Consummated Merger Enforcement: Is Your Deal Ever Safe from Review?

Practical Law Legal Update 4-539-1505 (Approx. 6 pages)

Consummated Merger Enforcement: Is Your Deal Ever Safe from Review?

by Practical Law Antitrust

Rise in Consummated Merger Enforcement

Parties to a merger in the US that meets certain threshold levels under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act) must notify the antitrust agencies and obtain approval before closing their deal. In 2001, for the first time since its enactment, Congress increased the HSR size-of-transaction threshold from $15 million to $50 million. That threshold has increased almost every year since. Because of the increased threshold levels, many transactions (including those between competitors) that used to be caught under the HSR Act's framework are no longer subject to the Act. Consequently, parties to these smaller deals need not notify the antitrust agencies or obtain approval before closing.

FTC enforcers have stated that investigating potentially anticompetitive consummated mergers is a priority for the antitrust agencies. Enforcers will not hesitate to investigate and unwind or otherwise remedy anticompetitive mergers that have already closed (see Practice Note, Consummated Mergers Antitrust Enforcement: Remedies in Consummated Mergers). While the antitrust agencies investigate consummated mergers that were approved under the HSR process, the majority of consummated merger investigations occurred in non-reportable transactions. Consummated merger investigations increased under the Bush Administration and have continued to grow under the Obama Administration. For more information on this enforcement priority and statistics on investigations, see Practice Note, Consummated Mergers Antitrust Enforcement: Enforcement Priority.

Additionally, Practical Law's Antitrust team has published a comprehensive chart of federal consummated merger enforcement actions since 2001, detailing:

Transaction-specific facts, such as:
- deal value;
- approximate time between the parties' closing and the complaint date; and
- whether the transaction was HSR reportable.
Antitrust analysis points, including product and geographic market definitions and theories of competitive harm.

(See Antitrust Enforcement of Consummated Mergers Chart.)

Recent Enforcement Action: Solera

In July 2013, the FTC and Solera Holdings, Inc. settled the FTC's investigation of Solera's acquisition of Actual Systems of America, Inc., for which Solera paid less than $8.7 million. The settlement came one year and two months after the parties had signed their deal agreement. For more information about the FTC's concerns about Solera's acquisition of Actual Systems, see What's Market: In the Matter of Solera Holdings, Inc. Consent Decree Summary.

Solera is not unique in its deal size or the duration of time between signing and the FTC's filing of its complaint and consent decree. Since 2001, the antitrust agencies brought more than half of the consummated merger enforcement actions more than one year after the deal had closed (and some at an even later date). Additionally, on several occasions, the antitrust agencies have investigated and unwound acquisitions valued at $5 million or less (see Practice Note, Consummated Mergers Antitrust Enforcement: Time from Closing to Complaint and Deal Value and see Antitrust Enforcement of Consummated Mergers Chart).

Practical Tips

Antitrust counsel understand how difficult it is to advise on potential antitrust risks of small deals. If HSR reporting is not triggered:

Transacting parties often do not want to spend time and money on antitrust issues.
Corporate counsel often will not contact their antitrust colleagues for assistance on the deal.

To combat the latter issue, antitrust counsel should educate their corporate colleagues on consummated merger enforcement and the importance of notifying antitrust counsel about any deal between competitors, no matter how small (see Practice Note, Considerations and Strategies in Non-HSR Reportable Transactions: Importance of Early Antitrust Risk Assessment).

Focusing transacting parties on antitrust issues early on is a tougher issue. As a first step, antitrust counsel should educate the client on:

Consummated merger enforcement statistics (see Practice Note, Consummated Mergers Antitrust Enforcement: Statistics Derived from Consummated Merger Challenges).
Enforcement priorities (see Practice Note, Consummated Mergers Antitrust Enforcement: Enforcement Priority).

Additionally, antitrust counsel can download and send clients Practical Law's Antitrust Enforcement of Consummated Mergers Chart for an at-a-glance look at consummated enforcement actions since 2001.

Assess the Likelihood of Government Detection

As part of the risk analysis, antitrust counsel should discuss with the client the need for assessing government detection of the deal in question (see Considerations and Strategies in Non-HSR Reportable Transactions: Assessing the Risk of Government Detection). Whether the government is likely to find out about a deal through means such as trade press reports and third-party complaints typically plays a large role in informing the client's decision on whether or not to proceed with an antitrust assessment of the deal.

Outline Potential Strategic Options for Obtaining Merger Clearance

Antitrust counsel should review the strategic options available to clients. The most important factors underlying each strategy are:

The timing of when or if the antitrust issues are identified and addressed.
The complexity of the antitrust issues involved in the transaction.

Each of the following strategies is discussed in more detail in Practice Note, Considerations and Strategies in Non-HSR Reportable Transactions:

Performing a preliminary antitrust assessment (see Practice Note, Corporate Transactions and Merger Control: Overview: Preliminary Substantive Assessment), and either:
- preparing a defense and closing the deal;
- preparing a procompetitive case and engaging the antitrust agencies before closing; or
- implementing a remedy and engaging the antitrust agencies before or at closing.
Quickly closing the deal with no affirmative steps to address competition issues.

Counseling on Precautions the Parties Can Take

At a minimum, antitrust counsel should discuss what precautions the transacting parties can take to limit their antitrust risks. Practice Note, Considerations and Strategies in Non-HSR Reportable Transactions identifies potential precautions, including:

Negotiating antitrust risk-shifting provisions.
Minimizing customer complaints.
Avoiding gun-jumping (see Practice Note, Information Exchange and Integration Planning in M&A: Antitrust).
Avoiding the creation of bad documents (see Practice Note, Consummated Mergers Antitrust Enforcement: How to Handle Hot Documents).
Avoiding raising prices and other anticompetitive behavior post-acquisition.

Practical Law Resources

For additional information on antitrust review of consummated mergers and merger enforcement, see the following resources:

Consummated Merger Enforcement: Is Your Deal Ever Safe from Review? | Practical Law