Antitrust Merger Enforcement: The Role of M&A Lawyers and Select Enforcement Priorities
Remarks as Prepared for Delivery
Thank you very much for that kind introduction, Michael O’Bryan.
I am delighted to be here today with a group of M&A lawyers.
I know from my time in private practice what an important role you play in the transaction process. You are the ones who often work directly with Boards of Directors and senior business executives to strategize, evaluate and shape potential transactions at their inception, long before they arrive at the Division for review. Based on my experience, for many deals, it often seemed as if the lead M&A lawyers become honorary members of the senior executive team for the duration of the project.
Implicit in all that is that you are relied upon to provide both the “big picture” legal and strategic perspectives on potential transactions to the most senior executives, while also being responsible for the nitty-gritty negotiation of transaction agreements across various legal disciplines to ensure your client’s interests are advanced and protected.
Regardless of whether you are representing a buyer or a seller, clients depend on your advice on the range of risks associated with potential transactions and negotiating the best agreement you can in light of your client’s objectives and instructions. Depending on the potential transaction, of course, part of that risk profile can involve antitrust, which leads to why I suspect I was invited to speak here today.
As you know, a transaction that potentially runs afoul of the antitrust laws can lead to months of lengthy investigation and potential litigation. That can lead to additional cost, uncertainty, and other potential impacts for your clients and, of course, requires substantial resources on our end.
Most fundamentally of course, we only investigate transactions that your clients – with your guidance and that of antitrust counsel – decide to enter into. So your role and how you help your clients weigh the risks of various transaction options and strategies is critical in what ultimately makes its way to us.
With that lens in mind, I would like to share some thoughts on a few issues that are top-of-mind at the Antitrust Division when we are reviewing the many transactions that come before us. Because the scope of this topic is broad and time is short, I will focus on just a few topics and would also refer you to previous speeches by Assistant Attorney General Kanter and other Division management to get a better understanding of our priorities in merger, as well as other types of, antitrust enforcement.
The hope is that you all will have a better sense of the types of transactions and transaction-related conduct likely to warrant further antitrust scrutiny so that you can better advise your clients on the antitrust risk associated with a deal before any decision is made about whether it should get out of the boardroom.
First, as a general matter, I want to emphasize our antitrust merger enforcement has been very active, and you should continue to expect aggressive enforcement.
I have been fortunate to serve as a Deputy Assistant Attorney General of the Antitrust Division for a little over 4 months now. And due to the efforts of our tremendous Staff, the Division is running on all cylinders.
- Right now, we have seven civil lawsuits pending against transactions—by our count, a record high over the last 20 years. Those lawsuits are aimed at protecting competition in a number of important industries, including sugar, authors of top-selling books, health care, air travel, signals intelligence, and just this week, residential door locks.
- Other companies recently abandoned deals on the cusp of litigation or before trial.
- For example, Cargotec and Konecranes, leaders in global container handling equipment, abandoned their proposed $5 billion merger in the face of litigation.
- Additionally, Verzatec and Crane, leading producers of pebbled fiberglass reinforced plastic wall panels, abandoned their $360 million transaction after we filed suit.
- CIMC and Maersk, leading suppliers of refrigerated shipping containers, abandoned their $1 billion transaction in the face of litigation.
- Yet more transactions have been abandoned during the course of our investigations after Staff raised competitive concerns with the parties.
As for the future, we are planning in the Division as if we will continue to be as busy, or even more so. Last fiscal year alone we received over 3500 HSR filings; this fiscal year we have already reviewed 3000. By comparison, over the past decade, rarely did the Division receive more than 2000 filings in a year.
Although there will be ebbs and flows to HSR filings, we need to be prepared to investigate and, as necessary litigate, any and all transactions we believe violate the antitrust laws. We understand that takes resources, especially in light of our views that merger enforcement should remain aggressive. In that vein, we are in the process of enhancing the Division’s already fantastic litigation expertise to meet these challenges. Under the daily leadership of my world-class colleague, Deputy Assistant Attorney General Hetal Doshi, the Division is executing on that promise by mentoring and providing litigation experience to numerous attorneys in the Division, but also hiring additional experienced trial and litigation counsel from outside the Division.
I also wanted to spend a few minutes on remedies in the antitrust merger context. A lot has been said by the Division leadership on this topic already in speeches and panels, including earlier this week. But it is an important one, especially for this audience as you evaluate the risk of transactions and negotiate agreements.
In recent years, it has become somewhat common for merging parties to come to the Division with a transaction that presents obvious antitrust concerns: for example, leading companies buying one of their leading competitors in a concentrated industry. To do so, parties will march into the Division with a presumptively anticompetitive deal and then at some point in the process suggest being open to a potential “fix.” These “fixes” often take the form of suggesting to carve-out assets and divest them. The pitch is normally something like: if we sell these assets to another firm, then the status quo will be restored.
As an aside, these kinds of pitches were not the norm for most of the 100-plus year history of the Clayton Act. In fact, they were not even common when the Hart-Scott-Rodino Act first introduced the current premerger notification and review process. But over the past 40 years or so, the practice of proposing these types of remedies has become more common. And in past years, some of those settlements have been accepted, requiring the United States to make a filing advocating that the settlement addresses the harm alleged and is in the public interest.
We highly respect the Division decision-makers of years past, but we also have seen evidence that multiple merger consent decrees have failed to replicate pre-merger competition. In fact, in my first two weeks in this job, a divestiture consent decree entered into just a short time ago crumbled. That’s just one example.
So you should expect that we will closely scrutinize settlement proposals and evaluate them with healthy skepticism. It will be a high bar to convince us we should be comfortable enough to make a filing in federal court that the settlement is in the public interest.
That healthy skepticism comes from a wide-range of risks, including those associated with (i) tearing out assets previously intertwined with a larger company, (ii) putting the buyer in a position to replicate important capabilities or competitive strategies, (iii) not including important assets, (iv) facilitating ongoing entanglements with the seller or other competitors, (v) changed competitive or innovation incentives, and (vi) asymmetric buyer expertise and plans.
All of these, alone or in tandem, create concerns that the proposed divestiture will not replicate the “competitive intensity” of the merging parties before the deal and, thus, undermines the essence and likelihood of success of the remedy. An unsuccessful remedy causes substantial harm by failing to protect the benefits of competition. American consumers should not have to bear the risks of that harm.
In addition to these types of “structural” remedies, we also lately have seen proposals of behavioral remedies, such as firewalls or corporate promises, to resolve anticompetitive concerns. These raise even more potential issues and of course in addition require future regulation and tremendous monitoring resources.
Let me be clear. There may be situations where we get comfortable enough to accept a remedy to resolve concerns with an anticompetitive merger, so we in turn are comfortable submitting those court filings I referenced earlier supporting the remedy. But the bar has been, and will continue to be, high to get us there. If we have doubts, then you should continue to expect us to move forward with litigation seeking to block the transaction and preserve the important rivalry giving us concern.
I also want to spend a few minutes discussing another example of our enforcement thinking to help you better understand potential risks, namely a focus on halting trends toward harmful concentration.
As you know, the Division reviews mergers using a rigorous, fact-specific approach. Over the past few years, we have seen a number of industries where a series of transactions roll-up individual competitors into larger ones, often combined with the exit, acquisition, or marginalization of smaller firms. The result often is a more concentrated market.
Elevated concentration can lead to a whole host of potential problems for consumers. It can increase the market power of the remaining competitors, decrease incentives to innovate, reduce consumer choice, expose industries to potential supply chain and other resiliency issues, and increase the risk from oligopoly behavior.
In light of these concerns, the Division has taken, and will continue to take, an especially close look at transactions that advance a trend toward concentration in an industry to ensure the market is not near the point of tipping to a monopoly or oligopoly. This concern is heightened—but certainly not limited to—where a transaction involves a dominant firm acquiring a non-dominant firm.
This focus on taking early action to halt further market consolidation is consistent with Congress’ mandate that the Division should act to stop “tendencies toward concentration in industry . . . in their incipiency.” We take that mandate seriously.
The Clayton Act – one of our principal tools for challenging mergers – does not bar only transactions that cement a clear monopolist in a market. The statute prohibits transactions where “the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.” If we fail to act early, waiting for the next deal to act when the harms are more easily predictable – it simply may be too late. By then, dominant firms in a consolidated market may leverage their existing power to push the market to monopoly or oligopoly.
To be sure, predicting the future trajectory of a market can be challenging. We often will hear arguments that the market is undergoing dramatic change with the next big competitor on the cusp of entering. Fortunately, the antitrust laws do not – and should not – require the Division to prove the future with certainty. Rather, the question before the Division is whether “there is a reasonable probability that the merger will substantially lessen competition.” Where markets have already trended toward concentration, the Division is likely to consider that closely when deciding whether to challenge any further step in that direction.
Having focused on a few of the higher-level issues that play a central role in our analysis of the likely competitive effects of a transaction, I want to turn now to a few narrower, but no less important, issues. These arise from time to time and can turn a transaction that otherwise raises no anticompetitive concerns into a problem for you and your clients.
I mentioned HSR filings earlier. Our Staff do a tremendous job quickly and efficiently reviewing these filings under extremely tight timeframes. They separate the “wheat from the chaff,” performing the behind-the-scenes review of every filing to determine whether or not to open an investigation. This process is essential to the functioning of the Division. We simply cannot conduct a full investigation of every reported transaction during the short waiting period afforded by the HSR Act.
To assist Staff in deciding which transactions to investigate, as you know, HSR filings include what are known as Item 4 documents. These are certain important documents that address, among other things, competition and synergies related to the transaction. Although not the only piece of information considered by Staff in assessing a proposed transaction, these documents are often critical, as they provide a window into the transaction from the perspective of the officers and directors of the parties.
However, the reliability and usefulness of this information is greatly diminished if companies fail to provide all of the documents called for by the HSR form. Where parties do not include in the filing all responsive materials, they risk providing an incomplete or even misleading picture of the transaction to Staff, undermining the HSR process.
Deal counsel can serve an important role here, ensuring corporate clients and antitrust counsel are aware of potentially relevant documents discussing the transaction so that they can be included in the filing and otherwise ensuring compliance.
Recent experience suggests some companies may not be living up to their HSR obligations, including adopting lax methods that do not reflect the importance of this process. As a result, the Division is taking a closer look at certain filings—including those of regular filers—to ensure processes are in place to provide the antitrust agencies with all of the information necessary to assess whether an investigation should be opened.
We will take appropriate action against filers that we believe have violated HSR filing requirements and thereby deprived the Division of the information necessary to fully and effectively assess a transaction. And while we understand mistakes can occur from time to time, we expect companies to any correct errors in their filings as soon as they become aware of an inaccuracy or omission. Failure to comply with the HSR requirements can lead to both delays in the waiting period and civil penalties, which currently accrue at a rate of more than $46,000 per day.
Finally, and in a similar vein, the Division will continue to monitor proposed transactions for gun-jumping concerns. We know your clients are often very eager to move forward quickly with implementing deals – having possibly spent a long time and considerable expense to sign them up. But the HSR waiting period process is important to the effective operation of the antitrust laws in the merger context.
Often, gun-jumping issues arise during integration planning, but interim covenants in the deal documents themselves also can raise gun-jumping concerns. One recent example came to the Division’s attention during the course of a separate investigation. There, the deal documents contained a variation of a fairly standard “material contracts” consent clause. The seller agreed to obtain the buyer’s consent before entering into any transaction worth more than a certain amount. The concern in that situation centered around the fact that the clause implicated future competitive bids by the seller. Although the evaluation of a covenant like this is inherently fact-specific and could depend (among other things) on the size of the companies at issue, these provisions can in practice provide a buyer with substantial control over the seller’s ability to compete and other aspects of their ordinary course of business before the HSR waiting period has expired. As with similar provisions, deal counsel should be mindful of the potential antitrust implications that even standard transaction provisions can have.
Where the Division hears of potential gun-jumping or identifies evidence of it in documents, interviews, or depositions, we have and will continue to open a separate investigation and potentially pursue penalties.
In conclusion, hopefully this overview provides you all with a better sense of where some of the antitrust risks may lie with potential transactions. It is in the interest of both merging companies and the Division to account for these risks – eyes wide open – at the outset of transaction planning. Doing so conserves resources and avoids the unnecessary showdowns, headaches, and cost that come with proposed transactions that raise competitive concerns. Thank you for your time and attention.
 United States v. Aetna Inc., 240 F. Supp. 3d 1, 60 (D.D.C. 2017); FTC v. Sysco Corp., 113 F. Supp. 3d 1, 72 (D.D.C. 2015).
 Brown Shoe Co. v. United States, 370 U.S. 294, 346 (1962).
 Brown Shoe, 370 U.S. at 325.