Last week, over Commissioner Wright’s dissent, the FTC approved amendments to its HSR rules (final text here) that, as Josh summarizes in his dissent,
establish, among other things, a procedure for the automatic withdrawal of an HSR filing upon the submission of a filing to the U.S. Securities and Exchange Commission announcing that the notified transaction has been terminated.
I discussed the proposed amendments and Josh’s concurring statement on their publication in February.
At the time, Josh pointed out that:
The proposed rulemaking appears to be a solution in search of a problem. The Federal Register notice states that the proposed rules are necessary to prevent the FTC and DOJ from “expend[ing] scarce resources on hypothetical transactions.” Yet, I have not to date been presented with evidence that any of the over 68,000 transactions notified under the HSR rules have required Commission resources to be allocated to a truly hypothetical transaction. Indeed, it would be surprising to see firms incurring the costs and devoting the time and effort associated with antitrust review in the absence of a good faith intent to proceed with their transaction.
The proposed rules, if adopted, could increase the costs of corporate takeovers and thus distort the market for corporate control. Some companies that had complied with or were attempting to comply with a Second Request, for example, could be forced to restart their antitrust review, leading to significant delays and added expenses. The proposed rules could also create incentives for firms to structure their transactions less efficiently and discourage the use of tender offers. Finally, the proposed new rules will disproportionately burden U.S. public companies; the Federal Register notice acknowledges that the new rules will not apply to tender offers for many non-public and foreign companies.
Given these concerns, I hope that interested parties will avail themselves of the opportunity to submit public comments so that the Commission can make an informed decision at the conclusion of this process.
Apparently none of the other commissioners shared his concerns. But they remain valid. Most importantly, the amendments were adopted without a shred of evidence to suggest they were needed or would be helpful in any way. As Josh says in his dissent:
It has long been accepted as a principle of good governance that federal agencies should issue new regulations only if their benefits exceed their costs….However, I have not seen evidence that any of the over 68,000 transactions that have been notified under the HSR Rules has resulted in the allocation of resources to a truly hypothetical transaction.
In the absence of evidence that the automatic withdrawal rule would remedy a problem that exists under the current HSR regime, and thus benefit the public, I believe we should refrain from creating new regulations.
For what it’s worth. the single comment received by the Commission on the proposed rule supported Josh’s views:
Although the rule may prevent such inefficiency in the future, it would also require companies to incur substantial costs in premerger negotiations and resource allocation while waiting for FTC approval during the HSR period. Currently, firms can avoid such costs by temporarily withdrawing offers or agreements until they are assured of FTC approval. Under the proposed rule, however, doing so would automatically withdraw a company’s HSR filing, subjecting it to another HSR filing and filing fee.
Presumably the absence of other comments means the business community isn’t too concerned about the amendments. But that doesn’t mean they should have been adopted without any evidence to support the claim that they were needed. I commend Josh for sticking to his principles and going down swinging.