Last week, the FTC finally filled the vacuum it created this summer when, in a vote along party lines, it rescinded the 1995 Policy Statement Concerning Prior Approval and Prior Notice Provisions in Merger Cases (1995 Policy Statement). The new Policy Statement, perhaps unsurprisingly, heralds a worrisome return to, and expansion upon, pre-1995 practices shown to discourage pro-competitive transactions. Equally newsworthy, however, are the departures from traditional process associated with this agency action.
Prior to 1995, the Commission routinely required that consent decrees include an obligation that the combined entity provide advance notice of, and obtain prior approval for, subsequent transactions in the relevant product and geographic markets. The 1995 Policy Statement put an end to that practice.
However, and as I detailed in a July 23, 2021, post to the FSF Blog, at the FTC's July Open Commission Meeting, the agency's Democratic majority opted to rescind the 1995 Policy Statement. The two Republican Commissioners articulated their concerns about that decision.
Commissioner Noah Phillips characterized prior approval provisions as "a decade-long M&A tax on anyone who enters a merger consent" and decried the inconsistency of the majority's action with the intent of the Hart-Scott-Rodino Act of 1976 (HSR Act). He also argued that the resumed use of such provisions will create competitive disparities between those subject to consent decrees and those not so constrained – and, as a consequence, "lead to suboptimal transactions, create inefficiencies, and reduce overall consumer welfare."
Commissioner Christine Wilson explained how prior approval conditions create opportunities for "questionable exercises of enforcement discretion"; emphasized that, even with the 1995 Policy Statement in place, the FTC retained the ability to require prior notice and/or approval in consent decrees under warranting circumstances; and highlighted that "by rescinding the 1995 Policy Statement without providing further guidance, the Commission substitutes uncertainty for a policy that has worked for more than 25 years."
That void now has been addressed, but decidedly not in a manner to the liking of either Republican Commissioner.
On October 25, 2021, the FTC announced the adoption of a new Prior Approval Policy Statement (2021 Policy Statement). Per the Press Release, "merger enforcement orders will once again require acquisitive firms to obtain prior approval from the agency before closing any future transaction affecting each relevant market for which a violation was alleged, for a minimum of ten years." Prior to 1995, prior approval provisions remained in effect for a maximum of ten years.
In addition, per this expanded policy, the agency may require prior approval for:
- Transactions outside of the affected product and/or geographic markets when, based upon the application of a "non-exhaustive" list of subjective factors, it concludes that "stronger relief is needed";
- In instances where the parties abandon the proposed deal; and
- For the sale of divested assets by entities not involved in the challenged transaction.
Thus, the 2021 Policy Statement in significant ways is much more expansive than those practices in place prior to 1995.
Although there currently is a 2-2 split between Democratic and Republican Commissioners on the Commission, Chair Lina Khan and Commissioner Rebecca Kelly Slaughter were able to push through the 2021 Policy Statement with the assistance of a tie-breaking "zombie vote" cast weeks prior by former Commissioner Rohit Chopra.
However, that is not the only procedural anomaly that transpired.
While a Dissenting Statement from Commissioners Phillips and Wilson eventually was released, on October 29, 2021, it notably was not included in the initial announcement.
As a result, Commissioner Phillips took to Twitter to voice his displeasure:
The Commission issued this ill-advised policy without giving minority commissioners a promised opportunity to issue a simultaneous dissent, as has always been the practice. @CSWilsonFTC and I will issue a statement later, as planned. https://t.co/KkQLbFzdTy
— Noah J. Phillips (@FTCPhillips) October 25, 2021
Commissioner Wilson weighed in, as well:
Simply stunning.
— Christine S. Wilson (@CSWilsonFTC) October 25, 2021
Strong dissent forthcoming. https://t.co/bHFpxOJmOC
For more on Commissioner Wilson's general process-related concerns, please read "Congressional Testimony of FTC Commissioner Wilson Addresses Agency Processes, Section 13(b), and Federal Privacy Legislation," a July 2021 post to the Free State Foundation's blog.
Eventually, the official FTC Twitter account issued a mea culpa:
The Office of Public Affairs unfortunately issued the prior approval policy release prematurely and plans to update immediately upon receipt of the dissenting statement from minority Commissioners. We regret the error.
— FTC (@FTC) October 25, 2021
Nevertheless, in a footnote to their joint Dissenting Statement, Commissioners Phillips and Wilson reiterated that "[t]he policy at issue was announced without our participation, which is contrary to longstanding practice and the opposite of what was promised."
Moving to the substance of their objections, Commissioners Phillips and Wilson dismissed the 2021 Policy Statement as "yet another daft attempt by a partisan majority of commissioners to use bureaucratic red tape to weigh down all transactions – not just potentially anticompetitive ones – and to chill M&A activity in the United States."
In addition, they:
- Pointed out the various ways, noted above, in which the 2021 Policy Statement goes even further than pre-1995 practices;
- Detailed how the 2021 Policy Statement stands in conflict with procedures set forth by Congress in the HSR Act;
- Explained how "the majority oversells the benefits of its actions and significantly undersells the harms";
- Highlighted how this action further exacerbates the growing disparity between how the FTC and the Department of Justice review transactions; and
- Criticized the majority's failure to seek public input before finalizing the 2021 Policy Statement.
I urge you to read the Dissenting Statement of Commissioners Phillips and Wilson in its entirety. It can be accessed here.
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