Report on US Merger Enforcement Trends Indicates Fewer Mergers but Proportionately More Enforcement.
Article by Scott Perlman , John Roberti and Christopher J. Kelly
Originally published October 5, 2010
Keywords: US merger enforcement, FTC FTC
See Federal Trade Commission (FTC). , Hart-Scott-Rodino Act, fiscal year 2009, HSR HSR homogeneously staining regions. Report
On October 1, 2010, the Federal Trade Commission and US Department of Justice Antitrust Division released their Annual Report on the Hart-Scott-Rodino Act for Fiscal Year 2009 (HSR Report). The Report covers the period from October 1, 2008, through September 20, 2009. While the data lags by almost one year, the report highlights some significant trends:
Filings were down substantially both in number and in total value;
The agencies conducted fewer total investigations of mergers but proportionately more due to the lower number of filings;
The agencies challenged fewer total but proportionately more transactions; and
When transactions were subject to significant investigation, the agencies obtained relief in virtually every case.
These figures indicate that, as long as the economic downturn continues, the average transaction will run greater than usual risks of a costly and time-consuming investigation and of an agency challenge.
While no data is available as of yet, we believe that merger filings in FY2010 will increase substantially, but will not approach the level seen in FY2008.
The HSR Report demonstrates that merger filings decreased substantially in FY2009. There were 716 transactions reported in FY2009, compared with 1,726 transactions reported in FY2008 - a 59 percent decease. Compared with FY2001, FY2009 filing decreased by approximately 70 percent.
Since FY2008, the total value of the transactions filed also decreased: from $1.3 trillion in FY2008 to $533 billion in FY2009--a 59 percent decrease.
While filings were down substantially, the number of investigations and enforcement actions did not decrease proportionately. When the antitrust agencies perform a significant investigation of a merger transaction, they issue a Request for Additional Information and Documentary Materials (a "Second Request"). In FY 2009, the antitrust agencies issued 31 Second Requests, down from 41 issued in FY 2008. The number of Second Requests was higher proportionately, however, as approximately 4.5 percent of transactions received a Second Request, compared with 2.5 percent in FY2008.
The HSR Report also indicates an overall decline in the number of challenges, but again a proportionately greater number. The agencies count as a challenge any matter that results in a consent decree A settlement of a lawsuit or criminal case in which a person or company agrees to take specific actions without admitting fault or guilt for the situation that led to the lawsuit.
A consent decree is a settlement that is contained in a court order. , a court challenge, or abandonment or restructuring by the parties to satisfy concerns. During FY2009, the agencies challenged a total of 31 transactions, compared with 37 total in 2008.
This data indicates that most transactions that received a Second Request ultimately resulted in some sort of relief. The report does not correlate the year that the Second Request was issued with the year that action was ultimately taken. However, given that there were 72 Second Requests issued in the past two years, and 68 challenges reported by the agencies, it appears that almost every company that received a Second Request ultimately settled, abandoned the transaction, or was sued in court.
The data also shows that most transactions were cleared by the agencies without a significant investigation. In fiscal year 2009, early termination was requested in 84 percent of the transactions reported, the same percentage as in FY2008. The percentage of requests granted out of the total requested decreased from 74 percent in FY23008 to 69 percent in FY2009.
While no data has been released, we estimate that filings for FY2010 could be somewhere in the neighbourhood of 1,200 filings. If correct, this number would show an increase of roughly 60-70 percent over FY2009, but still be down approximately 25-35 percent from FY2008.
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