There is mounting evidence that both the Federal Trade Commission (FTC) and the U.S. Justice Department’s (DOJ) Antitrust Division (DOJ) are, under their current leadership, hostile to mergers. There are multiple elements to this evidence.
Draft Merger Guidelines
The recently released draft merger guidelines provide a strong indication of the agencies’ general aversion to mergers. Under the draft guidelines, every merger is at risk of a challenge. Former DOJ Antitrust Division economist Greg Werden concluded that the “frightening message of the [draft Merger Guidelines] is that nothing is safe” for mergers seeking agency clearance. Carl Shapiro, former deputy assistant attorney general for economics at the DOJ Antitrust Division during the Obama administration, sees “broad skepticism if not hostility to mergers” as a major theme of the draft merger guidelines. Lawrence Summers, who served as secretary of the Treasury under President Bill Clinton and director of the National Economic Council under President Barack Obama, went even further in describing the draft guidelines as “almost like a war on business.”
Chair Khan’s Public Statements
Further evidence of the agencies’ hostility toward mergers comes from FTC Chair Lina Kahn’s own statements. At a recent event at the Economic Club of New York, moderator Peter Orszag asked Khan about the perception that underlying her approach to antitrust enforcement is “some degree of aversion or hostility” to mergers and whether she sees mergers as having any benefits. Khan responded that she is reluctant to generalize about the positive effects of mergers and that the FTC is not in “the business of figuring out” why specific transactions will be “good,” adding that the FTC is merely looking at mergers “through a law enforcement frame.” The chair also stated that “we have heard in the past that sometimes certain types of acquisitions are necessary for commercialization or really the only exit path especially since IPOs (sic) is no longer as much of an available path.” Khan did not comment on whether these rationales for mergers have any merit. Her unwillingness to acknowledge that mergers may yield social benefits is illuminating, especially considering her willingness to attribute to mergers a broad set of social ills, based on very little evidence.
Suspension of Early Termination
In February 2021, the agencies “temporarily” suspended early terminations (ET) of transactions notified to the agencies in accordance with the Hart-Scott-Rodino Act. The HSR Act establishes a waiting period (usually 30 days) before the merging parties can consummate their transaction. The reviewing agency may terminate the waiting period through an ET, which would permit the merging parties to consummate their transaction earlier. Historically, the agencies have granted ET for transactions that are clearly innocuous.
The suspension of ETs occurred under then-Acting FTC Chair Rebecca Kelly Slaughter and over the objections of the commission’s Republican members Noah Phillips and Christine S. Wilson. In their statement of opposition, Phillips and Wilson expressed their concern that suspending ETs “will delay the consummation of competitively innocuous transactions,” adding that the suspension “introduces inefficiency into market operation, harming consumers and other stakeholders involved in the transactions.”
The suspension of ETs—which continues to this day—departs from prior practice by the agencies under both Republican and Democratic administrations. Former FTC Chair Edith Ramirez explained in 2016 U.S. Senate testimony that “[t]he vast majority of reported transactions, approximately 95%, do not raise competition concerns, and the commission clears those transactions expeditiously.”
The agencies would only consider ETs for mergers that would eventually receive clearance. Thus, suspending ETs merely delays clearance of mergers that raise no competitive concerns. Continuing the suspension of ETs suggests that the agencies, under their current leadership, see mergers as having no useful purpose. Otherwise, why would they delay clearance of competitively innocuous transactions?
HSR Rule Amendments
In June 2023, the FTC issued a notice of proposed rulemaking (NPRM) to amend the premerger notification form and the premerger notification rules for implementing the HSR Act. These proposed amendments would significantly increase the administrative burden on notifying parties. Under the proposed amendments, the notifying parties must provide additional narrative responses and information covering broad areas, including transaction rationale, transaction structure, competitive overlaps, current and planned products and services, supply relationships, employee information (job categories and geographies), minority owners, investment entities, creditors, noncompete and nonsolicitation agreements, prior labor-law violations, and prior acquisitions.
The proposed amendments also require notifying parties to provide vast categories of documents, including transaction agreements, documents related to prior deals between filing parties, strategic plans, and drafts of deal evaluation documents provided to officers, directors, and supervisory deal team lead. The FTC estimates that the proposed amendments would quadruple the number of hours required to prepare the premerger notification filings, resulting in about $350 million per year in additional costs for the notifying firms. The proposed amendments would also delay filings by at least a few weeks, according to some estimates.
The proposed amendments would impose substantial costs and delays on merging parties without producing a meaningful benefit for the merger-review process, thus causing significant inefficiencies. According to the latest available (Fiscal Year 2021) Hart-Scott-Rodino Annual Report issued by the agencies, the FTC and DOJ had received clearance to conduct an initial investigation in only 7.9% of total reported transactions and issued a second request in only 1.9% of the reported transactions. For 92% of reported transactions, agency staff were able to determine that the transaction “poses no likely competitive harm” and does not raise questions “sufficiently serious to warrant a preliminary investigation,” based on the information that filing parties currently provide in their premerger notification filings. Thus, in most cases, agency staff do not need the information covered by the proposed amendments to determine whether the transaction poses likely competitive harm.
Consider a transaction where a convenience store chain in Pennsylvania is acquiring a group of gas stations in Virginia, and that the transaction is sufficiently large to require premerger notification to the agencies. This transaction clearly poses no risk of competitive harm. Why would the notifying parties need to provide a narrative on deal rationale or how the investment vehicle is structured for this transaction, or past labor-law violations, or information on employees’ job classifications? Why force the notifying parties to incur significant expense to provide extensive information and large sets of documents when the transaction poses no risk of competitive harm?
For the small subset of reported transactions where agency staff conduct a preliminary investigation (8% in FY 2021), agency staff already may request additional information directly from the merging parties. Normally, merging parties will gladly provide additional information on a voluntary basis to avoid a second request. Agency staff may request information that is targeted to the specific needs of the preliminary investigation. Alternatively, the agencies may request additional information by issuing a second request. In contrast to current practice, the proposed amendments require all notifying parties to provide all the information covered by the proposed amendments, even in cases when agency staff do not need this information.
The NPRM states that:
[T]he Commission has determined that the additional burden associated with these proposed changes is justified because the requested documentary material and information is necessary and appropriate for effective and efficient review of HSR Filings to determine within the initial waiting period whether the transaction may, if consummated, violate the antitrust laws.
This determination can only be correct, however, if the FTC assigns very little weight to the notifying parties’ expense and delays for complying with the proposed amendments. The NPRM does not explain why it is more “effective and efficient” to increase the burden of providing vast amounts of information and numerous documents for all the filing parties, rather than focusing additional information requests on the needs of the preliminary investigation when there is a preliminary investigation.
FTC Chair Khan and Commissioners Slaughter and Alvaro Bedoya explain in their statement that the proposed amendments are needed to address the rising number of premerger filings and the increasing complexity of merger transactions. This explanation makes no sense. If agency staff already must stretch their resources to review an exceedingly large number of filings involving complex transactions, it is unclear how asking the staff to review significantly more information early in the process would improve the efficiency of the merger-review process. It is like solving the problem of restaurant servers carrying too many plates by requiring the servers to carry drinks in addition to the plates.
The information in premerger filings supports a screening process; it helps agency staff to determine whether additional in-depth review of the transaction is necessary. Conducting more in-depth analyses of all premerger filings early in the merger-review process does not make the process more efficient or effective.
Given the lack of plausible justification, the proposed amendments appear to be nothing more than an effort by the agencies to impose unnecessary burdens on merging parties.
Why It Matters
Companies merge to create value. Merging firms expect the value of the merged firm to exceed the combined value of standalone merging firms. Antitrust laws seek to prevent mergers that generate value at the expense of lost competition. Under their current leadership, however, the agencies appear to be going beyond their mission of enforcing antitrust laws and are impeding mergers that do not lead to substantial lessening of competition. The agencies are pursuing punitive policies that would cause delays and significant expenditures for merging parties even in cases where the merger poses no likely competitive harm. In doing so, the agencies are engaged in value destruction.
The agencies’ willingness to impose significant costs and delays for mergers that do not raise concerns about competitive harm suggests that the agencies have little regard for the owners of the merging firms. The merging firms’ owners include individual investors, workers, retirees, educational institutions, hospitals, and other nonprofit organizations. According to a recent Gallup survey, 61% of Americans own company stocks, either through individual stock ownership, mutual funds, or as part of retirement accounts. Many more Americans have financial exposure to equity markets through pension funds.
By being hostile to mergers, the agencies are harming the very same workers that the agencies vow to protect. Some mergers may generate net benefits for consumers. Impeding such mergers also harms consumers.