On this page you will read detailed information about Merger Control in the United States.
As attorneys, you evaluate potential mergers and acquisitions for regulatory compliance. The United States has a robust merger control system to preserve competition and protect consumers. This article provides you with an overview of key aspects of merger control in the U.S., including the Hart-Scott-Rodino Antitrust Improvements Act notification requirements, the agencies that review transactions, the substantive tests they apply, and the potential outcomes of agency reviews. Understanding these fundamentals will assist you in advising clients on reportable transactions and strategies to obtain regulatory clearance. With a complex regulatory landscape, insight into the U.S. merger review processes equips you to guide companies pursuing mergers and acquisitions.
Introduction to Merger Control in the United States
The United States has a long-established regime of merger control law and policy. The primary statutes governing merger review are Section 7 of the Clayton Act and the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act). Section 7 prohibits mergers and acquisitions that may substantially lessen competition or tend to create a monopoly. The HSR Act requires parties to notify the Federal Trade Commission (FTC) and Department of Justice (DOJ) of mergers and acquisitions that meet certain thresholds, allowing the agencies to review the competitive impact of the proposed transaction.
The FTC and DOJ share responsibility for federal merger review in the U.S. They review proposed mergers to determine whether they would violate Section 7 of the Clayton Act. The agencies assess whether the merger may lead to anticompetitive effects, such as increasing prices, reducing quality or innovation, or diminishing consumer choice. If the agencies identify competitive concerns, they may try to obtain concessions to remedy them or challenge the merger in court to prevent it from going through.
The HSR Act established a pre-merger notification program requiring parties to file a pre-merger notification with the FTC and DOJ prior to completing their transaction. The purpose of the HSR Act is to allow the agencies adequate time to review proposed mergers and take action as needed before the companies have combined operations. The specific requirements for pre-merger notification filings depend on the size of transaction, based on various thresholds that are adjusted annually based on changes in gross national product.
In summary, U.S. merger control laws aim to prevent anticompetitive mergers before they happen while balancing the benefits of corporate restructuring. The FTC and DOJ work together to review proposed mergers that meet the notification thresholds under the HSR Act to ensure compliance with Section 7 of the Clayton Act and protect consumers. Careful analysis of competitive effects helps guide enforcement decisions and shape appropriate remedies.
Key Laws and Regulations Governing Merger Control
The primary statutes governing merger control in the United States are the Clayton Act of 1914 and the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act).
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The Clayton Act
The Clayton Act prohibits mergers and acquisitions that may substantially lessen competition or tend to create a monopoly. Section 7 of the Clayton Act is the primary antitrust provision applied to mergers. It prohibits mergers between direct competitors (horizontal mergers) and between companies in a supplier-customer relationship (vertical mergers) that may substantially lessen competition.
The HSR Act
The HSR Act requires companies to notify federal antitrust authorities at the Federal Trade Commission (FTC) and the Antitrust Division of the Department of Justice (DOJ) prior to completing certain mergers, acquisitions or share purchases. The notification requirements are triggered if the transaction meets minimum size thresholds. Failure to comply can result in significant civil penalties.
The HSR Act also imposes a waiting period before the parties can complete the transaction. The initial waiting period is typically 30 days, which gives the agencies time to review the proposed deal and determine if further investigation is needed. The agencies can issue a “Second Request” for additional information to extend the waiting period.
Enforcement
The FTC and DOJ share authority to enforce the antitrust laws relating to mergers. Either agency can investigate potentially anticompetitive mergers and seek to block deals or require divestitures or other remedies to address competitive concerns. Most large mergers are reviewed by both agencies under the clearance process, but only one agency will take the lead in the investigation.
In summary, companies planning mergers or acquisitions in the U.S. must ensure compliance with the notification and waiting period requirements of the HSR Act. The antitrust agencies can challenge deals that may substantially lessen competition under the Clayton Act. Careful planning and analysis of antitrust risks is important for any M&A transaction.
The Merger Review Process by the DOJ and FTC
The Department of Justice (DOJ) and the Federal Trade Commission (FTC) are responsible for reviewing proposed mergers and acquisitions in the U.S. to evaluate their impact on competition. Both agencies follow a similar multi-step process to review deals.
Initial Review
The first step is an initial review of the transaction by the DOJ and FTC to determine which agency will review the deal in depth. The agency selected will request additional information from the companies to evaluate whether the deal could substantially lessen competition. If no significant competitive concerns are identified, the deal is cleared to proceed.
Investigation
If competitive issues are identified, the agency will open an official investigation. The companies must provide more details about the deal, their industry, competitors, and customers. The agency also seeks input from customers, competitors, industry experts and other stakeholders. They evaluate factors like market shares, entry barriers, competitiveness of remaining firms, and the likelihood of anti-competitive effects.
Remedial Action
If the investigation confirms competitive concerns, the agency may negotiate remedial actions with the companies to address issues, like selling certain assets to preserve competition. If negotiations fail, the agency may challenge the deal in court to block it. The companies can defend the deal, offer remedies or abandon the transaction.
Final Decision
If all concerns are addressed, the agency will approve the deal. The companies can then consummate the merger. However, the agency can re-evaluate deals post-merger to confirm companies are complying with any remedial actions.
The DOJ and FTC aim to review deals thoroughly but efficiently. Most transactions are cleared within 30 days. Complex deals requiring remedies or litigation can take 6-12 months to review and finalize. Companies planning strategic M&A should build this timeline into their planning and work proactively with regulators to avoid potential roadblocks or delays.
Recent Trends in U.S. Merger Enforcement
Merger control in the U.S. aims to prevent anti-competitive mergers that could harm consumers through increased prices, reduced quality or innovation. The two agencies responsible for reviewing mergers and acquisitions in the U.S. are the Federal Trade Commission (FTC) and the Department of Justice (DOJ).
In recent years, the FTC and DOJ have intensified scrutiny of mergers, especially those involving large technology companies. The agencies are concerned that some deals could reduce competition and stifle innovation in industries where a few dominant players already exist. For example, the DOJ sued to block AT&T’s $85.4 billion acquisition of Time Warner in 2017, though AT&T eventually prevailed.
The FTC and DOJ have also ramped up challenges to vertical mergers, where companies at different stages of the supply chain combine. Historically, U.S. agencies focused more on horizontal mergers between direct competitors. But the agencies now recognize that vertical deals can also harm competition under certain circumstances. For instance, the DOJ sued to stop CVS Health’s $69 billion merger with health insurer Aetna, arguing it would reduce competition and raise healthcare costs. CVS and Aetna abandoned the deal to avoid litigation.
In addition to technology and healthcare, the FTC and DOJ are closely scrutinizing mergers in other sectors like agriculture, air travel and consumer goods. The agencies are also working more closely with state attorneys general, who have authority under state antitrust laws, to coordinate reviews and in some cases jointly challenge problematic deals.
Looking ahead, merger enforcement in the U.S. is likely to remain vigorous. The FTC and DOJ appear poised to block or impose conditions on any merger that could significantly harm competition and consumers, especially in industries that directly impact people’s daily lives and well-being. Companies planning major acquisitions should be prepared for an in-depth, potentially lengthy review process and the possibility of litigation if the agencies determine the deal is anti-competitive. Careful planning and close consultation with antitrust experts can help companies navigate this complex legal and regulatory landscape.
Merger Control FAQs: Common Questions About Mergers in the U.S.
The United States has laws and regulations in place to review proposed mergers and acquisitions. The main goals of merger control are to prevent anticompetitive effects and protect consumers. If you’re considering a merger, it’s important to understand the process.
The two agencies responsible for reviewing mergers in America are the Department of Justice (DOJ) and the Federal Trade Commission (FTC). They evaluate if the deal could negatively impact competition and consumers.
i) Market shares and concentration: If the merger gives the combined company significant control of the market, it can be anticompetitive.
ii) Barriers to entry: If it’s difficult for new companies to enter the market, the merger may reduce competition substantially.
iii) Closeness of competition: If the merging companies are close competitors, the deal could eliminate beneficial pressure to lower prices, improve quality, and innovate.
iv) Efficiencies: Mergers that generate major cost savings or other efficiencies that benefit consumers may be allowed. The agencies weigh the anticompetitive concerns against the efficiencies.
v) Failing firm defense: If one of the companies is struggling financially and likely to exit the market without the merger, it may be permitted. But the firm must be unable to meet its financial obligations and there must not be a less anticompetitive option to rescue it.
The merging companies must file a premerger notification with the FTC and DOJ under the Hart-Scott-Rodino (HSR) Act. The agencies then conduct an initial review to determine if the merger raises competitive concerns. If so, they open an in-depth investigation. The companies can negotiate remedies to address concerns. If not resolved, the agencies may challenge the merger in court. Most mergers reviewed do not require remedies and are allowed to proceed.
Conclusion
As you have read, merger control in the United States is complex, with oversight shared between the Department of Justice, Federal Trade Commission, and state attorneys general. By understanding key aspects of the process – from procedures like the HSR Act notification to standards applied in review like consumer impact – you now have greater insight into this multifaceted system. With this knowledge in hand, you can more effectively analyze proposed deals and determine what it takes to clear antitrust hurdles. Weighing competitive effects and efficiencies while anticipating regulators’ concerns will lead to better prepared filings. You are now better equipped to advise clients on merger review risks and forge strategies that enhance timely approval odds.
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