FTC Restores Prior Approval Policy for Merger Restrictions

The FTC restored its past practice of requiring merging parties to obtain prior approval from the FTC "before closing any future transaction affecting each relevant market for which a violation was alleged" (emphasis in original).

In the Prior Approval Policy Statement, the FTC stated that it will include prior approval provisions in merger divestiture orders for a minimum of 10 years for each market in which alleged harm occurred. Further, in a case in which the parties abandon the transaction during litigation, the FTC stated that it will determine whether to pursue a prior approval order based on the following, non-exhaustive, list of factors:

  • whether the transaction is "substantially similar" to a prior challenged transaction;

  • the level of market concentration;

  • the extent to which the transaction further concentrates the market;

  • whether one of the parties has pre-merger market power and the second party is a "nascent or fringe competitor";

  • the history of acquisitiveness of each party in the relevant market; and

  • whether the transaction will enable anticompetitive market dynamics.

In addition, the FTC stated that all divestiture buyers must agree to prior approval for a minimum of 10 years for any future sale of relevant assets.

Commentary

The FTC has taken another large step in its unilateral efforts to increase the cost and burden of mergers. At least for now, the DOJ has not followed suit. The new "prior approval" requirement for future acquisitions stands the Hart-Scott-Rodino Act on its head because the policy shifts the burden of merger approval onto the merging parties instead of the government. Moreover, the policy will hit especially hard at private equity firms that plan for disposal of acquired assets within a few years' time because the new policy also disfavors divestiture buyers who dispose of acquired stock or assets in less than 10 years.

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