Antitrust becoming less predictable for merger review. How to prepare?

Federal antitrust agencies are taking a fresh look at longstanding practices that govern how they review mergers and acquisitions (M&A) for anti-competitive practices.

As Reuters noted in September 2021, Big Tech’s “little mergers” are drawing more antitrust scrutiny. Of primary concern, the Federal Trade Commission (FTC) has pledged to close “loopholes” in Hart-Scott-Rodino (HSR) filing requirements. It has rescinded the Vertical Merger Guidelines and stated that it may keep pre-merger investigations open even after the statutory waiting period has expired.

As of October 2021, the Department of Justice (DOJ) Antitrust Division continues operations without a confirmed leader. The agency may take a fresh look at merger review practices once President Joe Biden’s nominee, Jonathan Kanter, is confirmed.

What’s more, legislators are looking at strengthening existing antitrust law. This summer, Senator Amy Klobuchar (D-MN) proposed the Competition and Antitrust Law Enforcement Act. According to the Reuters report “Abuse of Dominance: Was this originally what Congress intended for Section 2?” it has been heralded as "the most ambitious antitrust reform in nearly half a century."

Reuters goes on to report that, “Among other things, Klobuchar's proposed legislation seeks to strengthen U.S. antitrust enforcement by cracking down on single-firm dominance, breaking up conglomerates, enhancing merger restrictions, and encouraging the entrance of new market participants.”

Despite this uncertainty, M&A activity continues. How can companies prepare effective negotiations in this shifting landscape?

There are several steps general counsel can take to help their business partners and leadership prepare for merger review, no matter what changes the FTC and DOJ implement. By making sure the fundamentals are in place now, in-house counsel can effectively advise the business if it needs to pivot or adjust.

In-house counsel can help companies prepare to pivot by ensuring the following conditions are in place.

• Ensure senior leaders understand the antitrust risks of their company and industry, particularly if there is high M&A activity.
• Establish robust antitrust compliance programs and inform key employees of the appropriate competition talking points.
• Rely on expert guidance like Practical Law’s Merger Review Process Timeline (Antitrust) and the Hart Scott Rodino Toolkit to stay on top of the rapidly changing environment.

Educate senior leaders on antitrust risks

Most business leaders have a working knowledge of antitrust laws and their role in protecting the public interest. What they don’t necessarily know is why one merger or acquisition goes through easily while another triggers regulatory review.

Of course, general counsel know that a great deal depends on the size and nature of the parties involved and on the competitive conditions in the market. And while there are thresholds and rules, there are also exemptions.

General counsel should educate senior leaders now on some of these criteria and the types of loopholes that spare one merger from HSR review but trap others and the types of deals that face extended investigations. As regulators reconsider some of the loopholes and merger review processes, senior leaders should know the rules so they can prepare for possible changes.

And it is critical for business leaders to understand the importance of avoiding careless language in internal communications that could trigger scrutiny from the antitrust agencies during a review. The resources found in Merger Control Overview: Presentation Materials are used by counsel to provide an overview of the antitrust issues in a corporate transaction to business leaders, members of a deal team, or other lawyers.

Consider having a training session with business and deal leaders who lead acquisition activity — especially those who might be counting on deals closing on a certain timeline — and educate them about:

• The basics of HSR
• Thresholds and exemptions for reportable transactions
• Consequences of actively avoiding HSR or not filing
• The application process
• Waiting periods and review process

By grounding leaders in what is currently known about HSR, in-house legal teams can help prepare them for contingencies and longer timelines as changes arise.

Develop antitrust compliance programs

The lengthy application process, filing fees, waiting periods, and potential exposure of sensitive corporate information may lead businesses to try to avoid HSR filings and antitrust exposure.

They might want to change the deal structure. They might even avoid strategic acquisitions to avoid scrutiny by regulators. These outcomes are both unfortunate. Trying to avoid HSR review using deal structure is illegal. Even accidentally failing to file can result in multimillion-dollar fines. Avoiding an acquisition entirely could negatively affect the company and its shareholders. A better response is to know the antitrust landscape and work within it.

In-house legal teams can develop antitrust compliance programs that equip leaders to navigate the risks and opportunities and increase the odds of deals getting approved even in an aggressive enforcement environment. One of the best ways that companies can do this is to ensure that leaders and employees are trained in avoiding careless language in internal communications that could trigger scrutiny during a merger review. The Practical Law resource Antitrust Compliance Training for Internal Communications: Presentation Materials is useful for training employees and executives as part of an antitrust compliance program.

While legal counsel certainly can’t be in the room for every conversation or keep deal leads from going rogue, a program like this protects the company and demonstrates a committed effort toward compliance.

Rely on expert, practical current awareness

As in-house legal teams provide more strategic counsel to their businesses, it’s imperative that they have access to the same or better information than their law firm colleagues have. Even a small team can tap into expertise and current awareness from top practitioners if they rely on know-how tools to educate leaders and help them stay in compliance.

Practical Law offers in-depth guidance on the Hart Scott Rodino Act and other legislation and regulations affecting M&A and antitrust compliance. Practice Notes, Toolkits, Articles, Checklists, and more help a lean in-house team offer significant, strategic guidance to the business while minimizing outside counsel costs. The material is continuously maintained by experienced, antitrust attorney-editors as laws change.

Antitrust leaders seem keen to strengthen regulatory oversight on M&A activity. In-house counsel are well positioned to keep their businesses moving ahead on strategy and in compliance with changing rules. Great education and a strong compliance program — backed up by expert know-how and current insights — offer the best preparation for merger review.