Federal review of many mergers and acquisitions follows the Hart-Scott-Rodino Act, which requires parties to certain large transactions to notify the government and wait before closing, according to the Federal Trade Commission. The Federal Trade Commission (FTC) administers the premerger notification program, and the FTC and the U.S. Department of Justice (DOJ) decide whether to allow, condition, or challenge a deal under the antitrust laws. The DOJ and FTC also apply Merger Guidelines that describe their investigative frameworks for assessing competitive risk.
What the Hart-Scott-Rodino process requires
Under the Hart-Scott-Rodino (HSR) Act, parties to certain mergers and acquisitions must submit premerger notification and then wait for a government review period to pass, according to the FTC. The FTC notes that not all transactions require a filing; in general, filing depends on minimum size thresholds and exemptions that the FTC describes in its guidance. There is a filing fee, and for deals that require filing, both buyer and seller typically submit forms with information about their businesses and industries, the FTC says.
Who reviews a deal
Parties that must file submit materials to both the FTC and the DOJ, but only one agency reviews the deal, according to the FTC. Staff from the agencies consult and “clear” the matter to one agency in a clearance process. Once an agency receives clearance, it can obtain nonpublic information from the parties and other industry participants, the FTC says.
What happens during the waiting periods
After the parties make a complete filing, they must wait 30 days before closing, or, for a cash tender offer or a bankruptcy matter, 15 days, unless the government grants early termination, according to the FTC. Following a preliminary review, the reviewing agency may end the waiting period early, allow it to expire, or issue a Request for Additional Information—known as a Second Request—to each party, the FTC says. A Second Request extends the waiting period and prevents closing until the parties have substantially complied and observed a second waiting period.
A Second Request typically seeks business documents and data on products or services, market conditions, and likely competitive effects of the merger, and the agency may interview company personnel or others with industry knowledge, according to the FTC. Once both parties have substantially complied, the agency generally has an additional 30 days to review and act, or 10 days in a cash tender offer or bankruptcy, the FTC says. The agency and the parties may agree to extend this phase to try to resolve issues without litigation, according to the FTC.
Possible outcomes at the end of review
When the waiting period ends, the reviewing agency may close the investigation and allow the deal to proceed unchallenged, enter into a negotiated consent agreement with provisions to restore competition, or seek to stop the transaction by asking a federal court for a preliminary injunction while an administrative trial on the merits is pending, the FTC says. Unless an action results in a court order stopping the merger, the parties may close after the waiting period expires, according to the FTC. The FTC notes that sometimes parties abandon their plans once they learn the agency is likely to challenge the deal.
How agencies decide whether a deal may harm competition
The DOJ and FTC state in their Merger Guidelines that they enforce federal antitrust laws, including Sections 1 and 2 of the Sherman Act, Section 5 of the Federal Trade Commission Act, and Sections 3, 7, and 8 of the Clayton Act. Section 7 of the Clayton Act prohibits mergers and acquisitions whose effect “may be substantially to lessen competition, or to tend to create a monopoly,” the Guidelines explain. The agencies describe competition as a process of rivalry and assess whether a merger presents risk to competition by examining the totality of available evidence.
The Merger Guidelines outline several analytical frameworks the agencies use to identify risks to competition. These include whether a merger significantly increases concentration in a highly concentrated market; eliminates substantial competition between the merging firms; increases the risk of coordination; eliminates a potential entrant in a concentrated market; creates a firm that may limit rivals’ access to products or services they use to compete; or entrenches or extends a dominant position. The Guidelines also explain how the agencies consider trends toward consolidation, a series of multiple acquisitions, multi-sided platforms, mergers among competing buyers (including effects on workers, creators, suppliers, or other providers), and acquisitions involving partial ownership or minority interests. The agencies consider rebuttal evidence and use analytical, economic, and evidentiary tools to evaluate facts, define relevant markets, and calculate market shares and concentration, according to the Guidelines.
How federal and state enforcers coordinate
Some mergers may face simultaneous federal and state investigations, and the DOJ’s Antitrust Division states that, to the extent lawful, practicable, and desirable in a case, federal and state agencies will cooperate to maximize coordination and minimize burden. These joint investigations are generally nonpublic and involve confidential information subject to statutes, rules, and policies governing disclosure, and participating agencies must protect that information, according to the DOJ protocol. With the merging parties’ consent, the DOJ or FTC may share certain information with State Attorneys General, and the parties may use a National Association of Attorneys General voluntary premerger disclosure compact and submit confidentiality waivers to enable communications, the DOJ says.
The DOJ protocol outlines suggested practices for joint work. It encourages early strategic planning calls, coordinated document requests and review, and joint development of witness evidence, including interviews, depositions, and expert work, when lawful and practical. It also describes coordination on settlement discussions, with agencies consulting on terms and keeping each other informed, and sets expectations for press communications among the agencies.