Merger Reviews in U.S. to be More Closely Scrutinized

The U.S. federal government is considering a more careful review of mergers and acquisitions per a proposal announced recently by the U.S. Department of Justice (DoJ) and the Federal Trade Commission (FTC). The proposed changes could add significantly to the time needed to complete the transaction but may also lead to more frequent rejections of proposed mergers.

The FTC announced June 27 that the proposed changes affect not only the notification forms and associated instructions, but would also affect the notification rules implemented under the Hart-Scott-Rodino (HRS) Act. The FTC stated that the changes to the HRS forms would give both agencies an opportunity to more thoroughly review transactions for potential anti-competitive effect in the initial 30-day review period after receiving the forms from the parties to the merger proposal.

The increasing number of merger proposals in recent years has forced both the FTC and the DoJ to review these transactions more efficiently, one of the reasons the agencies cited for the additional information that will be required. Another factor is the complexity of the organizational structures involved in a proposed transaction, while the use of observers on boards of directors is seen as a potential influence on the impact of the transaction on the competitive landscape.

The FTC highlighted its belief that a transaction should be evaluated for all potential anticompetitive potential, but the proposal may eliminate some existing reporting requirements due to the lack of meaningful insight provided by data such as the 10-digit North American Product Classification System code. The proposal would force the parties to a merger to provide more details about the rationale for the transaction and a more granular description of corporate relationships. More information would be required regarding both horizontal and non-horizontal relationships that would be affected by the merger, such as supply agreements. Disclosures would also have to include an analysis on the impact on labor markets as described by the Standard Occupational Classification system.

The proposed rule is to some extent reflective of congressional concerns that subsidies from entities outside the U.S. are distorting the competitive environment in the U.S., information that is now required by the Merger Filing Fee Modernization Act of 2022. There are a number of nations of concern in this regard, including Iran, North Korea, China and Russia.

This legislation also increased the fees for merger reviews by the FTC and the DoJ, which is generally payable by the acquiring entity. The fees for transactions valued at or just above $100 million rose from $280,000 to $400,000. New thresholds for higher fee amounts include $800,000 for transactions valued between $2 billion and $4.99 billion, while fees for transactions valued at $5 billon are now $2.25 million.

One of the more unusual aspects of the proposal is the requirement of disclosure of all deal documents, including draft documents even when not submitted to members of management who are directly involved in the transaction. The proposal is open for comment through Aug. 28.