Republican FTC Commissioners Issue Dissenting Statement on Use of Prior Approval Provisions in Merger Orders
As this blog has discussed, the FTC announced last week it is restoring a policy of “routinely requiring merging parties subject to a Commission order to obtain prior approval from the FTC before closing any future transaction affecting each relevant market for which a violation was alleged.” According to the FTC, its Prior Approval Policy will help prevent facially anticompetitive deals, preserve FTC resources, and detect anticompetitive deals below the Hart-Scott-Rodino reporting thresholds.
On October 29, the two Republican FTC Commissioners, Christine S. Wilson and Noah Joshua Phillips, issued a dissenting statement to this policy restoration. The dissent attacked the FTC’s decision both in substance and in process:
- The dissent argues that the policy will not simply reduce anticompetitive merger activity—it will reduce all merger activity. This includes chilling procompetitive merger activity by imposing “substantial costs and uncertainty on future transactions.”
- While the FTC claims the policy will help preserve commission resources, the dissent argues that the policy will have the opposite effect. As the prior approval requirement will attach to all consent decrees, the dissenters claim the policy will discourage parties from entering into consent decrees to cure (e.g., through divestitures) anticompetitive aspects of M&A deals. According to the dissent, the FTC, as a result, will face more trials, which will only “increase the burden on the agency’s finite resources.”
- The dissent also argues that the prior approval policy will improperly undermine the HSR framework. The FTC policy states that the FTC is “less likely to pursue a prior approval provision against merging parties that abandon their transaction prior to certifying substantial compliance” with a Second Request under HSR. This, argues the dissent, effectively punishes companies for complying with HSR. The dissent also critiques the policy for requiring prior approval for transactions that fall below the HSR filing thresholds, which they contend shifts the burden of proof to the merging parties to establish that their future transaction is not anticompetitive.
- The dissent also attacks the FTC’s prior approval policy on two procedural grounds.. First, they contend that the decisive vote was a “zombie vote” cast weeks ago by former commissioner Rhoit Chopra, who is now Director of the Consumer Financial Protection Bureau. Second, the dissent blasted the FTC for adopting the policy statement without affording the public a notice and comment period.
This blog has previously opined that the last 40 years of U.S. antitrust enforcement has been inadequate. A similar sentiment may be motivating the FTC. The FTC’s reinstatement of its prior approval policy is a clear attempt by the FTC to clamp down on mergers that pose harm to competition.
This more aggressive policy is likely to have significant effects. Not only may the restored policy ultimately benefit competition, but, as highlighted by the dissent, firms contemplating acquisitions must now adjust their antitrust risk calculus. If a company sees a potential antitrust problem with a merger and decides to move forward anyway, it must now consider the reality that settling with the FTC through a divesture will result in a prior approval order.
Further complicating matters is the fact that under the FTC’s prior approval policy, a divestiture buyer also will be subject to a prior approval for any future sale of the assets it acquires in the divesture, for a minimum of 10 years. This could make finding a divesture buyer considerably more difficult for merging parties. Firms contemplating an aggressive acquisition strategy will have to be more prepared than ever before to go to trial should they face a merger challenge from the FTC.
If your business is considering a merger or acquisition, Constantine Cannon can advise you on how to account for these recent developments. Please do not hesitate to contact us.
Written by David Scupp
Edited by Gary J. Malone
Tagged in: Antitrust Enforcement,