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ALERT: Antitrust Clearance: Cutting through the Government Red Tape to Close the Deal

posted by Akin Gump

What follows is part one of a two-part post from Akin Gump’s antitrust practice.

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Introduction and Background

The recent worldwide financial turmoil and the still-uncertain aftermath of the Emergency Economic Stabilization Act of 2008 have sparked major  mergers and acquisitions (M&A) that need very rapid antitrust regulatory approval in order to calm distressed markets and salvage shareholder value.  More such M&A deals are surely coming.  Despite the normal 30-day waiting period under the Hart-Scott-Rodino (HSR) Act, deals can be done much more quickly under the right circumstances.

The HSR Act, Section 7A of the Clayton Act, 15 U.S.C. § 18a. is a “file and wait” statute.  Parties to proposed transactions meeting certain size thresholds must file notification with both the Federal Trade Commission (FTC) and the U.S. Department of Justice, Antitrust Division (DOJ).  They must also observe a mandatory waiting period prior to closing, generally 30 days, but  15 days in the case of a bankruptcy or cash tender offer.  If a transaction raises substantive antitrust issues requiring thorough investigation,, a so-called “Second Request” for information may be issued, typically causing the waiting period to be extended by many months.   Critically, however, the mandatory HSR waiting period can also be shortened through the discretionary grant of an “early termination.”   § 7A(b)(2).

Obtaining “early termination” for large transactions often requires a proactive approach.  Many significant transactions bog down early in the regulatory process as a result of an obscure first step in the agency review process known as “clearance.”  During the clearance stage, the FTC and DOJ decide between them which of the two is going to review the transaction.  Weeks, and in some unfortunate instances, months are sometimes lost during this clearance process, particularly when the agencies dispute which of them is going to review a transaction.  Parties can help the agencies cut through the clearance issues by engaging them actively even prior to making their filing.  Where necessary to move the matter forward rapidly, merging parties make presentations to both agencies rather than wait for clearance.  Most important, companies need to educate antitrust agency staff regarding key issues and communicate specific reasons underlying the need for expeditious review and approval.  Lastly, companies need to develop proactive pre- and post-filing strategies to quickly marshal information for staff, with the goal of securing prompt antitrust clearance.  A sure prescription for delay is simply to file the necessary documents and just sit back while the agencies do their work.

The agencies have historically attempted to respond to legitimate needs for speed and regularly grant early termination where antitrust problems are absent.  For example, in hostile tender offers or where financing is at risk due to delay, the agencies have commonly expedited their review. For small transactions that are not antitrust-sensitive, early termination is routinely granted in two to three weeks.  However, for large and complex transactions, even if early termination is granted because no antitrust problems are presented, termination often does not occur until very  late in the 30-day period, or may even not occur until late in a second 30-day period following a “pull and refile” procedure.  However, the agencies’ track record thus far in the current crisis indicates that they are working very diligently to clear even extremely large mergers.on an expedited-and sometimes extremely expedited-basis.  Recent examples of distressed market acquisitions illustrate this point:

1) After a hotly contested bidding war with Citigroup, Wells Fargo & Company’s acquisition of Wachovia Corporation was announced on October 9, 2008, and U.S. antitrust regulators approved the deal only one day later.

2) On September 29, 2008, Mitsubishi UFJ Financial Group (MUFG) and Morgan Stanley announced that the two companies had reached a definitive agreement under which MUFG invested $9 billion in equity in Morgan Stanley for a 21 percent interest in the company.  MUFG received early termination of the HSR waiting period on October. 3, 2008, four days later.

3) The acquisition of The Bear Stearns Companies Inc. by JP Morgan Chase & Co. was announced on March 16, 2008, and early termination of the waiting period was granted on April 1, 2008, just 16 days after filing.

The agencies’ rapid clearance of these matters does not signal that they are turning a blind eye to anticompetitive aspects of transactions.  Rather, the rapid clearance shows that the financial crisis is an important factor driving the agencies to prioritize their review of certain transactions.  Merging parties still need to marshal the facts and arguments-in as organized and rapid a fashion as humanly possible-to demonstrate why a merger between competitors is not anticompetitive.

NEXT: In our next antitrust posting, we will discuss the role that the financial distress of the merging firms can play in convincing the agencies there is no antitrust concern.