Never let a crisis go to waste, or so they say. In the past two weeks, some of the same people who sought to stop mergers and acquisitions during the bull market took the opportunity of the COVID-19 pandemic and the new bear market to call to ban M&A. On Friday, April 24th, Rep. David Cicilline proposed that a merger ban be included in the next COVID-19-related congressional legislative package. By Monday, Senator Elizabeth Warren and Rep. Alexandria Ocasio-Cortez, warning of “predatory” M&A and private equity “vultures”, teamed up with a similar proposal.
I’m all for stopping anticompetitive M&A that we cannot resolve. In the past few months alone, the Federal Trade Commission has been quite busy, suing to stop transactions in the hospital, e-cigarette, coal, body-worn camera, razor, and gene sequencing industries, and forcing deals to stop in the pharmaceutical, medical staffing, and consumer products spaces. But is a blanket ban, unprecedented in our nation’s history, warranted, now?
The theory that the pandemic requires the government to shut down M&A goes something like this: the antitrust agencies are overwhelmed and cannot do the job of reviewing mergers under the Hart-Scott-Rodino (HSR) Act, which gives the U.S. antitrust agencies advance notice of certain transactions and 30 days to decide whether to seek more information about them. That state of affairs will, in turn, invite a rush of companies looking to merge with minimal oversight, exacerbating the problem by flooding the premerger notification office (PNO) with new filings. Another version holds, along similar lines, that the precipitous decline in the market will precipitate a merger “wave” in which “dominant corporations” and “private equity vultures” will gobble up defenseless small businesses. Net result: anticompetitive transactions go unnoticed and unchallenged. That’s the theory, at least as it has been explained to me. The facts are different.
First, while the restrictions related to COVID-19 require serious adjustments at the antitrust agencies just as they do at workplaces across the country (we’re working from home, dealing with remote technology, and handling kids just like the rest), merger review continues. Since we started teleworking, the FTC has, among other things, challenged Altria’s $12.8 billion investment in JUUL’s e-cigarette business and resolved competitive concerns with GE’s sale of its biopharmaceutical business to Danaher and Ossur’s acquisition of a competing prosthetic limbs manufacturer, College Park. With our colleagues at the Antitrust Division of the Department of Justice, we announced a new e-filing system for HSR filings and temporarily suspended granting early termination. We sought voluntary extensions from companies. But, in less than two weeks, we were able to resume early termination—back to “new normal”, at least. I anticipate there may be additional challenges; and the FTC will assess constraints in real-time to deal with further disruptions. But we have not sacrificed the thoroughness of our investigations; and we will not.
Second, there is no evidence of a merger “wave”, or that the PNO is overwhelmed with HSR filings. To the contrary, according to Bloomberg, monthly M&A volume hit rock bottom in April – the lowest since 2004. As of last week, the PNO estimates nearly 60% reduction in HSR reported transactions during the past month, compared to the historical average. Press reports indicate that M&A activity is down dramatically because of the crisis. Xerox recently announced it was suspending its hostile bid for Hewlett-Packard ($30 billion); private equity firm Sycamore Partners announced it is walking away from its takeover of Victoria’s Secret ($525 million); and Boeing announced it is backing out of its merger with Embraer ($4.2 billion) — just a few examples of companies, large corporations and private equity firms alike, stopping M&A on their own. (The market is funny like that.)
Slowed M&A during a global pandemic and economic crisis is exactly what you would expect. The financial uncertainty facing companies lowers shareholder and board confidence to dive into a new acquisition or sale. Financing is harder to secure. Due diligence is postponed. Management meetings are cancelled. Agreeing on price is another big challenge. The volatility in stock prices makes valuation difficult, and lessens the value of equity used to acquire. Cash is needed elsewhere, like to pay workers and keep operations running. Lack of access to factories and other assets as a result of travel restrictions and stay-at-home orders similarly make valuation harder. Management can’t even get in a room to negotiate and hammer out the deal because of social distancing (driving a hard bargain on Zoom may not be the same).
Experience bears out those expectations. Consider our last bear market, the financial crisis that took place over a decade ago. Publicly available FTC data show the number of HSR reported transactions dropped off a cliff. During fiscal year 2009, the height of the crisis, HSR reported transactions were down nearly 70% compared to just two years earlier, in fiscal year 2007. Not surprising.
Nor should it be surprising that the current crisis, with all its uncertainty and novelty, appears itself to be slowing down M&A.
So, the antitrust agencies are continuing merger review, and adjusting quickly to the new normal. M&A activity is down, dramatically, on its own. That makes the pandemic an odd excuse to stop M&A. Maybe the concern wasn’t really about the pandemic in the first place? The difference in perspective may depend on one’s general view of the value of M&A. If you think mergers are mostly (or all) bad, and you discount the importance of the market for corporate control, the cost to stopping them all is low. If you don’t, the cost is high.
As a general matter, decades of research and experience tell us that the vast majority of mergers are either pro-competitive or competitively-neutral. But M&A, even dramatically-reduced, also has an important role to play in a moment of economic adjustment. It helps allocate assets in an efficient manner, for example giving those with the wherewithal to operate resources (think companies, or plants) an opportunity that others may be unable to utilize. Consumers benefit if a merger leads to the delivery of products or services that one company could not efficiently provide on its own, and from the innovation and lower prices that better management and integration can provide. Workers benefit, too, as they remain employed by going concerns. It serves no good, including for competition, to let companies that might live, die.
M&A is not the only way in which market forces can help. The antitrust agencies have always recognized pro-competitive benefits to collaboration between competitors during times of crisis. In 2005, after hurricanes Katrina and Rita, we implemented an expedited five-day review of joint projects between competitors aimed at relief and construction. In 2017, after hurricanes Harvey and Irma, we advised that hospitals could combine resources to meet the health care needs of affected communities and companies could combine distribution networks to ensure goods and services were available. Most recently, in response to the current COVID-19 emergency, we announced an expedited review process for joint ventures. Collaboration can be concerning, so we’re reviewing; but it can also help.
Our nation is going through an unprecedented national crisis, with a horrible economic component that is putting tens of millions out of work and causing a great deal of suffering. Now is a time of great uncertainty, tragedy, and loss; but also of continued hope and solidarity. While merger review is not the top-of-mind issue for many—and it shouldn’t be—American consumers stand to gain from pro-competitive mergers, during and after the current crisis. Those benefits would be wiped out with a draconian ‘no mergers’ policy during the COVID-19 emergency. Might there be anticompetitive merger activity? Of course, which is why FTC staff are working hard to vet potentially anticompetitive mergers and prevent harm to consumers. Let’s let them keep doing their jobs.
 The views expressed in this blog post are my own and do not necessarily reflect the views of the Federal Trade Commission or any other commissioner. An abbreviated version of this essay was previously published in the New York Times’ DealBook newsletter. Noah Phillips, The case against banning mergers, N.Y. Times, Apr. 27, 2020, available at https://www.nytimes.com/2020/04/27/business/dealbook/small-business-ppp-loans.html.
 The proposal would allow transactions only if a company is already in bankruptcy or is otherwise about to fail.
 The “Pandemic Anti-Monopoly Act” proposes a merger moratorium on (1) firms with over $100 million in revenue or market capitalization of over $100 million; (2) PE firms and hedge funds (or entities that are majority-owned by them); (3) businesses that have an exclusive patent on products related to the crisis, such as personal protective equipment; and (4) all HSR reportable transactions.
 Hart-Scott-Rodino Antitrust Improvements Act of 1976, 15 U.S.C. § 18a. The antitrust agencies can challenge transactions after they happen, but they are easier to stop beforehand; and Congress designed HSR to give us an opportunity to do so.
 Whatever your view, the point is that the COVID-19 crisis doesn’t make sense as a justification for banning M&A. If ban proponents oppose M&A generally, they should come out and say that. And they should level with the public about just how much they propose to ban. The specifics of the proposals are beyond the scope of this essay, but it’s worth noting that the “large companies [gobbling] up . . . small businesses” of which Sen. Warren warns include any firm with $100 million in annual revenue and anyone making a transaction reportable under HSR. $100 million seems like a lot of money to many of us, but the Ohio State University National Center for the Middle Market defines a mid-sized company as having annual revenues between $10 million and $1 billion. Many if not most of the transactions that would be banned look nothing like the kind of acquisitions ban proponents are describing.
 As far back as the 1980s, the Horizontal Merger Guidelines reflected this idea, stating: “While challenging competitively harmful mergers, the Department [of Justice Antitrust Division] seeks to avoid unnecessary interference with the larger universe of mergers that are either competitively beneficial or neutral.” Horizontal Merger Guidelines (1982); see also Hovenkamp, Appraising Merger Efficiencies, 24 Geo. Mason L. Rev. 703, 704 (2017) (“we tolerate most mergers because of a background, highly generalized belief that most—or at least many—do produce cost savings or improvements in products, services, or distribution”); Andrade, Mitchell & Stafford, New Evidence and Perspectives on Mergers, 15 J. ECON. PERSPECTIVES 103, 117 (2001) (“We are inclined to defend the traditional view that mergers improve efficiency and that the gains to shareholders at merger announcement accurately reflect improved expectations of future cash flow performance.”).
 Jointly with our colleagues at the Antitrust Division of the Department of Justice, we issued a statement last week affirming our commitment to enforcing the antitrust laws against those who seek to exploit the pandemic to engage in anticompetitive conduct in labor markets.
 The legal test to make such a showing for an anti-competitive transaction is high. Known as the “failing firm defense”, it is available only to firms that can demonstrate their fundamental inability to compete effectively in the future. The Horizontal Merger Guidelines set forth three elements to establish the defense: (1) the allegedly failing firm would be unable to meet its financial obligations in the near future; (2) it would not be able to reorganize successfully under Chapter 11; and (3) it has made unsuccessful good-faith efforts to elicit reasonable alternative offers that would keep its tangible and intangible assets in the relevant market and pose a less severe danger to competition than the actual merger. Horizontal Merger Guidelines § 11; see also Citizen Publ’g v. United States, 394 U.S. 131, 137-38 (1969). The proponent of the failing firm defense bears the burden to prove each element, and failure to prove a single element is fatal. In re Otto Bock, FTC No. 171-0231, Docket No. 9378 Commission Opinion (Nov. 2019) at 43; see also Citizen Publ’g, 394 U.S. at 138-39.