenged the proposed
transaction even though the 30-day HSR waiting period had
elapsed.
2.3 Are foreign-to-foreign transactions caught by the
rules? Is a local effect required to give the authority
jurisdiction to review it?
As a general rule, the HSR Act applies to transactions
between non-US parties, but only when the assets or business
being acquired has a sufficient nexus with the United States.
An acquisition of assets located outside the United States is
exempt unless those assets generated net annual US sales of
$80.8 million (as adjusted) in the most recent year. Likewise,
acquisition of a non-US company will be exempt unless the
acquired entity has $80.8 million (as adjusted) in assets
located in the United States, or had most recent annual net
sales of in excess of $80.8 million (as adjusted). Importantly,
even for non-US companies with sales or assets exceeding the
asset or sales exemption thresholds, a filing is not required
unless the contemplated acquisition would confer control of the
acquired entity, meaning acquisition of 50% or more of the
voting securities of a corporation, or of an equity stake in a
non-corporate entity entitling it to 50% or more of the
entity's profits, or 50% of its assets upon dissolution.
SECTION 3: Notification
3.1 When the jurisdictional thresholds are met, is a filing
mandatory or voluntary? What are the risks/sanctions for
failing to notify a transaction and closing prior to
clearance?
If a transaction meets the HSR thresholds and no exemption
applies, then the parties to the transaction must file and may
not close until the statutory waiting period expires or is
terminated. There are no exceptions to this suspensive effect.
Parties who fail to comply with the reporting requirements, or
who fail to observe the mandatory waiting period, are subject
to civil penalties of up to $40,000 per day. The DOJ and FTC
actively monitor public sources for unreported transactions and
will take action against parties for noncompliance when
warranted. The agencies typically bring one to two enforcement
actions per year against noncomplying parties.
3.2 Who is responsible for filing? Do filing fees
apply?
If a proposed transaction meets the HSR thresholds, all
parties to the transaction must make an HSR filing. The HSR Act
provides that all acquiring persons must pay a filing fee with
the antitrust agencies. The fee is based on the filing fee
threshold that is in effect at the time of filing, and the
current (2017) fee thresholds are as follows: $45,000 for
transactions valued between $80.8 million and $161.5 million,
$125,000 for transactions valued between $161.5 million and
$807.5 million and $280,000 for transactions valued at $807.5
million or greater.
3.3 Is there a deadline for filing? What are the filing
requirements and how onerous are they?
There is no filing deadline for filing a pre-merger
notification under the HSR Act. However, if a proposed
transaction meets the HSR thresholds, then the merging parties
cannot consummate the transaction until after they have filed
and the applicable waiting period has expired or been
terminated. The requirements for filing under the HSR Act are
generally less onerous than the requirements in other
jurisdictions, but include the parties' identities and the
transaction's structure, the transaction agreement, financial
data and other similar information, documents prepared for
evaluating and analysing the proposed transaction, revenues the
parties derive from sales in or into the US, and geographic
sales information in certain cases.
3.4 Are pre-notification contacts available, encouraged or
required? How long does this process take and what steps does
it involve?
In some cases, it may be advisable to initiate
pre-notification contacts with the DOJ or FTC. This is
particularly true for transactions raising complex or difficult
competition issues. Such contacts may help avoid an in-depth
investigation or at least narrow the scope of such an
investigation. The DOJ and FTC often welcome early engagement
because, among other things, it gives the authorities more time
to review the transaction. Early engagement can vary in length
and is usually accomplished informally, through contact with
DOJ and FTC officials.
SECTION 4: Review processes and timetables
4.1 What is the standard statutory timetable for clearance
and is there a fast-track procedure? Can the authority extend
or delay this process? What are the different steps and phases
of the review process?
For most transactions, the initial waiting period lasts 30
days, unless the parties ask for and are granted early
termination. For cash tender offers and certain bankruptcy
transactions, the initial waiting period is 15 days. The
transacting parties are free to complete the proposed
transaction if they do not receive a request for additional
information from the US antitrust agencies before the end of
the waiting period, or upon the grant of early termination.
The US antitrust agencies can extend the initial waiting
period by issuing a request for additional information and
documentary material (a Second Request). For most transactions,
a Second Request extends the waiting period for 30 days after
substantial compliance with the Second Request by all the
parties. For cash tender offers and certain bankruptcy
transactions, a Second Request extends the waiting period for
just 10 days after substantial compliance with the Second
Request by the acquirer. Once the parties substantially comply
with the Second Request, the agency reviewing the proposed
transaction can allow the parties to close the transaction,
seek an order enjoining the transaction, or enter into a
negotiated consent agreement with the parties.
There is no formal fast-track or short form review process
under the HSR Act. However, as discussed above, some types of
transactions (cash tender offers and certain bankruptcy
transactions) have shorter HSR waiting periods. Further,
merging parties may request early termination of the waiting
periods. The reviewing agency has full discretion to grant or
deny the parties' request for early termination.
4.2 What is the substantive test for clearance? What are
the theories of harm the authorities will investigate? To what
extent does the authority consider efficiencies arguments?
The substantive test for merger clearance is set forth in
Section 7 of the Clayton Act, which prohibits mergers,
acquisitions, and the formation of a joint venture or transfer
of a joint venture interest where the effect of such
transaction 'may be substantially to lessen competition, or
tend to create a monopoly'. The DOJ and the FTC have developed
specific guidelines and a detailed analytical framework for
evaluating mergers under Section 7. The analytical framework in
the guidelines considers the following factors in evaluating
the competitive impact of a proposed transaction: (1) the
extent to which the transaction increases market concentration;
(2) the extent to which the transaction will eliminate direct
competition between the parties; (3) the extent to which the
transaction will encourage coordinated interaction in the
market; (4) whether entry into the market would deter or
counteract any anticompetitive effect otherwise likely to
result from the transaction; and (5) the extent the which the
transaction will produce merger-specific, verifiable and
quantifiable efficiencies that do not arise from
anticompetitive reductions in output or service.
4.3 Are remedies available to address competition concerns?
What are the conditions and timing issues applicable to
remedies?
Merging parties often resolve merger-related competition
concerns through a negotiated consent decree with the reviewing
agency. These remedy negotiations typically begin after the
merging parties have complied with the Second Request. However,
the parties sometimes begin these discussions at the outset of
an agency investigation when the antitrust issues are
obvious.
There are two types of merger remedies: remedies that
address the structure of the post-transaction market, and
remedies that address the behaviour of the post-merger entity.
The most common structural remedy is divestiture of certain
assets or lines of business. The agencies will generally insist
upon a divestiture remedy if the proposed merger creates
horizontal competition issues. The agencies typically require a
behavioural remedy only when the merger creates vertical
concerns. For certain horizontal mergers that raise heightened
antitrust concerns, the antitrust agencies may pursue both a
divestiture of business assets and a behavioural remedy.
If the merging parties and the reviewing agency agree to a
remedy, the settlement will be memorialised in a formal consent
decree. For transactions reviewed by the FTC, settlements are
not valid until they are made publicly available for 30 days
and are ratified by the Commission. Consent decrees in cases
brought by the DOJ must receive approval from a federal
district court in order to be valid. Courts will approve the
consent decree if it finds the settlement to be in the public
interest. If the DOJ or FTC identify an antitrust issue and are
unable to reach a settlement with the merging parties, the
agencies can attempt to challenge the transaction through
litigation.
SECTION 5: Judicial review
5.1 Please describe the parties' ability to appeal merger
control decisions and the time-limits applicable. What is the
typical time-frame for appeals?
While the US antitrust agencies have the authority to review
proposed merger transactions, they do not have the ability to
prohibit the closing of a proposed transaction. Instead, the
DOJ or FTC must affirmatively bring a litigation action against
the merging parties, typically a motion for preliminary
injunction before a federal district court. If the agency
obtains an injunction, then the parties can appeal to the
appropriate federal circuit court of appeals. However, this
appeal process can be lengthy. Appeals generally take from six
months to over a year to conclude and are therefore rarely
pursued. Merging parties typically abandon a transaction if the
government successfully obtains an injunction. Of course, if
the government fails to obtain an injunction, the parties are
free to consummate their transaction. While rare, the agencies
sometimes seek an appeal of the denial of an injunction, even
after the merging parties have closed the challenged
transaction.
This FTC has a separate administrative process that runs
parallel to the federal action, pursuant to which the agency
brings an administrative complaint before an FTC Administrative
Law Judge (ALJ). The merging parties can appeal an adverse
ruling by the ALJ to the full five-member Commission, and the
Commission's decision can be appealed to a federal circuit
court.
| About the
author |
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Maria A Raptis
Partner, Skadden Arps Slate Meagher &
Flom
New York, US
T: +1 212 735 2425
E: maria.raptis@skadden.com
W:
www.skadden.com/professionals/r/raptis-maria
Maria Raptis is a partner in Skadden's New York
antitrust group. She represents clients in connection
with the antitrust aspects of litigation, mergers and
acquisitions, counselling and criminal matters. Raptis
has represented clients before the Federal Trade
Commission and US Department of Justice in merger
clearance issues for a wide variety of industries; in
litigation, which includes defending companies in suits
brought by the FTC and private plaintiffs relating to
"reverse payment" settlements; and has also has
represented clients in connection with allegations of
price-fixing or other criminal charges.
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| About the
author |
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Ken Schwartz
Partner, Skadden Arps Slate Meagher &
Flom
New York, US
T: +1 212 735 2731
E: ken.schwartz@skadden.com
W:
www.skadden.com/professionals/s/schwartz-kenneth-b
Ken Schwartz is a partner in Skadden's New York
antitrust group, regularly representing clients in
antitrust transactional and advisory matters from a
diverse range of industries. Schwartz routinely appears
before the US Department of Justice, the Federal Trade
Commission and state antitrust authorities. Schwartz
also advises clients on a variety of antitrust
counselling matters, including joint ventures,
competitor collaborations, unilateral conduct, and
pricing and distribution issues.
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