DealLawyers.com Blog

The Biden Administration has adopted an aggressive posture toward antitrust enforcement, and this Wilson Sonsini memo reviews the latest developments at the FTC & DOJ and discusses their implications for M&A.  The memo says that the close scrutiny of “Big Tech” is likely to continue over the long-term, and that concerns about acquisitions that eliminate nascent competitors have already led to challenges to several deals, and that regulators are closely reviewing the impact of transactions on labor markets.

The memo also says that parties will find it increasingly difficult to resolve regulatory challenges to deals. Behavioral remedies are increasingly off the table, and any settlement is likely to require divestiture of a stand-alone business to a well-financed competitor.  All of this means that the merger review process is going to be much more difficult to navigate and approvals more difficult to obtain.  In this environment, the memo offers the following takeaways for companies considering acquisitions:

– Consider Deal Certainty Carefully: An attractive premium is only truly attractive if a deal can close. Potential targets must be cognizant that antitrust risk could make any offer to acquire illusory.

– Ensure That the Acquisition Agreement Protects Your Interests: Sellers must be sure that the buyers will take the necessary steps to ensure their deals close (e.g., make divestitures, litigate, pay a break fee if the deal is blocked), and buyers must be aware that expansive divestiture demands could result in a remedy that frustrates the purpose of the deal or, worse, requires the divestiture of the buyer’s own assets to get the deal closed in light of agency concerns.

– Plan for a Prolonged Review: The agencies also are demanding more time to complete their reviews. Anticipate reviews that last three months or more longer than in previous administrations. The FTC recently announced that its staff is overwhelmed with the volume of HSR notifications and that reviews are taking longer than normal as a result.

– Be Wary That the FTC May Conduct a Post-Close Review: On August 3, 2021, the FTC announced that given the volume of M&A activity, in some instances, the agency would continue its reviews beyond the time allotted under the HSR Act. Thus, a deal could conceivably receive clearance from the agencies, close, and subsequently be investigated and potentially subject to remedies or eventual FTC challenge.

The FTC is signaling a hard line, but some companies may be willing to call the agency’s bluff.  Recently, Illumina closed its acquisition of Grail despite a pending FTC administrative proceeding to block the deal, and this recent Bloomberg article suggests that, given the FTC’s limited resources, other companies may be willing to do the same.

– John Jenkins