FTC and DOJ Suspend Grant of Early Termination for Merger Control Filings: Sign of the Times or Sign of Trouble?

On February 4, 2021, after weeks of not granting early termination (ET) of the waiting period under the US Hart-Scott-Rodino Act (save for one exception involving a company that markets COVID-19 tests),¹ the Federal Trade Commission (FTC), with the support of the Antitrust Division of the Department of Justice (DOJ), officially announced that it is implementing a “temporary suspension” of the ET process.²

This change in policy—no matter how short-lived—will have significant implications for the deal-making community. Hart-Scott-Rodino (HSR) rules require that parties meeting certain size and deal value thresholds (subject to limited exemptions) file notifications with the antitrust agencies and wait for a 30-day period prior to closing the transaction. The HSR rules cover all transactions, including those that raise no antitrust concerns at all.  Without the ability to receive ET, deals with no antitrust issues will be held up.  The agencies had addressed this problem through the ET process, significantly shortening the waiting period. Now, all HSR reportable transactions will have to wait the full 30 days. 

The FTC blamed the need for the suspension of ET on the transition to the new administration, the “unprecedented volume” of filings that have been submitted in recent months and the COVID-19 pandemic. It claimed that using the entire HSR Act waiting period was necessary to ensure that it is “doing right by competition and consumers.”³ 

The FTC provided no timeline for when ET will be restored.  Nor did it provide a guarantee that ET in fact would be restored, either as the ET process existed previously or in a more limited manner; the FTC stated only that the “processes and procedures used to grant [ET] to filings” are under review.⁴  Note that the suspension of the grant of ET apparently applies not only to initial HSR filings but also to HSRs submitted in “pull-and-refile” situations (where an HSR filing is withdrawn and re-submitted to take advantage of a second waiting period) and to receipt of ET that may apply at the end of a Second Request investigation.

The FTC’s announcement, ostensibly intended to assuage the business community after several weeks of uncertainty, throws a monkey wrench into what otherwise typically is a perfunctory process.  Most transactions do not raise any substantive antitrust concerns, and, as Commissioners Noah Phillips and Christine Wilson noted in their strongly worded dissent, the ET process reflects “Congress’s intent to balance the need . . . to scrutinize carefully transactions that may harm competition, with the need for the markets to allocate assets efficiently.”⁵  While the grant of ET technically is discretionary, companies have come to rely on the ET process as part of their deal timing considerations.  And this reliance is not without basis—ET is granted for nearly 75 percent of requests.⁶ Additionally, if the FTC is concerned about its ability to grant ET now based on current conditions, the volume is anticipated to only increase if and when proposed changes to HSR rules take effect.⁷  Pursuant to the new rules, if enacted as expected, the number of new HSR filings that will be filed likely will be exponentially more.

Notwithstanding the FTC’s arguments for a suspension of ET, it is not clear why this suspension is needed now, when the FTC’s new HSR e-file system apparently has been working for at least 10 months.  ET was not suspended during the seven other presidential transitions that have taken place since the HSR Act went into effect.⁸  And ET was not suspended during other crises, such as September 11, 2001, or the 2008 financial crisis. In fact, ET only has been suspended during federal government shutdowns (when the agencies are not required to grant ET by statute) and in March 2020, when the FTC was transitioning to the HSR e-file system.⁹  Finally, while the number of filings submitted in November 2020 was the most ever submitted in one month since 2001, the number of filings submitted in November 2001 was a close second (454 v. 451).¹⁰ 

One possibility for the need for ET breathing room is that the agencies are overworked and undermanned.  Both the FTC and DOJ significantly have ramped up enforcement against technology companies, filing lawsuits against Facebook and Google, respectively. The FTC challenged nine mergers in 2020 and settled 12 more.¹¹ And both agencies have had departures of senior management in the past few weeks.¹² 

The FTC’s decision also could reflect a broader policy play.  Democrats in Congress, including Senator Amy Klobuchar, have called for various iterations of bans on merger activity in light of the COVID-19 pandemic.¹³  Other legislation, some of which since been subsumed by the “merger bans,” have called for revisions or upgrades to antitrust laws more generally.¹⁴  But if the FTC is concerned that a problematic deal may slip through the cracks, it has other tools at its disposal to enforce antitrust laws against consummated mergers.¹⁵  As Commissioners Phillips and Wilson note, “Fear that one anticompetitive transaction may obtain an ET should not hold up the thousands that are competitively benign.”¹⁶   

Whatever the motivation, the impact is clear. For the foreseeable future, companies will have to plan for at least a 30-calendar-day waiting period if their transactions are reportable under the HSR Act, regardless of whether those deals raise any antitrust concerns.  And for some deals, the 30-day wait may have “knock-on” effects—causing tax implications, delays in paying employees, potential devaluation of assets for companies in financial difficulties, etc.  For those deals where 30-days means whether the deal lives or dies, planning ahead may the best antidote to avoid problems.