Merger thresholds
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UNITED STATES

Paul Jin
Partner

PJin@goodwinlaw.com

Tel: +1 202 346 4013

Kara Kuritz
Counsel

KKuritz@goodwinlaw.com

Tel: +1 202 346 4042

Katherine Kissinger
Associate

KKissinger@goodwinlaw.com

Tel: +1-202-346-4087

No new regulation adopted or proposed

Note that relevant regulations may be changed before your contemplated transaction is completed. Mergerfilers.com and our national experts keep information on regulations up to date and even provide alerts on adopted or proposed changes that have not come into force yet but may come into effect before the transaction is completed. When this field is green, we have no knowledge of such imminent changes to the relevant regulations.
Confirmed up-to-date: 21/03/2021

(Content available free of charge at Mergerfilers.com - sponsored by Goodwin)

Relevant legislation and authorities

1) Is a merger control regulation in force?

Yes. On the federal level, Section 7 of the Clayton Act (15 U.S.C. § 18) prohibits acquisitions which may substantially lessen competition or tend to create a monopoly. The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (15 U.S.C. § 18a, the “HSR Act”) governs premerger notification in the United States. In addition, the Federal Trade Commission (“FTC”), with concurrence of the Antitrust Division of the  Department of Justice (“DOJ”, and collectively with the FTC, the “Agencies”), promulgates regulations under the HSR Act. 

Note that individual states within the United States of American also have their own antitrust laws and regulations (this chapter focuses on the U.S. federal regime).  These laws and regulations do not generally require merger control filings, but may require notifications for certain industries, such as healthcare.

2) Which authorities enforce the merger control regulation?

Both the FTC and the DOJ enforce the Clayton Act, and may sue to block a merger in federal district court. The FTC also has its own administrative court process. In addition, private parties may bring an action in federal district court.  

Both the FTC and the DOJ enforce the HSR Act, although only the DOJ may bring an action in federal district court to obtain civil penalties for a violation of the HSR Act. Decisions of the FTC or of a federal district court may be appealed to a federal circuit court, and a federal circuit court’s decision may be appealed to the U.S. Supreme Court.

3) Relevant regulations and guidelines with links:

Official English version

The Clayton Act (Prohibition on acquisitions that may substantially lessen competition)

The Horizontal Merger Guidelines

The Vertical Merger Guidelines

The Hart-Scott-Rodino Antitrust Improvements Act (Statute that requires premerger notification)

The HSR Regulations

The HSR Form and Instructions

HSR Filing Fee Information

Premerger Notification Program Informal Interpretations

4) Does general competition regulation apply to mergers or ancillary restrictions?

Generally, restrictions of competition that are ancillary to the merger, for instance a standard non-competition obligation on the seller, are acceptable as long as the procompetitive benefit of the restriction outweighs any anticompetitive effect. However, restrictions that go beyond what may be considered ancillary may be caught by the general prohibition on anti-competitive agreements (Section 1 of the Sherman Act, 15 U.S.C. § 1).  While the FTC does not have jurisdiction to enforce the Sherman Act, Section 5 of the FTC Act (15 USC § 45(a)) prohibits unfair and deceptive acts and practices, which the FTC has historically interpreted as prohibiting anti-competitive agreements in line with Section 1 of the Sherman Act.

Section 1 of the Sherman Act or Section 5 of the FTC Act may in special circumstances be used to oppose a transaction as an anti-competitive agreement (not merely a specific restriction in the transaction documents). For instance, the general prohibition on agreements in restraint of trade under Section 1 of the Sherman Act or Section 5 of the FTC Act as well as the prohibition on acquisitions that may substantially lessen competition under the Section 7 of the Clayton Act may be applied to full-function joint ventures that have coordination of the market behavior of the parent companies as their object or effect. Furthermore, a company may be found to violate the prohibition on monopolization or attempted monopolization in Section 2 of the Sherman Act (15 U.S.C § 2) by acquiring one or more competitors. 

5) May an authority order a split-up of a business irrespective of a merger?

Yes. Section 2 of the Sherman Act prohibits monopolization or attempted monopolization. If a company is found to be a monopolist, a court may order a split-up of the business.  

6) Other authorities that also require merger filing or may prohibit transaction
(Note that this may not be an exhaustive list and that industry-specific legislation should always be considered. Furthermore, a merger will often require change of registrations with – but not approval from – the companies register, land register and authorities that have issued permits for the activities of the merging parties.)

Electronic communications networks and services

Mergers between two or more businesses that provide electronic communications networks and services are subject to approval by the Federal Communications Commission (FCC) if the acquisition involves an FCC license. Before a company may assign an FCC license to another company or acquire a company holding an FCC license, it must receive FCC approval. The FCC reviews filings to determine whether the transaction is in the public interest.  The approval of the FCC is in addition to antitrust approval of the Agencies.

Financial businesses

Banking organizations are generally required to seek prior approval from the Federal Reserve, the central bank of the United States, to become a bank holding company, to acquire ownership in a bank holding company, or to engage in certain new activities. The Federal Reserve also reviews filings by individuals and companies that seek to acquire ownership in a bank holding company or state member bank. 

For bank holding company applications, the Federal Reserve is required to take into account the likely effects of the acquisition on competition, the convenience and needs of the communities to be served, the financial and managerial resources and future prospects of the companies and banks involved, and the effectiveness of the company’s policies to combat money laundering.

Depending on the applicable banking regulation, the approval of the Federal Reserve may be in addition to antitrust approval of the Agencies.

Electricity and utilities

The Federal Energy Regulatory Commission (FERC) reviews certain mergers and acquisitions and corporate transactions by electricity companies.  FERC generally takes into account three factors in analyzing proposed mergers: the effect on competition, the effect on rates, and the effect on regulation. In general, FERC approval is required for acquisitions of utility companies valued in excess of $10 million.  FERC reviews filings to determine whether the transaction is in the public interest. The approval of FERC is in addition to antitrust approval of the Agencies.

Transportation

The Surface Transportation Board (STB) reviews freight rail restructuring transactions, including mergers, line sales, line construction, and line abandonments. The STB has exclusive jurisdiction over railroad mergers. The STB also has jurisdiction over certain passenger rail matters, the intercity bus industry, non-energy pipelines, household goods carriers’ tariffs, and rate regulation of non-contiguous domestic water transportation (marine freight shipping involving the mainland United States, Hawaii, Alaska, Puerto Rico, and other U.S. territories and possessions). The STB reviews filings to determine whether the transaction is in the public interest.  As noted above, the STB has exclusive jurisdiction over railroad mergers and the Agencies do not review such mergers.

7) Are any parts of the territory exempted or covered by particular regulation?

No geographic parts of the territory are exempted from federal competition laws. 

U.S. states and territories have their own local competition laws and Attorneys General, who enforce local competition laws within the state or territory, however, these do not include a general merger control regime. 

The U.S. Congress has in some cases, by statute, exempted certain mergers or joint ventures from antitrust review if they are approved by an industry-specific regulator.

Voluntary or mandatory filing

8) Is merger filing mandatory or voluntary?

Merger filing is mandatory, provided the thresholds are met.

Types of transactions to file – what constitutes a merger

9) Is there a general definition of transactions subject to merger control?

Yes, merger filings are required for three types of acquisitions (provided the thresholds in topic 14 are met):

  1. acquisitions of voting securities (i.e., securities that have rights to vote to elect directors) of a corporation;
  2. acquisitions of control of a non-corporate entity, such as a limited liability company or limited partnership; and
  3. acquisitions of assets, including entering into an exclusive patent license.

The HSR Rules recognize that the legal forms of entities formed under the laws of other jurisdictions may not coincide exactly with the corporate/non-corporate distinctions in the United States. In general, if an entity issues shares that have the right to vote for a board of directors, the entity will be treated as a corporation. 

10) Is "change of control" of a business required?

No, unless the acquired entity is a non-corporate entity.

11) How is “control” defined?

The regulations under the HSR Act define control of corporations and control of non-corporate entities differently. For corporations, control means owning 50% or more of the voting securities of the corporation (measured by the voting power for directors) or having the contractual right to appoint 50% or more of the directors. Note, however, the acquisition of control of a corporation is not necessary for a filing to be required if the thresholds are met (see topic 12 for additional information). For non-corporate entities, control means having the rights to 50% or more of the profits, or the rights to 50% or more the assets upon dissolution, of the entity. 

12) Acquisition of a minority interest

Acquisitions of a minority interest in a corporation require a filing if the thresholds are met. Acquisitions of assets, including the entry into an exclusive patent license, also require a filing if the thresholds are met  However, for acquisitions of a minority interest in a non-corporate entity such as a limited liability company or a limited partnership, no filing is required, even if the thresholds are met.

See topic 23 about exemption for investments resulting in a shareholding of 10% or less.

13) Joint ventures/joint control – which transactions constitute mergers?

Joint ventures that involve the formation of a new entity or the acquisition of voting securities or controlling non-corporate interests in an existing entity may require a merger filing.  

In the formation of a new entity, the contributors to the new entity are deemed acquiring parties and the new entity is the acquired party. The assets of the joint venture include all assets that will be contributed to the joint venture. If the acquiring person will hold USD 376 million or more in voting securities or controlling non-corporate interests of the joint venture, a filing will generally be required, assuming no other exemption applies. If the acquiring person will hold over USD 94 million in voting securities or controlling non-corporate interests of the joint venture, but not more than USD 376 million, assuming no other exemptions apply, a merger filing would be required if:

  1. The acquiring person has annual net sales or total assets of USD 188 million or more;
  2. The joint venture will have total assets of USD 18.8 million or more; and
  3. At least one other acquiring person has annual net sales or total assets of USD 18.8 million or more; 

OR

  1. The acquiring person has annual net sales or total assets of USD 18.8 million or more;
  2. The joint venture will have total assets of USD 188 million or more; and
  3. At least one other acquiring person has annual net sales or total assets of USD 18.8 million or more.

Joint ventures that involve the acquisition of voting securities or controlling non-corporate interests in an existing entity will generally require a merger filing is the thresholds are met, assuming no exemptions apply.  While the thresholds above apply to worldwide annual net sales and total assets, the foreign exemptions discussed in topic 21 may apply.  Note, thresholds are adjusted annually in February.  

Thresholds that decide whether a merger notification must be filed

14) Which thresholds decide whether a merger notification must be filed?
(Unless explicitly stated otherwise, the thresholds described under one threshold category are not cumulative with those described under another category. Thus for instance if there is a market share threshold and a turnover threshold, it is sufficient to meet one of these, unless stated otherwise.)

a) Turnover thresholds

Also see topic 21 about requirement of assets/turnover in the U.S. for transactions involving foreign businesses.

b) Market share thresholds

N/A

c) Value of transaction thresholds

Size-of-Transaction: 

The Size-of-Transaction threshold requires that the value of the acquisition is over USD 92 million. For an acquisitions of voting securities, the acquiring person’s current holdings of the acquired entity must be aggregated with those being acquired in the upcoming acquisition. An additional filing is required each time the acquiring person crosses the following thresholds:

  1. Voting securities valued at greater than USD 92 million but less than USD 184 million;
  2. Voting securities valued at USD 184 million or greater but less than USD 919.9 million;
  3. Voting securities valued at USD 919.9 million or greater;
  4. 25% of the voting securities, if the 25% is valued at greater than USD 1.8398 billion;
  5. 50% of the voting securities of an issuer, if the 50% is valued at greater than USD 92 million; 

Once the 50% threshold is crossed, subsequent acquisitions of securities of that acquired entity are exempt.  

Note that after a period of five years following the submission of a notification for a minority acquisition of voting securities, the thresholds reset and the acquiring person must file again for an acquisition valued in excess of USD 92 million. 

Size-of-Person:

If the value of the acquisition is greater than USD 368 million, only the Size-of-Transaction threshold applies and a filing is generally required, unless an exemption applies. If the value of the acquisition is USD 368 million or less, the Size-of-Person threshold must also be met. The Size-of-Person threshold is met if:

  1. the acquired person is engaged in manufacturing and has annual net worldwide sales or total worldwide assets of USD 18.4 million or more, and the acquiring person has total assets or annual sales of USD 184 million or more; 
  2. the acquired person is not engaged in manufacturing and has total worldwide assets of USD 18.4 million or more or annual net worldwide sales of USD 184 million or more, and the acquiring person has total worldwide assets or annual net worldwide sales of USD 184 million or more; or 
  3. the acquired person has annual net worldwide sales or total worldwide assets of USD 184 million or more, and the acquiring person has total worldwide assets or annual net worldwide sales of USD 18.4 million or more.

Importantly, the Size-of-Transaction and Size-of-Person thresholds discussed in this topic apply to acquiring and acquired ”persons,” meaning the ultimate parent entities (”UPEs”) of each of the acquiring and acquired entities. To determine the UPE of the acquired entity and acquiring entity, continue up the chain of control. Once a person or entity is reached that is not controlled by any other person or entity, that is the UPE. The Size of Transaction thus includes all acquisitions that are part of the transaction and are occurring between the relevant UPEs (or any entities controlled by the relevant UPEs). Likewise, the Size-of-Person thresholds apply to each of the UPEs’ worldwide total assets and worldwide annual sales (consolidating all entities controlled by each UPE). Note, thresholds are adjusted annually in February.

d) Assets requirements

See Size-of-Person threshold under the value of transaction threshold above.

Also see topic 21 about requirement of assets/turnover in the U.S. for transactions involving foreign businesses.

e) Other

N/A

15) Special thresholds for particular businesses

The thresholds stated in topic 14 apply to all transactions.

16) Rules on calculation and geographical allocation of turnover

A person’s or entity’s “annual net sales” are as stated on the last regularly prepared annual income statement of that person or entity (consolidating all entities controlled by that person or entity).  Geographical allocation of turnover and assets is not relevant for the Size-of-Transaction and Size-of-Person thresholds, but is relevant for application of the foreign exemptions discussed in topic 21. For purposes of the foreign exemptions, “sales in or into the United States” generally means sales to customers located in the United States, whether made by a U.S. or a foreign entity.

17) Special rules on calculation of turnover for particular businesses

Foreign manufacturers who sell products outside the United States for sale in the United States

Generally, where risk of loss and legal title pass outside the United States, and the manufacturer has no control over the destination of its products, such sales are not sales in or into the United States. Where goods are specifically designed for the U.S. market, however, but are manufactured abroad and then sold and transferred outside the United States to a buyer who resells the goods within the United States, the initial sale by the foreign manufacturer may be deemed a sale in or into the United States.

Businesses consisting of movable assets

Generally, movable assets such as freight vessels, rigs, airplanes, etc. are located where they are registered. For freight vessels and airplanes, revenues attributable to trips to or from U.S. destinations are considered sales in or into the United States. For rigs, revenues attributable to their use while in U.S. waters are sales in or into the United States. For satellites, revenues from sales to U.S. recipients of the data transmitted by the satellite are sales in or into the United States.

Businesses consisting of telecom assets

Land-based telecom assets and undersea cables that are located in U.S. territorial waters are located in the United States. To the extent that the assets are not wholly located in the United States, sales into the United States would include not only all sales generated by the portion of the asset located in the United States, but also sales to U.S. customers allocated to the portion of the asset located outside the United States. The ratio of the cable located in U.S. territorial waters vs. foreign waters is used to allocate the sales to U.S. customers between the U.S. asset and the foreign asset.

18) Series of transactions that must be treated as one transaction

Transactions that are contingent upon one another or negotiated together, between the same parties are generally treated as one. If a transaction includes acquisitions involving a combination of assets, voting securities, and controlling non-corporate interests, all are aggregated for determining whether the transaction meets applicable filing thresholds. 

All holdings of voting securities and non-corporate interests of the same acquired entity or within the same acquired person are aggregated for purposes of determining the transaction value.

Furthermore, if the same acquiring and acquired persons enter into different asset acquisitions within 180 days, such transactions must be aggregated for purposes of determining the transaction value.

Exempted transactions and industries (no merger control even if thresholds ARE met)

19) Temporary change of control

For merger control to apply, an “acquisition” of voting securities, controlling non-corporate assets, or assets is required. If such an acquisition occurs, even a temporary change of control may require notification (although under the HSR Act a change of control is not necessary for the filing obligations to apply). But depending on the specific situation, it is possible that a temporary change of control may not be considered an “acquisition” covered under the HSR Act. For example, a lease of an asset that is for less time than the useful life of the asset, generally does not require a merger filing. Similarly, entry into a management agreement without any plan or intent to acquire the business to be managed, generally does not require a merger filing.

One exception is entry into an exclusive patent license. Such a license, even if temporary, is considered an acquisition of an asset and may require a filing if the thresholds are met. (See topic 20 for additional information.)

20) Special industries, owners or types of transactions

Patent licenses

Entering into an exclusive patent license is a potentially reportable acquisition of an asset. Where the value of the license is greater than USD 92 million and the acquiring and acquired persons meet the Size-of-Person threshold (see topic 14), a filing may be required. To be considered an acquisition, the license must be exclusive even against the grantor. If a patent license grants exclusive geographic territories or is limited to a “field of use,” it is nonetheless considered an exclusive license and an acquisition of an asset.  

In addition, special rules apply to patent licenses in the pharmaceutical industry that provide that a license is exclusive if “all commercially significant” rights are transferred. Transfers of pharmaceutical patents are potentially reportable even if (1) the patent holder retains limited manufacturing rights to manufacture the product for the licensee, or (2) the patent holder retains co-rights to assist the licensee in developing and commercializing the products covered by the patent(s).

Acquisitions by or from state or federal agencies

There are also rules that apply to certain types of owners. Acquisitions by or from state or federal agencies are not subject to merger control. In other words, transfers to or from any U.S. or foreign state, government, or agency are exempt from merger control. Note, however, that corporations or non-corporate entities controlled by state, federal, or foreign governments and engaged in commerce are subject to merger control.

21) Transactions involving only foreign businesses (foreign-to-foreign)

There are two main exemptions for foreign-to-foreign transactions: (1) certain acquisitions of foreign assets and (2) certain acquisitions of foreign issuers. 

A foreign person or issuer is (i) not incorporated in the United States, (ii) not organized under the laws of the United States, and (iii) does not have its principal offices within the United States; or, if a natural person, neither (i) is a citizen of the United States nor (ii) resides in the United States. A “person” refers to the UPE of the acquiring or acquired entities (see topic 14 for additional information). 

(1) Acquisitions of foreign assets

Acquisitions of foreign assets that did not generate over USD 92 million in sales in or into the United States during the acquired person's most recent fiscal year are exempt from notification. 

Where both the acquiring and acquired persons are foreign, no filing is required if the value of the assets to be acquired is USD 376 million or less, and the aggregate total assets and aggregate annual sales (based on the most recent fiscal year) in or into the United States of the acquiring and acquired persons do not exceed USD 206.8 million.

(2) Acquisitions of foreign issuers

Acquisitions of foreign issuers are exempt if the issuer did not generate over USD 92 million in annual sales in or into the United States and does not hold assets valued at over USD 92 million located in the United States. Note that the calculation of the value of U.S. assets requires a fair market valuation and equals the portion of the purchase price attributable to the U.S. assets of the acquired entity. 

In addition, where the acquiring person is foreign, the acquisition of a foreign issuer is exempt unless control will be acquired (see topic 11), and the issuer generated over USD 92 million in annual sales in or into the United States or holds assets valued at over USD 92 million located in the United States. Even if this threshold is met, where both the acquiring and acquired persons are foreign, the acquisition of control of a foreign issuer is nonetheless exempt if the acquiring and acquired persons’ aggregate annual sales in or into the United States and assets located in the United States is less than USD 206.8 million.

Note, thresholds are adjusted annually in February.

22) No overlap of activities of the parties

There is no exemption for transactions with no overlap of activities.

23) Other exemptions from notification duty even if thresholds ARE met?

In addition to the foreign exemptions (see topic 21), other common exemptions include:

Acquisitions of goods in the ordinary course: 

There are exemptions for acquisitions of new goods, supplies, used durable goods in the ordinary course of business, as long as they are not part of the acquisition of an entire operating unit of a business. This exemption often applies to acquisitions of inventory, office supplies, or raw inputs for the business.

Acquisitions of certain real property:

There are exemptions for acquisitions of land and improvements including new facilities, used facilities, unproductive real property, office and residential property, hotels and motels, agricultural property, warehouses, retail rental space, and others, depending on the specific facts regarding the property being acquired.

Acquisitions solely for the purpose of investment: 

Where the acquiring person will hold 10% or less of an issuer and has no intention of influencing the basic business decisions of the issuer, an exemption may apply

Stock dividends and splits; reorganizations:

Where an acquiring person’s holdings will not increase as a result of an acquisition, or the acquired entity was already under common control with the acquiring entity, an exemption may apply.

Merger control even if thresholds are NOT met

24) May a merging party file voluntarily even if the thresholds are not exceeded?

No, the Agencies will only handle a merger notification if the thresholds are met.

25) May the competition authority request a merger notification or oppose a transaction even if thresholds are not met?

The Agencies may investigate and sue to block any transaction (even consummated transactions), even if the thresholds are not met. The Agencies often take action to challenge mergers that do not meet the notification thresholds, and parties should be aware of that risk, especially if customers are likely to complain about the acquisition. The Agencies have occasionally taken action to unwind mergers that have closed even after conducting a merger review (and clearing the merger) prior to closing. In order to avoid such actions after merger review, it is advisable to engage with the Agencies and be forthright during the merger review process.

Referral to and from other authorities

26) Referral within the jurisdiction

There is no statutory or administrative system of referrals, the Agencies only receive HSR notifications directly. However, as noted in topic 25, the Agencies have jurisdiction to review any merger (pending or consummated), even when the merger is not subject to the notification requirements of the HSR Act. Thus, the Agencies can review mergers that come to their attention through any means, not just through HSR filings.  In addition, where a transaction will only have a limited competitive impact within a particular state or territory, the Agencies may refer the matter to the state or territory’s Attorney General.  

27) Referral from another jurisdiction

See topic 26.

28) Referral to another jurisdiction

See topic 26.

29) May the merging parties request or oppose a referral decision?

No.

Filing requirements and fees

30) Stage of transaction when notification must be filed

There is no prescribed stage at which a transaction must be notified, but the applicable waiting period must expire or terminate before the parties can consummate the transaction. Also, for most types of transactions, there must be a signed agreement (a letter of intent or term sheet could suffice) between the parties in order for the Agencies to accept an HSR notification. 

31) Pre-notification consultations

There are no formal or informal requirements for pre-notification consultations, and the vast majority of HSR notifications are filed without any such consultations. If parties believe the Agencies may need additional time to review a transaction than the statutory waiting period allows, they may engage with the Agencies prior to submitting their filings to help address potential substantive concerns. On issues related to the interpretation of the HSR Rules, including when an issue goes to whether an HSR filing would be required, parties can contact the Premerger Notification Office of the FTC. The FTC may issue an informal interpretation that serves as a guideline on the particular question at issue, although such informal interpretations do not have the force of law or bind the Agencies. 

32) Special rules on timing of notification in case of public takeover bids and acquisitions on stock exchanges

Such transactions are still subject to HSR filing requirements. However, cash tender offers are subject to shorter waiting periods (see topic 40).  

33) Forms available for completing a notification

There is one standard form for all reportable transactions. The acquiring and acquired persons submit copies of the same form and attachments to each of the Agencies.

34) Languages that may be applied in notifications and communication

English. 

For documents that are required to supplied with the notification (see topic 35) that are written in a foreign language, translations must be provided if they already exist, but the parties are not otherwise required to translate the documents. However, for certain key documents, parties often provide translations if critical or helpful for the Agencies’ review of the transaction. 

35) Documents that must be supplied with notification

The HSR notification form mostly requires legal structure and financial information of the parties, including the party’s financial statements for the most recent completed fiscal year. 

Perhaps most importantly, the form requires the filer to submit certain transaction-related documents that discuss the parties, competition, markets, potential for sales growth, and synergies. These “Item 4” documents are considered by the Agencies to be the most important part of the notification, and parties should be careful in the creation and identification of such documents. 

36) Filing fees

Size of transaction Filing fee

Less than USD184 million

USD 45,000

USD 184 million or more, and less than USD 919.9 million

USD 125,000

USD 919.9 million or more

USD 280,000

Implementation of merger before approval – “gun jumping” and “carve out”

37) Is implementation of the merger before approval prohibited?

Yes. The merging parties cannot consummate the transaction until the applicable waiting period has expired or terminated.  

38) May the parties get permission to implement before approval?

No, the parties cannot close on a transaction that would exceed applicable thresholds. However, in an acquisition of voting securities or non-corporate interests, the acquiring person can acquire up to USD 92 million of shares or interests and wait to acquire the remaining amount until the HSR waiting period expires or terminates (although if this initial acquisition results in control of the acquired entity, the Agencies may view this transaction as illegal avoidance). 

Certain supply or outsourcing agreements between the merger parties may be allowed before the applicable waiting period has expired or terminated, if they are negotiated at arm’s length and not contingent on the close of the merger.   

39) Due diligence and other preparatory steps

The Agencies recognize that there are important business justifications for legitimate due diligence and integration planning. As long as the merging parties take appropriate precautions, such activities will not raise issues. While the analysis of whether such activities are conducted appropriately is a fact-specific inquiry, parties to a merger should take the following general guidelines:

  1. Participation in such activities should be limited to those who are necessary for such activities to legitimately proceed. 
  2. Parties should take measures to ensure that competitively sensitive materials are handled appropriately, meaning they are shared on a need-to-know basis, used only for legitimate purposes, and not shared with those who have day-to-day responsibilities for competitive activities such as development, marketing, pricing, and sales.
  3. While planning is allowed, the parties may not implement integration until the merger closes. 
  4. Generally, the merging parties should be more careful with outward, market-facing activities such as sales and marketing, while back-office activities such as IT- and HR-related activities are safer.

The Agencies can issue fines for due diligence and integration planning activities that go too far, and are vigilant in prosecuting such gun jumping violations.

40) Veto rights before closing and "Ordinary course of business" clauses

The Agencies recognize the need for buyers to protect the value of their investment by ensuring that the target business does not erode the value of its business in the period prior to close, and that such interim conduct provisions are standard in merger agreements. However, if such "ordinary course of business" provisions are too restrictive, they may amount to prohibited gun jumping. As with due diligence and integration planning activities, whether such provisions rise to the level illegal gun jumping is assessed on a case-by-case basis, and the Agencies are vigilant in this area. 

41) Implementation outside the jurisdiction before approval – "Carve out"

The HSR Act does not allow for such “carve outs” for transactions that are subject to its reporting requirements. However, if portions of a transaction are exempt from HSR notification requirements, the parties can close on those portions prior to HSR clearance of the reportable transaction. 

42) Consequences of implementing without approval/permission

The Agencies can fine parties for implementing the transaction prior to HSR approval, whether they implement through actual consummation or through gun jumping. The parties are subject to a fine of up to USD 43,280 per day the parties are in violation. The maximum fine is adjusted annually.

The process – phases and deadlines

43) Phases and deadlines

Phase Duration/deadline

Initial Waiting Period:

Most transactions require all involved parties to submit notification forms before the waiting period begins. The submission must be made before 5:00pm Eastern, Monday through Friday (holidays excepted), in order for the notification to be deemed submitted on that day.

The Agencies cannot toll this waiting period. However, if a notification form is found to be deficient, the waiting period resets and begins anew once the corrected notification has been submitted.  

Parties can withdraw their filing at any time. While this may be done as many times as the parties would like, the HSR Rules allow for the buyer to do so one time without having to pay an additional filing fee for refiling. Parties usually “withdraw and refile” if they believe the Agencies need an additional 30 days to approve the transaction, as an alternative to responding to a Second Request.

30 calendar days from the date when the applicable notifications are submitted. 

(Cash tender offers or certain bankruptcy transactions are subject to a 15 calendar day waiting period.) 

If the end of the waiting period falls on a weekend or a federal holiday, the end of the waiting period is moved to the next business day.

Early termination of the waiting period is possible, but is granted at the discretion of the Agencies. At least one of the filing parties must affirmatively request early termination. Early termination may be granted at any point within the 30-day waiting period.

“Second Request”:

If after the Initial Waiting Period the Agencies still have concerns regarding the competitive effects of the merger, the Agencies can issue a "Request for Additional Information and Documentary Materials" (commonly referred to as a “Second Request”), a broad compulsory request that can take parties many months to comply with. 

At the end of the Second Request phase, the Agencies must decide whether to approve the merger, require divestitures or other obligations, or move to block the merger in court. 

30 days after the parties comply with the requirements of the Second Request.

(Cash tender offers or certain bankruptcy transactions are subject to a 15 calendar day waiting period.)

The Agencies often attempt to delay consummation of the transaction by agreement with the parties. 

Early termination of this waiting period is possible. 

Court Approval:

If the FTC or DOJ sues to get an injunction to block a deal prior to closing, it must do so to a federal court.  The FTC also has an administrative court process, but parties may close the transaction during the administrative court’s review.

If the DOJ approves the merger with conditions, or moves to challenge/block the merger, such decision must be approved by a federal district court. 

Under the Tunney Act (15 U.S.C. § 16), if the DOJ enters a consent agreement with parties to require that certain conditions be met to allow the merger to proceed, the proposed consent agreement must not only be filed with the court, but also published, and the DOJ must publish an explanation that provides an overview of the case, why the proposed consent agreement remedies any competitive concerns, and, generally, why the agreement is in the public interest. 

Interested parties then have a 60-day period during which they can send comments on the proposed consent agreement, and the DOJ must consider and respond to the comments received before the court decides whether the proposed consent agreement is in the public interest and whether to approve it. 

The federal court will set its own schedule, it is not subject to statutory deadlines.

Interested parties have 60 days to comment on a proposed consent agreement under the Tunney Act process.  Note that the Tunney Act only applies to consent agreements entered by the DOJ. 

 

 

Assessment and remedies/decisions

44) Tests or criteria applied when a merger is assessed

The Agencies will investigate whether a merger will substantially lessen competition or tend to create a monopoly. This analysis requires a multi-faceted, fact-specific examination of the relevant market, market dynamics, economic analysis, competitive effects, and potential efficiencies. See the relevant Merger Guidelines in topic 3. 

45) May any non-competition issues be considered?

No. The Agencies generally only consider competitive dimensions of the transaction; however, if privacy or security are dimensions in which the parties compete, the Agencies may consider how such factors impact competition during the course of their review.

46) Special tests or criteria applicable for joint ventures

None.

47) Decisions and remedies/commitments available

The Agencies may allow a merger to proceed with no conditions, require conditions, or move to block the merger in court (see topic 2). The parties can elect to accept the Agencies’ conditions (which can be structural or behavioral) and move forward with the transaction, or challenge the Agencies’ decision in court.  

Importantly, the end of the HSR waiting period, whether it expires or is terminated early by the Agencies, does not prohibit them from investigating and challenging a merger in the future, even if the merger has been consummated.

Publicity and access to the file

48) How and when will details about the merger be published?

The fact of filing as well as any information contained in a notification form are not disclosed publicly. However, if the parties request and the Agencies grant early termination, the names of the parties and the date of the grant (but nothing else) are published. 

If the reviewing Agency approves the merger with conditions, or moves to challenge the merger in court, its reasoning and view of the merger and affected markets are published (see topic 43).  

If the merger investigation has been made public (for example, if the parties make disclosures in their SEC filings, or if the press has discussed the investigation in news reports), the reviewing Agency can disclose why it chose to close its investigation and sometimes issues a press release at the end of an investigation. 

49) Access to the file for the merging parties and third parties

The merging parties:

The merging parties have no right of access to the Agencies’ internal documents and correspondence, and no right of access to statements or materials collected by the Agencies from third parties. 

Third parties:

Third parties do not have access to the file, and the Agencies protect such information even against Freedom of Information Act requests. 

In rare cases, the Agencies may disclose certain party documents, if directed by Congress or if the Agencies challenge the merger in court, then subject to the Federal Rules of Civil Procedure, certain materials may be disclosed as part of the court record. 

Judicial review

50) Who can appeal and what may be appealed?

See topic 2. 

The DOJ cannot impose conditions on or block a merger unilaterally, they must file suit in federal court. 

Even if the parties agree to the conditions, such approval with conditions needs to be approved by a federal district court, and both the merging parties and the DOJ can appeal court decisions. This is also the case for the FTC, although the FTC can opt to institute administrative proceedings instead of filing suit in federal court. However, even under this administrative process, the parties and the FTC can ultimately appeal to the federal courts. This system of court approvals is an important aspect of merger control in the United States. 

Third parties may not appeal any decisions under the merger control regulations, but private parties can elect to file suit against the merging parties in court. 


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