Increased Antitrust Scrutiny
- United States
Under the Hart-Scott-Rodino Act (“HSR”), parties to certain large mergers and acquisitions must file pre-merger notification forms with the Federal Trade Commission (“FTC”) and the Department of Justice (“DOJ”). The parties may not close their deal until the waiting period for review has passed, or the government has granted an early termination of the waiting period. Under the current administration, the FTC and DOJ are closely examining the antitrust implications of transactions, issuing a record number of second requests for information.
Even if the deal is too small for HSR reporting or has passed initial HSR review, it is not free from antitrust scrutiny. Over the past few years, the FTC and DOJ have challenged completed transactions that were too small for HSR reporting and even deals that were not challenged during the initial HSR review.
One recent example of an antitrust challenge to a completed deal that was exempt from HSR reporting is the acquisition by Election Systems and Software of Premier Election Solutions. Election Systems acquired Premier for $5 million in 2009. Because the size of the transaction was under the HSR filing threshold, there was no pre-closing antitrust review. However, in 2010 the DOJ filed suit against Election Systems claiming that the price of voting equipment would rise due to the combination.
AT&T’s failed effort to acquire T-Mobile highlights the same issues, albeit at the other end of the deal size spectrum. AT&T terminated the proposed $39 billion deal following a lawsuit from the DOJ and opposition from the Federal Communications Commission. Ultimately, AT&T paid a $3 billion “reverse break-up fee” to T-Mobile, proving that breaking up is not only hard to do, but expensive.
How are parties addressing antitrust risk in acquisition agreements in this regulatory climate? Buyers are extremely wary of agreeing to “hell or high water” provisions whereby the buyer agrees to take whatever steps are necessary to secure antitrust approval, including the divestiture of key assets. The reverse break up fee is gaining popularity as it can protect the interests of buyer and seller by giving the buyer the option to walk from the deal by paying a break-up fee rather than divest critical assets. Another approach is to specify a threshold level of assets (perhaps measured by EBITDA) that the buyer agrees in advance that it will agree to divest rather than terminating the deal.
Because of the increased antitrust scrutiny surrounding mergers and acquisitions, transactional lawyers must use increased care when drafting key deal terms in the agreement.