Antitrust enforcement under the Obama administration started off slowly in 2008 and 2009, but is now recognized by commentators as a particularly aggressive period in recent antitrust history. In September, the Wall Street Journal reported that between fiscal years 2009 and 2012, the Federal Trade Commission (FTC) and the Antitrust Division of the Department of Justice (DOJ) stopped, litigated or settled 86% of investigated deals. By 2011, the US federal antitrust enforcement agencies were successfully litigating and stopping highly publicized mergers like AT&T/T-Mobile and H&R Block/TaxACT.

Merger investigations delay deals even when the merging parties and the government decide to negotiate and enter into a settlement (known as a consent decree). Delays are typically further extended when investigations turn into litigated cases. For merger challenges in which complaints were filed in 2012 (excluding post-consummation investigations), the average time between the deal signing and the issuing of a complaint by the investigating agency was just under seven months. Currently, the agencies have four merger cases in litigation:

Antitrust risk associated with a merger or an acquisition generally lies with the seller. This is because the seller is in a precarious position between the signing of the agreement and the closing, during which the seller can lose valuable customers and employees. Therefore, if there is a tangible risk of a merger investigation which could delay or even kill the deal, a seller is incentivized to protect itself by shifting some of the antitrust risk to the buyer. This risk-shifting can be done in various ways, including:

Almost any deal between horizontal competitors comes with some antitrust risk. Whether that risk is de minimis or serious depends on many issues, such as:

(See Practice Notes, How Antitrust Agencies Analyze M&A and Corporate Transactions and Merger Control: Overview: Preliminary Substantive Assessment.)

Once antitrust counsel has completed an initial antitrust analysis, he can advise the client on the risk involved in the deal and the best way to shift that risk. Merging parties' counsel are unlikely to heavily negotiate risk-shifting provisions if the deal involves a small amount of antitrust risk.

Often corporate M&A counsel call on their antitrust colleagues to assist in the drafting and negotiation of antitrust risk-shifting provisions. In addition to understanding the transaction's antitrust risk, antitrust counsel should also understand what provisions make the most sense, depending on both:

For example, in a deal where the divestiture of a specific manufacturing facility of either buyer or seller would restore any lost competition as a result of the deal, then a provision outlining the divestiture of those specific assets or one broad enough to include those assets would make sense (see Practice Note, What’s Market: Antitrust Divestiture Limitations).

Often when negotiating risk-shifting provisions, antitrust counsel consider what other merging parties have recently done to shift antitrust risk in similar circumstances. This is sometimes referred to as determining "what's market." While counsel can look to the risk-shifting provisions they have drafted in prior deals as precedent, that allows them only a limited look at their own or their firm's prior deals. Auditing publicly available agreements that have been filed with the Securities and Exchange Commission is a long, arduous process. Practical Law Antitrust, however, offers a way to quickly compare antitrust risk-shifting provisions across a number of publicly-available deals and includes a way for antitrust counsel to narrow their search results using specific filters like:

(See What's Market: Antitrust Risk-shifting.)

After narrowing the search results, antitrust counsel can compare various antitrust provisions across those results to determine what's market. As an example, counsel seeking to determine what's market for antitrust risk-shifting provisions in the pharmaceutical industry can generate a chart comparing the divestiture and litigation obligations provisions in public pharmaceutical deals in a matter of seconds. The following chart highlights just a few pharmaceutical deals that would result from that search:

To view the language of each provision summarized in the chart, counsel need only click on the link provided to get to the section of the agreement in which that provision is found.

As part of the Hart-Scott-Rodino (HSR) premerger notification process, certain merging parties must provide a copy of their merger agreement to the FTC and the DOJ as part of their HSR filing. There has been a long debate about whether including detailed antitrust risk-shifting provisions in a merger or purchase agreement provides a roadmap to the antitrust agencies. One school of thought is that risk-shifting provisions, such as a provision setting out the specific assets that the buyer is willing to divest, provide the investigating agency with:

While controversial, some counsel have included risk-shifting provisions in side-letter agreements or as an exhibit to a joint defense agreement to side-step producing those provisions to the antitrust agencies. However, in 2011, former Assistant Attorney General for the Antitrust Division, Christine Varney made clear that it was her view that side agreements (or any other agreement) between the parties relating to the terms of the merger or acquisition agreement should be part of the HSR premerger filings.

A review of recent deals shows that disclosing risk-shifting provisions to the government may not be as risky as once thought. Several deals have been recently cleared by the FTC or DOJ even though the agreement between the parties sets out that the buyer was willing to divest a particular set of assets to get the deal done. These deals include:

As the risk of tipping off the antitrust agencies to the parties' merger strategies decreases while the threat of merger challenges continues to increase, it becomes more important to negotiate and include in the definitive agreement the right antitrust risk-shifting provisions that best protect both the merging parties and the deal.