In a series of recent posts to the Free State Foundation's blog, I have highlighted not only the many changes that the Biden FTC already has made to the way the agency reviews proposed transactions under the Hart-Scott-Rodino (HSR) Act, but also the alarms that the two Republican Commissioners, Noah Phillips and Christine Wilson, have sounded in response.
- While participating in a panel discussion on August 16, 2021, at the Technology Policy Institute's Aspen Forum, Commissioner Phillips voiced his "concern[] that some of the policies we're adopting are essentially aimed at undoing the Hart-Scott-Rodino merger review legislation."
- Commissioner Wilson, in an August 9, 2021, statement Regarding the Announcement of Pre-Consummation Warning Letters, wrote that she is "gravely concerned that the carefully crafted HSR framework is suffering death by a thousand cuts."
- Testifying on July 28, 2021, before the House Committee on Energy & Commerce's Subcommittee on Consumer Protection and Commerce, Commissioner Wilson argued that "[p]ractitioners, academics, and former enforcers across the political spectrum have expressed concern about the agency's abrupt departure from regular order and … I share these concerns."
- And in a July 23, 2021, post to the FSF Blog, I summarized the objections of Commissioners Phillips and Wilson to the majority's decision to rescind the 1995 Policy Statement Concerning Prior Approval and Prior Notice Provisions in Merger Cases.
The latest instance where agency "traditions and norms have been jettisoned" was announced in "Reforming the Pre-Filing Process for Companies Considering Consolidation and a Change in the Treatment of Debt," an August 26, 2021, blog post written by Holly Vedova, Acting Director of the FTC's Bureau of Competition.
For decades, merging entities have sought and received "informal interpretations" from FTC staff to help them navigate the complicated HSR process. As Ms. Vedova notes, [t]hese interpretations are not reviewed or authorized by the Commission, and do not carry the force of law." Nevertheless, they have proven helpful. But perhaps no longer.
The specific objective of the blog post is to highlight "one initial example of where the informal interpretation program missed the mark," that is, how the retirement of debt is to be treated when calculating the total value of a proposed transaction.
Parties to a potential merger are required to file an HSR premerger notification only if the transaction clears a certain dollar-value threshold, currently $92 million. In light of a 2006 informal interpretation, "[u]p until now, the Bureau advised that the retirement of debt should never be included in this calculation."
Effective September 27, 2021, however, "the full or partial retirement of debt should be included in calculating the Acquisition Price in any instance where selling shareholder(s) benefit from the retirement of that debt."
More broadly, however, the blog post ominously reveals that the entire "voluminous log" of informal interpretations is under review and therefore is vulnerable to revision or removal on a case-by-case basis – or, potentially, elimination altogether.
Ms. Vedova begins with the following assertion: "As the FTC continues to experience a massive surge in planned merger deals, we are looking at every step of the merger filing process to identify ways to streamline and maximize our efficiency." However, it is hard to see how this announcement will accomplish either goal, for two reasons.
One, in taking steps that will expand the number of instances where parties must include debt in the total value of a transaction, the agency is adding to its workload, as more deals will trigger the obligation to file an HSR premerger notification.
To the extent it is true "that some merging parties have responded [to the 2006 informal interpretation regarding the retirement of debt] by structuring deals in ways that they believe fall outside of the filing requirements," it is not necessarily a bad thing that the FTC will have an opportunity to review more transactions than it otherwise might. The fact remains, however, that the agency's to-do list will grow. Its backlog likely will, as well.
Two, this change will decrease, not maximize, efficiency. As Commissioners Phillips and Wilson repeatedly have noted, recent agency actions have created substantial uncertainty for the business community. That uncertainty heightens risk, disincentivizes beneficial transactions, and leads to a net decrease in overall consumer welfare.
By calling into question the continued value of informal interpretations generally, Ms. Vedova's blog post necessarily injects even greater unpredictability into the overall process.
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