On Aug. 3, 2021, the Federal Trade Commission announced that it has begun sending form letters alerting companies that have made Hart-Scott-Rodino Act (HSR) filings that, despite the expiration of the HSR waiting period, the FTC’s investigation into the transaction remains open. Such letters do not prevent companies from consummating transactions, but the letters underscore that the FTC could determine that the transaction was unlawful post-closing. The announcement stated that “[c]ompanies that choose to proceed with transactions that have not been fully investigated are doing so at their own risk.”
The announcement, made by the Bureau of Competition acting Director Holly Vedova, was apparently driven by the “tidal wave of merger filings” the FTC is facing. The FTC noted that the increase in filings has led to capacity constraints, leaving the FTC unable to complete full investigations of certain transactions within the statutorily prescribed HSR waiting period. In these cases, the FTC will inform the parties that the investigation is “open and ongoing” and that the FTC could later challenge the transaction if it determines it to be unlawful.
This announcement does not change the federal antitrust regulators’ authority — the FTC and Department of Justice already are able to challenge consummated transactions as violative of federal antitrust laws. Indeed, a July 1 FTC resolution stated that investigations into previously consummated mergers would be an enforcement priority for the FTC, and earlier this spring, two FTC commissioners hinted that a challenge to a recently consummated merger could be appropriate. But the difficulty of “unscrambling the egg” after a transaction has closed has meant that these challenges historically have been less common than premerger challenges and less likely to lead to divestiture. The FTC’s announcement and the July 1 resolution signal that these challenges may be more likely going forward.
The receipt of “close at your own risk” letters and the increased likelihood of post-closing enforcement actions raise new issues for companies approaching the end of their HSR waiting periods. These companies will need to decide whether to proceed with closing notwithstanding the agency’s letter. The announcement additionally will have immediate implications for how to structure purchase and merger agreements.
For example, a purchase agreement that conditions closing on the expiration of the HSR waiting period may enable a seller to force a closing despite an FTC “close at your own risk” letter, while an agreement that conditions closing on the absence of any open investigations into the transaction could enable a buyer to defer closing until after resolution of any FTC concerns.
Parties currently negotiating purchase agreements would be well-served to include explicit provisions in the definitive agreement addressing, among other things, conditions to closing, termination provisions, and allocation of risk in the event of a protracted investigation period or adverse outcome. Parties to signed purchase agreements entered into without knowledge of this recent development may be left interpreting two conflicting closing conditions, as noted above, and potentially accepting additional, unexpected risk due to a delayed closing.
McGuireWoods attorneys stand ready to counsel companies on these and other issues related to this announcement and the full HSR process.