Federal Trade Commission’s Pre-Consummation Warning Letters Signal New Risk of Closing After Hart-Scott-Rodino Act Waiting Period Expiration
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On Tuesday, August 3, 2021, the Federal Trade Commission announced a new approach for merger investigations that the FTC does not complete during the Hart-Scott-Rodino Act (HSR) waiting period—the FTC may advise merging parties via a Warning Letter that its investigation remains open despite the expiration of the HSR waiting period.
The FTC announced on August 3, 2021 that it has begun issuing "Pre-Consummation Warning Letters" for transactions that it cannot fully investigate within the HSR waiting period, which is generally 30 days (or 15 days for cash tender offers and certain bankruptcy transactions).1
A blog post from Holly Vedova, Acting Director of the FTC's Bureau of Competition, explains that a "tidal wave of merger filings" has strained the FTC's ability to sufficiently investigate deals within the HSR Act’s deadlines.2 It is unclear whether the FTC's issuance of Pre-Consummation Warning Letters is permanent—however, it does come on the heels of the FTC's "temporary" suspension of early termination under the HSR Act that was put in place eight months ago.3 Both the continued suspension of early termination and issuance of Pre-Consummation Warning Letters come at a time of new FTC leadership, with Lina Khan having assumed the role of FTC Chair in June, and an increasing interest in antitrust from lawmakers on Capitol Hill. Pre-Consummation Warning Letters, announced as an exigency measure, may not be going away anytime soon, but it remains unclear if this is a temporary measure due to the FTC's limited resources. The Antitrust Division of the Department of Justice (DOJ) has not yet indicated whether it intends to adopt a similar procedure.
According to the FTC's August 3, 2021 blog post, the FTC will send a Pre-Consummation Warning Letter to certain merging parties when the FTC is not able to sufficiently investigate a merger transaction within the HSR waiting period and will advise that while the merging parties are legally permitted to close they do so at their own peril because the FTC's investigation is ongoing.4 The FTC has declined to say how many warning letters the agency has issued so far under the new policy and whether it will report those figures publicly.
Notably, the FTC's and DOJ's enforcement powers are not (and have never been) limited whether or by how long a deal has been closed.5
While the FTC and DOJ have always had the power to challenge consummated transactions, whether previously cleared by the FTC or DOJ or non-reportable,6 in the past, the FTC only sent warning letters in the most severe instances where parties threatened to merge while a review remained open.
The new policy comes at a time when there has been an uptick in challenges to non-reportable and cleared transactions in recent years, including legal challenges to acquisitions cleared after investigation by the FTC.7
A recent survey noted that the two US antitrust agencies have brought 51 cases challenging consummated mergers over past 3 decades.8 23 of them were not HSR-reportable, 6 were HSR-reportable, and 22 not specified.9 The challenged cases arise from a variety of industries, including healthcare, digital, oil and gas, telecommunication, and education.10
There is no clear answer to how long after consummation DOJ or FTC may challenge a previously blessed merger. Based on the "Time of Suit" doctrine derived from United States v. E.I. du Pont de Nemours & Co., 353 U.S. 586 (1957), consummated mergers may be challenged at "any time when the acquisition threatens to ripen into a prohibited effect."11 The survey discussed above suggests that it could be as short as three days or as long as eight years after the closing.12 In addition to creating uncertainty, consummated merger challenges also create issues like how to successfully "unscramble the egg," what are the appropriate remedies for anticompetitive effects, and whether it is fair for the parties in transaction to be penalized for unexpected market circumstances.13
Although expiration of the HSR waiting period never provides permanent, unimpeachable approval of the antitrust agency, merging parties could traditionally have a reasonable amount of assurance that if the HSR waiting period expired, there was not a continuing investigation or significant risk of an impending merger challenge. A recent decision dismissing an FTC challenge to a consummated merger suggests that challenges to long-ago transactions may differ from challenges to more recently completed or forthcoming transactions because older transactions may be subject to the doctrine of laches.14
Workers and Honest Businesses. As mentioned in other policies of the new Administration, the FTC's Pre-Consummation Warning Letter also goes beyond the traditional focus of the impact of mergers on competition and consumer welfare. The model Warning Letter suggests additional grounds for merger investigation and perhaps merger challenge by mentioning the agency's interest in mergers that harm "workers" and "honest businesses."15 In the past, the FTC has generally referred to "honest businesses" within the context of protecting consumers against fraud and the like, which raises the possibility that here, Pre-Consummation Warning Letters may be issued to investigate a broader range of conduct than one would expect in a traditional merger investigation.16 Is "honest business" a reference to small- and medium-sized business in the manner of European competition? Time will tell.
Practical Implications. The FTC's new process certainly alters this status quo—clearly indicating that the FTC can and will take action after the HSR waiting period has expired. Merging parties will be forced to grapple with how this announcement will affect the allocation of antitrust risk in merger agreements and how—and whether—to proceed to closing after receiving a Pre-Consummation Warning Letter. Only time will tell whether the FTC's new approach has more bark than bite, or whether the issuance of Pre-Consummation Warning Letters becomes a common practice.
Issues for Parties to Consider
- As a SELLER, do your antitrust covenants allow the Buyer to refrain from closing, even when the HSR waiting period has expired, because an investigation is still open?
- As a BUYER, can you refrain from closing (if desired) because an investigation is still open?
- As a BUYER, what are the realistic risks of a post-close investigation in any particular transaction?
- Do BOTH PARTIES have document preservation obligations on an indefinite basis upon receipt of an FTC warning letter?
Re: Company A Side/Company B Side Transaction, FTC File No. XXX-XXXX
Dear Ms. Doe:
As you know, the Federal Trade Commission’s Bureau of Competition has been conducting a nonpublic investigation to determine whether the above-referenced transaction may violate Section 7 of the Clayton Act, 15 U.S.C. § 18, or Section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45. Although the waiting period will expire imminently, the Commission’s investigation remains open and ongoing.
Please be advised that if the parties consummate this transaction before the Commission has completed its investigation, they would do so at their own risk. Any inaction by the Commission before the expiration of the waiting period should not be construed as a determination regarding the lawfulness of the transaction. Indeed, no such determination could be made, unless and until the Commission completes its investigation. The parties cannot stop the investigation or avoid an enforcement action by consummating. To the contrary, and in keeping with its commitment to aggressive enforcement, the Commission may challenge transactions—before or after their consummation—that threaten to reduce competition and harm consumers, workers, and honest businesses.
Accordingly, even if the parties consummate the above-referenced transaction, the Commission may still take further action as the public interest may require, which may include any and all available legal actions and seeking any and all appropriate remedies.
1 See Holly Vedova, Adjusting Merger Review to Deal with the Surge in Merger Filings, Federal Trade Commission (Aug. 3, 2021), https://www.ftc.gov/news-events/blogs/competition-matters/2021/08/adjusting-merger-review-deal-surge-merger-filings.
2 See id.
3 Rebecca H. Farrington et al., Grants of Early Termination of HSR Waiting Period Temporarily Suspended by DOJ and FTC – Merging Parties Should Expect to Wait the Full 30 Days until Further Announcement, White & Case LLP (Feb. 4, 2021), https://www.whitecase.com/publications/alert/grants-early-termination-hsr-waiting-period-temporarily-suspended-doj-and-ftc.
4 Sample Pre-Consummation Warning Letter, Federal Trade Commission (Aug. 3, 2021), https://www.ftc.gov/system
5 See Organisation for Economic Co-operation and Development, Investigations of Consummated and Non-Notifiable Mergers, Submission of the United States to the OECD Working Party No. 3 on Co-operation and Enforcement 8 (Feb. 25, 2014), http://www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=DAF/COMP/WP3/WD(2014)
23&docLanguage=En (noting that "In 1957, the [US] Supreme Court upheld a 1949 DOJ [Antitrust Division] suit challenging stock acquisitions that occurred in 1917-19, although Clayton Act challenges so many years after a transaction are exceptional.")
6 15 U.S.C. § 45(a); 15 U.S.C. § 18a(i)(1) (failure to take action "shall not bar any proceeding or any action with respect to such acquisition at any time under any other section of this Act or any other provision of law"). The FTC and DOJ can challenge transactions after consummation where "the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly." 15 U.S.C. § 18. The FTC can also challenge consummated transactions that lead to unfair methods of competition in violation of Section 5 of the FTC Act. 15 U.S.C. § 45. Additionally, Section 7 of the Clayton Act provides individual state attorneys generals and private plaintiffs with the ability to challenge consummated transactions. 15 U.S.C. § 18.
7 See generally Rebecca H. Farrington et al. Navigating Icebergs: A Brief Survey of Non-Reportable Transaction Enforcement Around the World, 20 The Antitrust Source (Aug. 2020), https://www.americanbar.org/content/dam/aba/publishing/antitrust_source/2020/august-2020/aug20_full_source.pdf.
8 See Practical Law Antitrust, Consummated Mergers Antitrust Enforcement Chart, Practice Law Antitrust (Apr. 2021),
11 United States v. E.I. du Pont de Nemours & Co., 353 U.S. 586 at 597 (1957).
12 See Practical Law Antitrust, Consummated Mergers Antitrust Enforcement Chart, Practice Law (Apr. 2021),
13 See Remarks of former FTC Commissioner Thomas Rosch at ABA meeting, Consummated Merger Challenges – The
Past Is Never Dead, Federal Trade Commission (March 29, 2012), https://www.ftc.gov/sites/default/files/documents/public_
statements/consummated-merger-challenges-past-never-dead/120329springmeetingspeech.pdf; see also ABA Competition/Consumer Protection Policy and North American Comments Task Force, Analyzing the
Scope of Enforcement Actions Against Consummated Mergers in a Time of Heightened Scrutiny, ABA Antitrust Law Section (Apr. 2020), https://ourcuriousamalgam.com/wp-content/uploads/Consummated-Mergers-Policy-Task-Force-Apr-2020-FINAL.pdf.
14 See FTC v. Facebook, Inc., No. 20-3590 (JEB), 2021 U.S. Dist. LEXIS 119540, at *79 (D.D.C. June 28, 2021) (noting that scholars and courts have suggested that the laches doctrine could apply to challenges to long-ago consummated mergers, including by altering burdens of proof or available remedies).
15 Sample Pre-Consummation Warning Letter, supra note 4.
16 See, e.g., Statement of Commissioner Rohit Chopra, In re Truly Organic, File No. 1923077 (Sept. 19, 2019), https://www.ftc.gov/system/files/documents/public_statements/1544655/commisisoner_rohit_chopra_statement_on_truly_organic_sept_19_2019.pdf ("[A]ddressing unlawful conduct that is dishonest or fraudulent. . . . the Commission should commit itself to exercising its full authority to protect . . . honest businesses.").
17 Sample Pre-Consummation Warning Letter, Federal Trade Commission (Aug. 3, 2021), https://www.ftc.gov/system
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