Merger Control Legislation

The primary merger control legislation in the US is Section 7 of the Clayton Act, which prohibits acquisitions that may substantially lessen competition. The Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “HSR Act”) (Section 7A of the Clayton Act) governs the pre-merger notification process. Mergers may also be challenged under the Sherman Act, which prohibits agreements that unreasonably restrain trade (Section 1) and monopolisation, attempts to monopolise and conspiracies to monopolise (Section 2), or Section 5 of the Federal Trade Commission Act (the “FTC Act”), which prohibits unfair methods of competition. States, as well as the District of Columbia, Puerto Rico and the Virgin Islands, have their own antitrust laws, many of which are analogous to the federal antitrust statutes, and may also challenge mergers under the federal antitrust laws.

Merger Guidelines

The FTC and the Antitrust Division of the Department of Justice (DOJ) (the “Agencies”) share jurisdiction over merger review.

In December 2023, the FTC and DOJ released updated Merger Guidelines, which describe the “factors and frameworks” the Agencies use to review proposed mergers. The new Guidelines, coupled with recent process changes and proposed expansion of the content of HSR filings, indicate a scepticism towards transactions, with lower market concentration thresholds and rejection or narrowing of certain defences.

Agency Rules and Guidance

The FTC is authorised to issue formal regulations that are “necessary and appropriate” to carry out the purposes of the HSR Act. The “HSR Rules” are complex and extensive, and address reportability, exemptions and filing procedures. As of July 2024, the FTC and DOJ are finalising revisions to the HSR Rules.

The FTC’s Premerger Notification Office also issues guidance relating to the application of the HSR Act and related regulations in the form of both formal and informal interpretations.

Sector-Specific Approvals

Transactions within highly regulated sectors of the economy, such as banking, healthcare, insurance, telecommunications, railroads, and defence, may also require approval from their federal or state sectoral regulators. For example:

• banking transactions may require approval by the Federal Reserve Board;
• telecom transactions may require approval by the Federal Communications Commission;
• transactions involving energy companies may require approval of the Federal Energy Regulatory Commission;
• mergers of insurance companies may require approval by state Commissioners of Insurance; and
• mergers of healthcare organisations may be subject to review and approval by state health departments and antitrust agencies.

Primary Enforcement Agencies

Both the FTC and DOJ enforce the federal antitrust laws and share jurisdiction over merger review under the Clayton Act and the HSR Act. The FTC also has authority to challenge mergers under the FTC Act. In addition, the FTC manages the HSR pre-notification regime. Under Section 16 of the Clayton Act, State Attorneys General can also seek to enjoin mergers.

The Agencies allocate merger cases through a co-operative clearance process that is primarily based on the expertise of each Agency. The FTC tends to investigate mergers relating to healthcare, pharmaceuticals, professional services, retail industries, and food, whereas the DOJ typically investigates mergers relating to media and entertainment, telecommunications, insurance, aerospace, financial services, and agriculture. In other industries, such as digital platforms, responsibility is less clear and the decision about which agency will review a transaction can be more complex.

Courts

To delay closing of a proposed merger, the Agencies must obtain preliminary injunctive relief from a federal district court. To block a transaction, the DOJ must seek a final injunction from a federal district court, while the FTC proceeds through its Part 3 administrative court process. State Attorneys General frequently join the Agencies in federal district court actions. Private parties, including customers and competitors, may also challenge mergers in federal courts. Private enforcement actions, however, are relatively rare.

If the transaction meets the jurisdictional thresholds of the HSR Act and does not qualify for an exemption, the parties must each submit a pre-merger notification form and observe the HSR waiting period. The parties must file their HSR Forms with both Agencies.

Failure to comply with the requirements of the HSR Act may result in civil penalties of up to USD51,744 per day. The FTC adjusts the maximum HSR civil penalty annually for inflation. In practice, parties are rarely penalised with the maximum amount.

Historically, the FTC has had an informal “one free pass” practice and generally has not sought civil penalties for a party’s first inadvertent violation if that party self-reports the violation, makes a corrective filing, and provides a detailed explanation of the circumstances that contributed to their failure to file. The FTC routinely seeks penalties of hundreds of thousands or millions of dollars in cases where the FTC suspects bad faith or a party is a repeat offender.

HSR-Reportable Transactions

The HSR Act requires that parties to certain mergers or acquisitions notify the Agencies prior to closing the proposed transaction. HSR filing requirements apply to transactions involving the acquisition of voting securities, assets, or non-corporate interests that meet certain jurisdictional thresholds. See 2.5 Jurisdictional Thresholds.

Internal Restructuring

To be HSR reportable, a transaction must result in a transfer of beneficial ownership of voting securities, assets or non-corporate interests from one ultimate parent entity to a different ultimate parent entity. See 2.4 Definition of “Control”. Restructurings or reorganisations in which the ultimate parent entity does not change generally do not require an HSR filing.

Entity Formation

HSR notification is required for the formation of certain types of joint ventures. The formation of corporate joint ventures is treated under the HSR Rules as acquisitions of voting securities of the venture by the venturers.

The formation of non-corporate joint ventures requires HSR notification only when one of the parties will “control” the new venture. See 2.10 Joint Ventures.

“Control” is defined under the HSR Act as either:

• holding 50% or more of the outstanding voting securities of an issuer or, for an unincorporated entity, having the right to 50% or more of the entity’s profits or, upon dissolution, its assets; or
• having the present contractual power to designate 50% or more of the directors of a corporation or of the trustees of certain trusts.

An entity or individual that is not controlled by any other entity is considered the Ultimate Parent Entity (UPE). The relevant “persons” for HSR Act purposes are the UPE of the acquiring party, together with all entities it controls directly or indirectly (the “Acquiring Person”), and the UPE of the acquired party, together with all entities it controls directly or indirectly (the “Acquired Person”).

Minority Acquisitions

Minority acquisitions of corporate voting securities – even small percentages – may be reportable if they meet the HSR thresholds and no exemption applies. In contrast, acquisitions of interests in non-corporate entities (such as limited liability companies or partnerships) are only reportable if the acquisitions confer control.

Three jurisdictional tests determine whether a transaction is within the scope of the HSR Act:

• the commerce test;
• the “size-of-transaction” test; and
• the “size-of-person” test.

HSR thresholds are adjusted annually based on changes in the US gross national product. The revised thresholds are typically announced by the FTC in January and take effect 30 days later. The following discussion is based on the thresholds in effect from March 2024.

Commerce Test

The commerce test is met if either party is engaged in commerce or any activity affecting commerce; therefore, nearly all transactions will satisfy the commerce test.

Size-of-Transaction Test

The size-of-transaction test is met if, as a result of the transaction, the Acquiring Person will hold voting securities, assets or non-corporate interests of the Acquired Person valued in excess of USD119.5 million. In general, the size of the transaction includes the present value of any voting securities and non-corporate interests of the Acquired Person already held by the Acquiring Person. For asset acquisitions, the size of transaction includes the present value of any assets acquired from the Acquired Person within the previous 180 days and the present value of any assets of the Acquired Person to be acquired pursuant to a letter of intent executed in the preceding 180 days. Depending on the transaction structure, valuing the size of a transaction can be complex. See 2.6 Calculations of Jurisdictional Thresholds.

Size-of-Person Test

The size-of-person test is applicable for transactions valued at more than USD119.5 million but not more than USD478 million. Transactions valued at more than USD478 million will be subject to HSR notification without regard to the size of the parties if no exceptions apply.

In general, the size-of-person test is met if one of the persons involved in the transaction has USD239 million or more in annual net sales or total assets, and the other has USD23.9 million or more. If the acquired person is not engaged in manufacturing, only its total assets are considered, unless its total sales are USD239 million or more. There also are specific size-of-person rules applying to joint venture formations.

Exemptions

Even if a transaction meets the HSR thresholds, it may still be non-reportable if it qualifies for one of the numerous exemptions. Some key exemptions include:

• acquisitions of certain assets in the ordinary course of business, including new goods and current supplies;
• acquisitions of certain types of real property, such as certain new and used facilities, unproductive real property (eg, raw land), office and residential property, and hotels and motels (excluding ski facilities and casinos);
• acquisitions of up to 10% of voting securities of an issuer if for the purposes of investment only;
• acquisitions of interests in entities that themselves hold HSR-exempt assets;
• stock dividends and splits and reorganisations;
• acquisitions of certain foreign assets and certain foreign-issuer voting securities; and
• intra-person transactions.

Size-of-Transaction Test

The size-of-transaction test is calculated based on the value of the voting securities, assets and non-corporate interests that the Acquiring Person will hold in the Acquired Person as a result of the transaction.

• Publicly traded voting securities are valued based on the greater of the market price (generally the lowest closing quotation during the 45 days prior to closing) or the acquisition price (all consideration to be paid, whether in cash or in kind).
• Acquisitions of non-publicly traded voting securities and non-corporate interests are valued based on the acquisition price (or, if the acquisition price is not determined, the fair market value).
• Acquisitions of assets are valued based on the greater of the fair market value or, if determined, the acquisition price.

Size-of-Person Test

The size-of-person test is calculated based on the worldwide sales or assets of the Acquiring and Acquired Persons as reflected in each party’s last regularly prepared consolidated annual income statement and last regularly prepared consolidated balance sheet. These financial statements must be no more than 15 months old. Where a person does not have a regularly prepared annual income statement or balance sheet, the UPE must prepare a pro forma balance sheet that lists all assets held at the time of the acquisition and – in the case of the Acquiring Person – excludes any cash to be used as consideration for the acquisition, any expenses incidental thereto, and any securities of the same Acquired Person. An Acquired Person’s revenues and assets include the assets and/or revenues of the target.

The size-of-person assessment should reflect the annual net sales and total assets of all controlled entities at the time of the proposed acquisition. If there is a change of business between the date of the last balance sheet and time of filing – such as an acquisition or divestiture – it must be taken into account.

Annual net sales recorded in a foreign currency should be converted to US dollars based on the average interbank exchange rate for the given year, and assets recorded in a foreign currency should be converted to US dollars based on the interbank exchange rate as of the date of the business’s last regularly prepared balance sheet.

Whether an entity meets the HSR size-of-person threshold is based on the revenues and assets of the Acquiring and Acquired Persons. See 2.4 Definition of “Control” and 2.6 Calculation of Jurisdictional Thresholds.

Certain foreign-to-foreign transactions and acquisitions of foreign assets or voting securities by US entities that are otherwise covered by the HSR Act may qualify for an exemption. These exemptions are intended to exclude from HSR reportability acquisitions that may have limited significance or impact in the US.

Under the HSR Rules, a foreign person is an entity whose UPE is not incorporated in the US, is not organised under the laws of the US, and does not have its principal offices within the US or, in the case of a natural person, a person who is not a citizen of the US and who does not reside in the US.

Asset Acquisitions

Acquisitions of assets located outside the US that generated aggregate sales in or into the USA of USD119.5 million or less in the most recent fiscal year are exempt. This exemption applies to acquisitions by both US and non-US acquirers.

Asset acquisitions valued at USD478 million or less are exempt where both the Acquiring and Acquired Persons are foreign persons under the HSR Rules, the aggregate sales of the Acquiring and Acquired Persons in or into the USA are less than USD262.9 million, and the aggregate total assets of the Acquiring and Acquired Persons located in the USA have a fair market value of less than USD262.9 million.

Acquisitions of Voting Securities of a Foreign Issuer

Acquisitions of voting securities of a foreign corporate issuer by a US person are exempt unless the issuer holds US-based assets (excluding investment assets, voting or non-voting securities of another person, or certain credits or obligations related to joint ventures) with a fair market value of over USD119.5 million, or made sales in or into the USA, on an aggregate basis with its controlled entities, of over USD119.5 million in the most recent fiscal year.

Acquisitions of voting securities of a foreign corporate issuer by a foreign Acquiring Person are exempt unless the acquisition will confer control of the issuer and the issuer holds US-based assets in excess of the thresholds described above.

Acquisitions of voting securities of a foreign corporate issuer by a foreign Acquiring Person are exempt if the transaction is valued at USD478 million or less, the aggregate sales of the Acquiring and Acquired Persons in or into the USA are less than USD262.9 million, and the aggregate total assets of the Acquiring and Acquired Persons located in the USA (excluding investment assets, voting or non-voting securities of another person, or certain credits or obligations related to joint ventures) are valued at less than USD262.9 million.

Acquisitions by or From Foreign Governmental Entities

Acquisitions by or from foreign governmental entities are exempt if the UPE of either the Acquiring or Acquired Person is controlled by a foreign state, foreign government or foreign agency and the acquisition is of assets located within the foreign state or of voting securities or non-corporate interests of an entity organised under the laws of that jurisdiction.

The HSR Act filing thresholds do not include a market share test.

Joint ventures are subject to specific and complex rules under the HSR Act and may be notifiable unless an exemption applies. Under the HSR Rules, the contributors to a joint venture are deemed Acquiring Persons, and the joint venture is deemed the Acquired Person.

The Agencies have authority to investigate and challenge transactions that do not meet HSR filing requirements. Although such investigations have historically occurred somewhat infrequently, the Agencies at times have acted quickly to challenge non-reportable transactions. The Agencies also appear to be more active recently in investigating non-reportable transactions. Parties should not assume that non-HSR-reportable transactions will escape review.

The Agencies’ power to challenge conduct under the Clayton Act, the Sherman Act or the FTC Act does not have a statute of limitations, and therefore the potential for Agency scrutiny is indefinite. The Agencies may investigate a transaction post-closing even if they declined to challenge the transaction during the HSR review process or if the transaction was not HSR reportable. The FTC most notably exercised this authority in 2021 in bringing suit against Facebook, alleging, among other charges, that Facebook had consummated multiple anti-competitive acquisitions in an effort to maintain monopoly power, including its acquisitions of Instagram in 2012 and WhatsApp in 2014. Similarly, in 2023, the FTC brought suit against US Anesthesia Partners (USAP) and private equity firm Welsh Carson, alleging, among other charges, that between 2014 and 2020, USAP and Welsh Carson engaged in a series of acquisitions that harmed competition in the commercially insured hospital-only anaesthesia market in Houston, Texas. These suits are both ongoing as of July 2024.

If an HSR filing is required, parties may not close the transaction until the expiration or termination of the waiting period. Typically, the statutory waiting period is 30 days and begins after both parties submit their HSR filings and the filing fee has been paid. For open-market purchases, conversions, option exercises and certain other (generally, non-negotiated) transactions, the waiting period begins once the Acquiring Person submits an HSR filing.

Unless the Agencies issue a second request or sue to block the transaction, the waiting period expires automatically on the 30th day after filing at 11.59pm Eastern Time (ET), and the parties may close the transaction. In cash tender offers and certain bankruptcy transactions, the waiting period is shortened to 15 days. The waiting period extends to the next business day when a waiting period expires over a weekend or on a federal public holiday.

Parties that close a transaction or transfer beneficial ownership prior to the expiration or termination of the waiting period (conduct commonly referred to as “gun-jumping”) are subject to civil penalties of up to USD51,744 per day. Although in the majority of cases the Agencies have imposed penalties substantially less than the maximum permitted by law, gun-jumping fines commonly range in the hundreds of thousands, if not millions, of dollars. See 2.2 Failure to Notify.       

There are no exceptions to the waiting requirement of the HSR Act. Parties to all reportable transactions must observe the applicable waiting period prior to consummation.

Under no circumstances will the Agencies permit closing before expiration or early termination of the applicable waiting period. Carve-outs, ring fencing or hold-separate agreements are not permitted. Premature closing may subject the parties to civil penalties of up to USD51,744 per day of non-compliance and potential additional equitable relief.

There are no deadlines for making HSR filings; under current rules, parties can submit HSR filings at any time after executing a transaction agreement or letter of intent (LOI). See 3.2 Type of Agreement Required Prior to Notification.

Once the waiting period ends, the parties have one year to close the transaction before a new filing is needed. In the case of an acquisition of less than a controlling interest in a corporation, the Acquiring Person has one year to meet or cross the notification threshold (based on size-of-transaction) it reported on its filed HSR Form. Once the reported threshold is met or crossed, for four more years, the Acquiring Person may acquire further voting securities from the same Acquired Person without further HSR filing as long as the sum of the initial and further acquisitions does not cross the next, higher HSR notification threshold.

A signed agreement, such as a letter of intent, merger agreement, or purchase and sale agreement, typically must be submitted with each HSR filing, with the exception of certain types of transactions, such as tender offers, secondary acquisitions and certain bankruptcy transactions. Agreements need not be formal or binding, but parties must attest to a good faith intention to complete the transaction.

In June 2023, the FTC published a notice of proposed rule-making which would require parties to execute a definitive agreement or detailed term sheet, rather than proceed on the basis of a simple LOI. As of July 2024, the new rules have not been published.

The size of the transaction reported on the parties’ HSR Form determines the filing fee. The following fee amounts and transaction value thresholds are effective beginning March 2024:

• USD30,000 for transactions valued in excess of USD119.5 million but less than USD173.3 million;
• USD105,000 for transactions valued at USD173.3 million or greater but less than USD536.5 million;
• USD260,000 for transactions valued at USD536.5 million or greater but less than USD1.073 billion;
• USD415,000 for transactions valued at USD1.073 billion or greater but less than USD2.146 billion;
• USD830,000 for transactions valued at USD2.146 billion or greater but less than USD5.365 billion; and
• USD2.335 million for transactions valued at USD5.365 billion or greater.

Fees may be paid prior to or upon filing. Delays in paying filing fees can delay the effective date of the filing. The Acquiring Person is responsible for payment of the filing fee, although it may be allocated between the parties by agreement. Fees are payable by electronic wire transfer (EWT), bank cashier’s check or certified check. Fees must be paid in US currency.

For most transactions, both the Acquiring and the Acquired Persons must submit separate HSR filings. As a matter of practice, parties typically co-ordinate on the content and timing of their respective filings.

A complete HSR filing consists of the HSR Form(s) (including required attachments and accompanying affidavit(s)) and the filing fee.

HSR Form

Among other requirements, the HSR Form requires each person to:

• describe the transaction’s structure;
• list US revenues for the most recent completed year by North American Industry Classification System codes (NAICS Codes) and, for manufacturing industries, by North American Product Classification System codes (NAPCS Codes);
• provide additional disclosures with respect to any overlapping lines of business, including prior transactions;
• submit all documents prepared by or for officers or directors for the purpose of evaluating or analysing the transaction with respect to competition, competitors, markets, market shares, potential for sales growth or expansion into product or geographic markets, as well as all confidential information memoranda, bankers’ books, other third-party consultants’ materials, and documents describing synergies and efficiencies (“4(c) and 4(d) documents”); and
• disclose information about each party’s controlled entities, significant shareholders and minority shareholdings.

An Acquiring Person must respond on behalf of itself and all its controlled entities. By contrast, an Acquired Person’s filing is largely limited to disclosures concerning the entities or assets being sold.

Unlike antitrust or merger control filings in other jurisdictions, parties are not currently required to describe the transaction’s impact on the market or competition. Instead, the Agencies rely on the 4(c) and 4(d) documents to assist in the assessment of the competitive impact of the transaction.

Parties are not required to translate HSR attachments into English but must provide any English-language versions that are available at the time of filing.

In June 2023, the FTC published a notice of proposed rule-making which would dramatically expand the scope of information required in parties’ initial HSR filings. Among the many additions proposed are new narrative descriptions about the parties and their transaction, broader document production requirements, and expanded disclosures about corporate governance. As of July 2024, the new HSR filing requirements have not been published.

The Premerger Notification Office of the FTC rejects as incomplete filings missing required information (often referred to as “bouncing” an HSR notification). If the HSR filing is incomplete, the waiting period will not begin until the requisite information is provided. As long as parties observe the waiting period and take steps to cure any filing deficiencies, no fines will be levied.

Acquiring or Acquired Persons that consummate a reportable transaction based on an incomplete or inaccurate HSR Form may be subject to civil penalties. Additionally, an individual who knowingly signs an incomplete or inaccurate HSR Form on behalf of the Acquiring or Acquired Person may be subject to criminal prosecution for perjury.

Initial Waiting Period

The “initial waiting period” (30 calendar days or 15 days in the case of cash tender offers and certain bankruptcy transactions) begins when both parties have filed their HSR Forms (or when an acquirer files in the case of acquisitions of voting securities or non-corporate interests from third parties). If the initial waiting period expires without either Agency taking any action, the parties may consummate the transaction.

During the initial waiting period, either Agency may open a preliminary investigation of the proposed transaction to identify competitive issues and determine whether further information is required. An Agency may request briefings with the parties and/or request that the parties provide additional information on a voluntary basis.

Under the HSR Rules, parties to a transaction may restart the waiting period once with no additional filing fee by withdrawing the filing and refiling within two business days. This “pull-and-refile” process effectively extends the initial waiting period by an additional 30 days to allow time to address unresolved issues and potentially avoid a second request.

Second Request

Before the end of the initial waiting period, the reviewing Agency may choose to issue a “second request” formally requesting additional documents and information. The issuance of a second request suspends the waiting period while the parties respond and certify substantial compliance. Once each party has substantially complied with its second request, a second waiting period begins (typically 30 days, or 10 days in the case of a cash tender offer or bankruptcy filing). If the reviewing Agency does not seek to block the transaction during the second waiting period, the parties may consummate the transaction.

For most transactions, pre-notification discussions with the Agencies are not required. When a transaction is likely to raise significant competitive concerns, parties may engage the Agencies in pre-notification discussions to provide additional time to review the transaction and reduce the risk or narrow the scope of a second request.

Voluntary Access Letter

If the reviewing Agency opens a preliminary investigation, the reviewing Agency may issue a “voluntary access letter” during the initial HSR waiting period. A voluntary access letter requests information that is not required in the HSR filing, such as strategic and marketing plans, information on overlapping products, market share information, top customer contact information, customer win/loss data, competitor and supplier lists, and other information. Parties should be prepared to respond to a voluntary access letter within a few days. Prompt co-operation increases the likelihood that the reviewing Agency will be able to resolve competitive concerns within the initial waiting period.

Second Request

If competitive concerns are not resolved at the end of the initial waiting period, the reviewing agency may issue a “second request”, which generally extends the waiting period until 30 days after compliance. A second request is a voluminous demand for documents and data as well as detailed interrogatories. Second requests are extraordinarily burdensome and costly. A typical second request response includes millions of pages of documents and compliance may take several months. Both Agencies have published model second requests that provide examples of the type of information typically requested.

Parties that receive second requests may enter into a timing agreement with the Agency establishing protocols for compliance with a second request, milestone dates for events leading up to substantial compliance, and extensions of time for the Agency to make an enforcement decision after waiting period expiry. Both Agencies have published model timing agreements on their websites.

All transactions subject to HSR notification requirements must complete an HSR filing. There is no short form or simplified procedure.

Historically, the Agencies granted “early termination” of the initial waiting period for transactions that posed little competitive risk. If early termination is granted, the names of the parties to the transaction are published in the Federal Register and posted on the FTC’s website. In February 2021, the Agencies announced they would temporarily stop granting early termination. As of July 2024, the Agencies have not resumed granting early termination.

A detailed guide to the Agencies’ approach to merger analysis is contained in the 2023 Merger Guidelines. The 2023 Merger Guidelines outline a wide range of theories of competitive harm for both horizontal and non-horizontal transactions, and signal continued aggressive merger enforcement, consistent with the Agencies’ public statements and actions in the first three years of the Biden Administration.

In general, the Agencies review a proposed transaction to determine whether the transaction will create, enhance, or entrench market power or facilitate its exercise. The Agencies consider whether a horizontal transaction is likely to reduce competition or negatively impact consumers (eg, result in increased prices or reduced output, quality or innovation) either because (i) the merged firm will have sufficient market power such that raising prices or reducing output, quality or innovation will be profitable, or (ii) there will be so few firms left in the market that the remaining firms will be able to co-ordinate their conduct. The Agencies consider vertical issues of whether a transaction will combine market power at different levels of the supply chain in a manner that might create the incentive and ability to disadvantage rivals or provide access to competitively sensitive information of competitors. The Agencies also examine trends towards consolidations, serial acquisitions, multi-sided platforms, potential competition, labour market effects, and the potential impact of minority interests, among other issues.

To block a transaction, the Agencies must show in court that a transaction is likely to substantially reduce competition or tend to create a monopoly in a relevant market.

Affected markets are defined on both a product and geographic dimension. In general terms, relevant product markets comprise all the products and services that customers perceive as close substitutes; a geographic market is that area where customers would likely turn to buy the goods or services in the product market. Recently, the Agencies have also focused on a transaction’s potential effects on labour markets, particularly where the parties draw their work force from a common pool of employees.

In addition to econometric analysis, the Agencies also consider a variety of qualitative factors, such as industry recognition of the product as its own market and whether the product has peculiar characteristics and uses, unique production facilities, distinct customers, distinct prices, and/or specialised vendors.

There is a significant body of merger jurisprudence in the US courts. The Agencies do not rely on case law from other jurisdictions in making enforcement decisions but may co-ordinate with foreign competition authorities on individual merger investigations.

The Agencies have investigated mergers under theories of unilateral effects, co-ordinated effects, the elimination of potential competition, and vertical merger theories of foreclosure of competitors and raising rivals’ costs. In 2023, the FTC also brought a challenge to a pharmaceutical merger based on a conglomerate bundling theory of harm (Amgen/Horizon). The current leadership has expressed interest in moving away from the traditional “consumer welfare” standard (which focused on impacts on consumers from increased prices, lower quality and reduced innovation) to considering a broader range of factors, including harms to workers, monopsony, conglomerate effects, aggregation of data, exclusionary practices, cross-market effects and increased ownership by private equity firms.

Labour market issues are a particular priority for the Biden administration, and consequently impacts on workers have become significantly more important in merger reviews and challenges over the last three years. The Agencies’ 2023 Merger Guidelines specifically address review of a transaction’s potential effects on labour markets by articulating principles of market definition and theories of harm to workers that may result from lessened competition in labour markets.

The Agencies will consider economic efficiencies generated by a transaction as a potential offset to competitive concerns. Both Agencies have expressed scepticism about efficiency justifications, however, and the “efficiencies defence” has not been routinely accepted by courts.

The burden on parties to demonstrate efficiencies is significant, and when a reviewing agency believes a transaction would harm competition, even well-documented and substantial efficiencies are unlikely to fully resolve concerns.

Parties must provide evidence that the asserted efficiencies are likely to occur, cannot be accomplished through other means, and are sufficient to counteract the proposed transaction’s harm to consumers. For efficiencies to be recognised, they must be quantifiable, verifiable and merger-specific and cannot result in any anti-competitive reduction in output or service. The Agencies will not consider vague or speculative claims.

Historically, the Agencies have not considered non-competition issues when analysing proposed transactions. The current leadership, however, has expressed a broader view of the role of antitrust than previous administrations, arguing that vigorous antitrust enforcement plays a role in supporting the “preservation of our democratic political and social institutions”. In addition to considering a broader range of competition effects, including effects in labour markets (see 4.4 Competition Concerns), the Agencies have suggested that they will consider impacts of transactions on a variety of factors, including the environment, social and racial inequity, and privacy.

The Agencies typically review joint ventures (JVs) by analysing their overall competitive effect. JVs may be pro-competitive if they allow participants to provide goods or services that are less expensive, more valuable to consumers, or brought to market faster than would be possible without the JV. JVs may harm competition if they reduce the JV parties’ incentives to compete against one another, if the parties’ independent decision-making is limited outside the JV because of combined control or combined financial interests, or if the JV facilitates collusion.

The judicial processes that each Agency may pursue to block a transaction differ.

DOJ

To obtain an order to either block a proposed transaction or unwind a completed transaction, the DOJ must file in federal district court a complaint and motions for a preliminary injunction (if the transaction has not closed) and a permanent injunction.

To obtain a preliminary injunction to prevent a transaction closing pending a decision on the merits, the DOJ must show that its likelihood of success on the merits and the threat of irreparable harm outweigh any potential harm to the defendant and any opposing public interest in granting the injunction. To prove a Section 7 violation and obtain a permanent injunction, the DOJ has the burden to demonstrate with a “reasonable probability” (ie, greater than a “mere possibility” but less than a “certainty”) that the merger will, or currently does, substantially lessen competition. Frequently, courts collapse the preliminary and final injunction hearings into one. The losing party may appeal to the federal court of appeals for the relevant circuit.

FTC

The most common path that the FTC follows to challenge a proposed merger is to seek a preliminary injunction in federal district court under Section 13(b) of the FTC Act, while simultaneously filing an administrative complaint under Part 3 of the FTC Rules seeking an order that the transaction violates the FTC Act (“Part 3 proceedings”). If a transaction has already closed, the FTC proceeds under Part 3 only. If the FTC fails to obtain a preliminary injunction (and does not appeal or loses an appeal of the preliminary injunction decision), its current policy is to discontinue Part 3 proceedings unless continuing to do so would serve the public interest.

To obtain injunctive relief under Section 13(b), the FTC need only make “a proper showing that, weighing the equities and considering the Commission’s likelihood of ultimate success, such action would be in the public interest”. This is understood to be a lower standard than the “balancing of the equities” standard applying to DOJ preliminary injunction cases.

Administrative complaints are litigated before an administrative law judge (ALJ), an FTC employee appointed by the Office of Personnel Management. The ALJ’s initial decision and order may be appealed to the full Commission, whose decision may then be reviewed by the federal court of appeals.

The Agencies have traditionally accepted remedies to address competitive concerns. Over the last several years, both Agencies have expressed a strong preference for structural remedies and scepticism of the effectiveness of behavioural remedies. More recently, both Agencies have indicated that merger remedies will only be available as a way to address competitive concerns in exceptional cases, which is borne out by their recent enforcement activities. See 10.2 Recent Enforcement Record.

While remedy discussions may take place at any stage in the review process, they rarely begin before the Agency staff have investigated the transaction and identified concerns. In transactions with narrow but obvious concerns, parties may approach the Agency early with a pre-arranged “fix”.

The FTC’s 2012 Negotiating Remedies Manual and DOJ’s 2020 Merger Remedies Manual provide insight into the Agencies’ negotiating process and requirements, but may not fully reflect the preferences of the current administration.

When the Agencies determine that a horizontal merger is likely to have anti-competitive effects, the Agencies generally prefer structural remedies consisting of divesting an ongoing standalone business unit. Structural divestitures consisting of less than a standalone business must include all assets (or licences to those assets) necessary for the divestiture purchaser to be an effective, long-term viable competitor of the merged entity. The Agencies typically require the parties to obtain prior approval of a contractually bound buyer for the divested assets before they will approve the consent agreement.

As mentioned above, the Agencies accept behavioural or conduct remedies in very limited circumstances and have expressed scepticism about whether behavioural remedies are effective. See the Trends and Developments chapter of this guide for further discussion.

In very rare cases, the Agencies have also pursued disgorgement of profits in consummated mergers as a remedy. The FTC’s authority to obtain disgorgement is currently in question under a recent Supreme Court ruling.

In September 2020, the DOJ issued its most recent Merger Remedies Manual, which states that the DOJ will insist on a remedy that preserves competition and resolves the anti-competitive problem. Similarly, the FTC’s 2012 Negotiating Merger Remedies Statement notes that “acceptable” remedies must “maintain or restore competition in the markets affected by the merger”.

The Agencies have different procedures for accepting and finalising negotiated remedies.

DOJ

The parties and the DOJ staff negotiate a consent agreement in the form of a Proposed Final Judgment (PFJ). Once the PFJ has been approved by the Assistant Attorney General, the Agency files in federal district court a complaint, the PFJ and a competitive impact statement. The court enters a preliminary order accepting the PFJ, which usually permits the parties to close the transaction. Under the Tunney Act, the DOJ must publish the PFJ and related materials for a 60-day public-comment period, following which it submits a report to the court that the PFJ is in the “public interest” and the court makes the PFJ final. The Tunney Act process is usually uneventful; however, in one notable case (CVS/Aetna, 2019), a judge did ask the parties to hold the acquired business separate pending public comment, and conducted hearings with live witnesses before concluding that the settlement was in the public interest.

FTC

The parties and the FTC staff negotiate a proposed consent agreement, which must be signed by the staff and merging parties, approved by the Director of the Bureau of Competition, and approved by a majority of the Commissioners. At this point, the parties are usually permitted to close their transaction. The FTC then opens a 30-day public comment period, issuing a complaint, provisional Decision and Order, and an Analysis of Proposed Consent Order to Aid Public Comment. Following the public comment period, the FTC can accept the Decision and Order as final, reject it, or revise it.

Conditions and Timing

See 5.4 Negotiating Remedies With Authorities.

Monitoring and Enforcement

The Agencies monitor and enforce compliance with negotiated remedies. Where provided in the consent agreement, the Agencies may also appoint monitors to ensure the compliance and effectiveness of the remedy.

The Agencies do not affirmatively approve proposed mergers. They simply allow the HSR waiting period to expire or terminate the waiting period early. Occasionally, for significant transactions, the Agencies will issue a press release when closing an investigation and/or a “closing statement” explaining the reasons for closing the investigation, such as the DOJ’s July 2020 statement on the closing of its investigation of London Stock Exchange Group and Refinitiv.

Challenges to mergers are public. Complaints are filed in federal district court (and in the case of the FTC, Part 3), and appear on public court and agency dockets. In addition, the Agencies make press releases when challenging mergers. Court and Part 3 decisions in merger challenges are on the public record.

The Agencies may seek remedies or challenge foreign-to-foreign transactions where the transactions impact US markets. For example, in June 2021, the DOJ filed suit to block UK firm Aon PLC’s proposed USD30 billion acquisition of UK company Willis Tower Watson, alleging the transaction would eliminate competition in US markets by merging two of the “Big Three” global insurance brokers. Shortly after the DOJ filed suit to block the transaction, Aon and Willis abandoned the merger.

Parties must submit the transaction agreement as well as any agreements not to compete and any other agreements between the parties with their HSR filings. The Agencies will review the transaction as a whole and may raise concerns about ancillary restraints in the review process. Recently, employment-related non-compete agreements have been a particular focus of review. Typically, parties amend ancillary agreements rather than jeopardise clearance of the entire transaction.

Complaints and Agency-solicited input from customers, suppliers, competitors and other industry participants often meaningfully inform merger review. Customer complaints are typically most influential; however, input from other industry participants can also be important in identifying non-reportable transactions or causing the Agencies to look more closely at certain aspects of a transaction.

Third parties may challenge transactions in district court, although such actions are rare. See 1.3 Enforcement Authorities.

The Agencies routinely seek input from customers, suppliers, competitors and other third parties to confirm or complement staff’s competitive analyses of proposed transactions or remedies. The Agencies frequently interview customers, suppliers and competitors. The Agencies may also issue subpoenas for depositions (DOJ) or investigational hearings (FTC) and frequently request documents and information from third parties either voluntarily or through Civil Investigative Demands (CIDs) and subpoenas.

All materials submitted by the Acquiring and Acquired Persons under the HSR Act are confidential under the Freedom of Information Act, subject only to public disclosure if the transaction is challenged by one of the Agencies. The “fact of filing” is also confidential, unless disclosed by the parties themselves, or unless early termination is requested and granted, in which case the parties’ names are published in the Federal Register and on the FTC’s website. Additionally, such confidential information may be disclosed to a committee or subcommittee of Congress.

The confidentiality of information obtained from third parties through informal phone calls and meetings, or through formal Civil Investigative Demands (CIDs), and the identity of third parties under either process, is statutorily protected.

The USA has bilateral and/or multilateral co-operation agreements including commitments to consult and co-operate on competition matters and to properly maintain the confidentiality of shared information with 13 jurisdictions: Germany, Australia, the EU, Canada, the UK, Brazil, Israel, Japan, Mexico, New Zealand, Chile, Colombia and Peru. The Agencies have also entered into less-formal, non-binding memoranda of understanding with competition agencies in Russia, the People’s Republic of China, India and South Korea. The Agencies also co-operate through multilateral organisations including the Organisation for Economic Co-operation and Development (OECD) and International Competition Network (ICN).

When competition issues span multiple jurisdictions, the Agencies may exchange views and information with their foreign counterparts; however, to share information submitted by the parties, the Agencies must first obtain a waiver of confidentiality. Parties typically agree to such waivers to appease enforcers and potentially avoid incompatible remedies. The Agencies have released a joint model waiver of confidentiality.

As discussed in 5.1 Authorities’ Ability to Prohibit or Interfere With Transactions and 5.6 Issuance of Decisions, the Agencies must seek an injunction in federal district court to stop a proposed transaction from closing after the expiration of the HSR waiting period. The parties or the Agencies may appeal this decision to the federal court of appeals for the relevant circuit. The parties may also appeal adverse FTC Part 3 decisions to the full Commission and appeal Commission decisions to a federal court of appeals.

Appeals can take many months to conclude and are rarely pursued.

Third parties do not have the right to appeal an Agency’s decision not to challenge a transaction. Third parties with standing may, however, bring a private action against the merging parties under the Clayton Act or Sherman Act. See 1.3 Enforcement Authorities.

Foreign Direct Investment

The Committee on Foreign Investment in the United States (CFIUS) is an interagency body that has jurisdiction to review any transaction that may result in foreign control of a US business. CFIUS also has jurisdiction over transactions that involve a foreign actor obtaining a non-controlling interest in certain types of businesses that are of special concern to US national security (referred to as “TID” businesses since they involve ”critical Technologies” or “critical Infrastructure” or the collection or maintenance of “sensitive personal Data” of US citizens). Most CFIUS filings are voluntary, but a filing is mandatory for acquisitions in which (i) a foreign government actor will obtain a substantial interest in a US TID business, or (ii) any foreign actor will acquire an interest in a US business associated with technologies that require US regulatory authorisation for export or transfer. CFIUS can impose penalties for a failure to file a mandatory transaction.

CFIUS evaluates each transaction it reviews along three dimensions:

• the ability and intention of the acquirer to harm national security (“threat”);
• the degree to which the target US business is susceptible to exploitation by the acquirer (“vulnerability”); and
• the reasonably foreseeable impact on US national security (“consequence”).

CFIUS tends to focus on transactions involving the defence industry, emerging technologies, critical infrastructure, and the mass collection of sensitive personal data. While CFIUS’s enabling legislation and regulations apply equally to acquirers of all nationalities, acquirers with ties to China have tended to receive greater scrutiny. If CFIUS determines it has national security concerns about a given transaction, it can negotiate with the parties to put in place measures that mitigate those concerns (eg, limiting access to sensitive systems or facilities to US personnel) or it may recommend that the President block the transaction altogether. A Presidential block is rare – fewer than ten transactions have been blocked in the 40-plus years CFIUS has been in existence.

CFIUS has historically focused on inbound investment. Pursuant to President Biden’s August 2023 Executive Order, a new Outbound Investment Program (OIP) will be established to regulate outbound investments, focusing on investments into China in the areas of semiconductors and microelectronics, quantum information technologies, and artificial intelligence. Parties should monitor OIP implementation to ensure their transactions comply with all operative requirements.

Foreign Merger Subsidy Disclosure Act

Under the Foreign Merger Subsidy Disclosure Act (FMSDA), signed into law in December 2022, parties filing pre-merger notifications under the HSR Act will be required to disclose information about subsidies they receive from “foreign entities of concern”, such as entities controlled by China, Iran, North Korea, Russia, and other entities included on the Specially Designated Nationals and Blocked Persons List (SDN).

The HSR thresholds are adjusted annually, and changes in the interpretations of the HSR Act and its regulations – issued by the Premerger Notification Office of the FTC – are common. As of July 2024, the FTC and DOJ are finalising revisions to the HSR Rules.

Policy Changes

As noted in 3.11 Accelerated Procedure, in February 2021, the Agencies announced they would temporarily stop granting early termination during the initial HSR waiting period. That change is still in place at the time of publication of this guide (July 2024).

In October 2021, the FTC announced a policy of requiring all merging parties subject to an FTC remedy order to obtain prior approval for a minimum of ten years before closing any future transactions affecting any relevant markets in which a violation was alleged. Prior approval requirements may even extend beyond the narrow markets affected by the original transaction, and the FTC has claimed it may pursue prior approval requirements even if a transaction is abandoned. Transactions subject to prior approval will not benefit from HSR Act review timelines or the ability to force the FTC to sue to block a deal, and accordingly prior approvals may take significantly longer than traditional HSR review. Additionally, all buyers of divested assets must seek prior approval for a minimum of ten years before selling assets acquired through consent decrees.

In November 2022, the FTC announced a new policy regarding Section 5 of the FTC Act, which covers “unfair methods of competition”. The FTC’s previous policy applied Section 5 only in a narrow set of circumstances, when a restraint of trade was unreasonable in economic terms. Under the updated policy, the FTC will broaden its approach to Section 5 to address conduct such as “mergers, acquisitions, or joint ventures that have the tendency to ripen into violations of the antitrust laws”.

Recently Enacted Legislation

The Merger Filing Fee Modernization Act of 2022, adopted in December 2022, made significant changes to the schedule of HSR filing fees, including much larger filing fees for high-value acquisitions (see 3.3 Filing Fees); requires HSR filings to include a detailed accounting of any subsidy a filing person has received from a foreign government; and limits litigants’ ability to transfer and consolidate antitrust actions brought by State Attorneys General into multi-district litigations.

Pending Rule-Making

In June 2023, the FTC published a notice of proposed rule-making which would dramatically expand the scope of information required in parties’ initial HSR filings. (See 3.2 Type of Agreement Required Prior to Notification and 3.5 Information Included in a Filing.) Parties filing HSR in 2024 should monitor the FTC’s progress through the rule-making process to ensure their filings meet all operative requirements.

Remedies

Under the Biden administration, both Agencies have noted that they prefer to block transactions outright rather than accept remedies that they believe do not fully preserve competition. The Agencies have expressed scepticism that remedies effectively preserve competition and have increasingly rejected the use of behavioural remedies.

In 2023, the FTC accepted remedies in only three cases, two of which the FTC accepted only after first challenging the transactions in court (Intercontinental Exchange/Black Knight; Amgen/Horizon). In 2024, as of May 1st, the FTC has accepted one remedy (Exxon/Pioneer). The DOJ accepted one remedy proposal in 2023 after challenging the transaction in court (Assa Abloy/Spectrum Brand Holdings) and in 2024 has not accepted any remedy proposals as of May 1st.

Enforcement Actions

The Agencies have undertaken several merger enforcement actions in 2023 and 2024. Enforcement actions can take several forms:

• settling with negotiated remedies at the conclusion of an investigation (two cases);
• challenging a transaction in court (ten cases, in two of which the parties abandoned the transaction shortly after the complaint was filed).

Between 1 January 2023 and 1 May 2024, the Agencies have won two cases, lost two cases, and settled three cases. In over half of in-depth merger reviews over this period in which the Agencies have filed a complaint or raised serious concerns pre-complaint, parties have opted to abandon proposed transactions rather than face their chances in litigation, in one case restructuring the transaction voluntarily. There are several active merger litigations ongoing.

Fines

As discussed in 2.2 Failure to Notify, the FTC routinely seeks penalties for repeat offenders that fail to file a required HSR Notification. In 2021, in US v Clarence L Werner and US v Biglari Holdings, Inc, the DOJ settled claims that the defendants had unlawfully failed to report their acquisitions for USD486,900 for 4,708 days of non-compliance and USD1.4 million for 126 days of non-compliance.

The Biden administration has taken an aggressive stance on antitrust enforcement and sought to embolden federal antitrust agencies in challenging mergers and other potentially anti-competitive conduct. See further discussion in the US Trends and Developments chapter of this guide.

DOJ

At the DOJ, Assistant Attorney General Kanter’s enforcement agenda includes:

• championing a move away from the consumer welfare standard (which focuses on a transaction’s effects on output, price and quality) towards an approach that focuses on rivalry and competition;
• reassessing “outdated” precedents in light of “new market realities”;
• litigating rather than settling cases with the intent to establish new case law; and
• bringing more monopolisation cases.

Under Kanter’s leadership, since 2021 the DOJ has challenged or threatened to challenge multiple transactions. The DOJ has had a mixed record in its challenges, winning its challenges to Penguin Random House’s proposed acquisition of Simon & Schuster, and Jet Blue’s acquisition of Spirit. DOJ lost its challenges to United Healthcare’s acquisition of Change Healthcare, Booz Allen’s acquisition of EverWatch, and US Sugar’s acquisition of Imperial Sugar Company. It settled its challenge to Assa Abloy’s acquisition of Spectrum Brand Holdings. In several other cases, DOJ concerns and/or challenges have caused deals to be abandoned.

FTC

At the FTC, Chair Khan has set out an aggressive enforcement agenda. Her broad vision for the Commission calls for a strategic approach that, among other things, targets “root causes” of harm, focuses on “structural incentives that enable unlawful conduct”, and implements forward-looking action, particularly regarding next-generation innovation and nascent industries. Under Chair Khan, the FTC has implemented wide-ranging policy changes designed to discourage mergers.

Since 2021, the FTC successfully challenged a merger of two New Jersey hospitals in Hackensack Meridian/Englewood, successfully challenged IQVIA’s acquisition of Propel Media, and also issued an order prohibiting the acquisition of Grail by Illumina (overturning a decision by the FTC Administrative Law Judge, who found for the parties). Illumina announced it would divest Grail after the Fifth Circuit largely upheld the FTC’s ruling against the merger. The FTC lost its challenges to Axon Entreprise’s acquisition of Safariland and Meta’s acquisition of Within Unlimited. It settled its challenges to Intercontinental Exchange’s acquisition of Black Knight, and Amgen’s acquisition of Horizon Therapeutics. In addition, the FTC has challenged or raised concerns pre-complaint in several other transactions, causing the parties to abandon their deals.

Limits to US Enforcement Efforts

The Agencies’ aggressive and emboldened enforcement approach under the Biden administration has faced a mixed reception in US courts. Nevertheless, the Agencies’ persistent willingness to challenge transactions rather than accept remedies will continue to have a chilling effect on companies reluctant to become test cases for the Agencies’ unconventional theories of harm.