It’s time to begin writing an obituary for modern merger review at the Federal Trade Commission.
This isn’t the result of major legislative action. It isn’t courtesy of President Biden’s executive order “on competition.” Nor is it because of an official change in policy approved by the full Commission—although there’s been much of thatlately. Instead, it comes in the form of a seemingly benign blog post on the Federal Trade Commission’s website.
In the words of T.S. Eliot, the death of modern merger review comes “not with a bang but a whimper.”
Since 1976, the FTC has reviewed thousands of proposed mergers under the Hart-Scott-Rodino, or HSR Act. Under this Act, entities seeking to merge, above a certain threshold of assets, must first file with the FTC and the Department of Justice’s Antitrust Division and pay a predetermined fee. After filing, companies must wait a defined time period before they can consummate the merger. This period may be extended, and the merger may ultimately be challenged, if the FTC or DOJ seeks additional information from the merging parties.
The HSR Act has been a bedrock of modern antitrust enforcement. In the words of Congressman Rodino, one of the Act’s namesakes, it’s given the FTC and DOJ “two things: critical information about a proposed merger and time to analyze that information and prepare a case, if necessary.”
For merging parties, the HSR Act has given crucial assurance that, once a merger has not been challenged by an antitrust agency within statutory timelines, the millions, if not billions, of dollars tied up in consolidation and future investment will not be at risk by a future unwinding. Although there have been a few post-HSR-clearance challenges, these exceptions largely prove the rule.
No more. In a recent blog post, the acting director of the FTC’s Bureau of Competition announced the Commission can no longer guarantee it will meet statutory deadlines for merger reviews under the HSR Act. For deals that cannot be sufficiently investigated—a standard and quantity unknown to the public, and which the Commission does not even attempt to describe in its blog post—the Commission will be sending out form letters “alerting companies that the FTC’s investigation remains open and reminding companies that the agency may subsequently determine that the deal was unlawful.” For companies that nevertheless choose to proceed with their proposed merger, rather than remain in interminable limbo, the letter warns that they “are doing so at their own risk.” Perhaps worst of all, the form letters flatly assert that “the Commission may challenge transactions—before or after their consummation—that threaten to reduce competition and harm consumers, workers, and honest businesses.”
These Commission actions—in particular, the blunt assertion that mergers may be unwound at any time, even after consummation—are stunning. And the economic uncertainty stemming from them is, predictably, already causing anxiety among investors.
Who or what is to blame for this? According to the Commission, a “tidal wave” of recent merger filings is the culprit.
As a preliminary matter, it shouldn’t matter whether the FTC is facing capacity constraints for merger reviews. The FTC’s current resources for 2021 total nearly half a billion dollars.
If the FTC cannot meet its statutory obligations, then it should staff up until it can do so—and if need be, request additional funds from Congress in this pursuit, either via congressional appropriations or increased HSR filing fees. It certainly wouldn’t be the first time a federal agency—let alone the FTC—has sought a bigger budget.
But is the FTC’s assertion actually true? Has the FTC been hit by an unprecedented “tidal wave” of merger filings?
No, it hasn’t.
According to the FTC’s own 2019 report, the number of HSR transactions requiring filings roughly doubled between 2010 and 2017, growing from a little over 1,100 transactions in 2010 to just north of 2,000 in 2017. Between 2017 and 2020, transactions stabilized at roughly 2,000 to 2,100 per year.
The available data through 2021 do suggest an uptick in filings. Between January and July of this year, there were 2,067 total transactions filed. Over 7 months, that’s an average of 295 per month. Projecting this average out over 12 months would result in 3,540 total transactions filed for the entirety of 2021.
This increase may seem stark. But when viewed in the proper historical context, it’s hardly a “tidal wave.”
We need only look to historical data for proof—in particular, data from 1995 through 2000. During these years, there was only one month with fewer than 300 transactions filed. The vast majority of months during this period had 400, 500, or more transactions filed per month. This stands in stark relief to the 295 transactions per month in 2021 to date.
The year 1998 is particularly instructive. That year, the month with the fewest transactions was January, with 614 filed. Transactions peaked in June, with 862 filed that month. In only 2 months of that year were there fewer than 700 transactions filed. The end result? An astonishing 9,264 transactions were filed that year—more than triple the projected rate for 2021.
If there isn’t a merger “tidal wave,” then what is to blame? Perhaps it’s the fault of, as one current commissioner suggests, “the standard of review being employed” by the agency. Some members of the current FTC—and in particular, current FTC Chair Lina Khan—are proponents of what is sometimes labeled Neo-Brandeisian hipster antitrust theory. In this pre-Chicago school world, a merger of firms with as little as 5% market share was deemed inherently suspect.
But HSR predates the influence of the Chicago-School approach to merger review. Merging parties in the late 1970s had reason to believe that mergers that passed HSR review within a statutory deadline, even under a 5% standard, would not subsequently be challenged.
Regardless of the merger review standard, the HSR process provides the antitrust agencies with needed information and merging parties with needed certainty. It is a law that has worked well for nearly half a century. The statute provides strict deadlines, and it is not proper for the FTC by informal blog to undermine the binding nature of those statutory deadlines.
Threatening merging parties with a future unwinding simply because the FTC has not had a chance to review a proposed merger by parties that have followed the letter of the law and existing regulations seriously undermines HSR. Even shifting the HSR process—even with a formal rule—to give antitrust agencies more information and consequently to remove certainty from merging parties would upset a delicate statutory balance.
The FTC should reconsider its efforts to rewrite law via blog post.