FTC and DOJ release FY 2020 HSR Annual Report

On November 8, 2021, the Federal Trade Commission and the Department of Justice’s Antitrust Division released the 43rd Hart-Scott-Rodino Annual Report (FY 2020, through Sept. 30, 2020).[1]  The Report (1) highlights developments in the premerger notification program, (2) provides a statistical summary of the program’s operations, and (3) recaps the FTC and DOJ’s enforcement and rulemaking actions from the prior year—offering a baseline for the agencies to highlight accomplishments and agency priorities and, this year, underscoring the sharp partisan divide at the FTC between the Commission’s two Democrats and two Republicans.

In FY 2020, merger filings decreased by approximately 20% compared with FY 2019.  Extended “second request” issued at approximately the same rate year over year.  At the same time, the FTC settled or litigated 28 reported mergers, “the highest number of FTC merger enforcement actions in a single year since 2001.”

It is important to note that this report does not reflect developments during the Biden Administration, which has made enhanced antitrust enforcement a high priority and has appointed a number of strongly pro-enforcement personnel to leadership of the antitrust agencies.  We will have to wait for next year to get a complete picture of the pace and scope of change caused by the new administration.

We highlight notable statistics below:

• During 2020, 1,673 transactions were reported under the HSR Act, a 21.6% decrease from the 2,089 reported transactions in 2019. 
• The FTC brought 28 merger enforcement challenges in 2020, the highest number of challenges since 2001.  An FTC “challenge” includes deals in which the agency reached a settlement with the merging parties (10 deals); deals in which the parties abandoned or restructured their agreement in response to agency concerns (11 deals); and deals that the agency litigated to block or undo (7 deals).  In contrast, in 2019, the FTC brought 21 merger challenges.
• The DOJ challenged 15 transactions in 2020.  These challenges include 8 deals where the DOJ filed a complaint in district court (including 7 that settled upon filing the compliant); 4 deals that were abandoned; and 3 challenges that “were resolved after the parties addressed the Division’s concerns during the course of the investigation.”  In contrast, in 2019, the DOJ challenged 17 transactions.
• The agencies issued second requests in a minority of transactions (3.1% overall).  This is similar to the rate in 2019 and about average for the rate over the last ten years.  
• The rate of second request issuance was split roughly evenly between the FTC and DOJ (very slightly higher at the DOJ).
• The agencies issued second requests across all deal sizes:  31.3% for deals over $1 billion; 31.3% for deals between $500 million and $1 billion; and 37.5% for deals under $500 million.
• In terms of sector, most transactions notified were in securities and financial investments (9.9%), professional, scientific, and technical services (7.2%), and chemical manufacturing (6.5%).
• The sectors most likely to receive second requests were hospitals (6); insurance (5); and chemical manufacturing (4).

The FTC Democratic and Republican leadership issued separate statements accompanying the report that continue to highlight the agency’s partisan divide.  Democratic FTC Chair Lina Khan, joined by Commissioner Rebecca Slaughter, focused on “a continued explosion in deal volume coupled with serious resource constraints.”  According to Khan, as of “September 2021, the number of HSR filings received this year [have] already exceeded the total number of filings received in any of the last ten years.”  However, FTC resources “have not kept up,” and “the combination of the merger boom, scant resources, and strict statutory deadlines has resulted in thinly stretched staff and concerning deals getting a more cursory review than they warrant.”  As result, Chair Khan wrote, the FTC has responded by beginning to issue “pre-consummation warning letters” “notify[ing] parties that the agency’s investigation will remain open even though the waiting period will soon expire.”  Chair Khan and Commissioner Slaughter noted that these letters are consistent with the HSR Act because, “neither the text nor history of the statute suggests that the law was designed [] to give merging parties finality in exchange for providing advance notice.”

Republican Commissioners Noah Phillips and Christine Wilson, by contrast, questioned the basis and policy of the Democrats’ position.  “The FTC maintained vigorous merger enforcement under the previous agency leadership through the height of the COVID-19 pandemic and the surge in merger filings.  Why then is current FTC leadership suddenly unable to handle the new wave of HSR filings which began in October 2020?”  Commissioners Phillips and Wilson also criticized Chair Khan and Commissioner Slaughter for seeking “a different legal regime” than the one that governs the FTC, and they stated that “[f]or now, the policy changes undertaken by new agency leadership distort almost beyond recognition the merger review framework that Congress legislated.”

Currently, the FTC remains at a 2-2 deadlock between Democrats and Republicans, with President Biden’s nominee for the third Democratic seat (Alvaro Bedoya) yet to be confirmed by the Senate.  The Democrats are likely to press to review an increasing number of transactions.  At a minimum, this will mean that parties will face the right of increased delays and uncertainty about deal timing.  The rhetoric from the Democratic Commissioners suggests that the agency will ultimately challenge a higher proportion of transactions, although this remains to be seen. 

[1] Fed. Trade Comm’n and U.S. Dep’t. of Justice Antitrust Division, Hart-Scott-Rodino Annual Report: Fiscal Year 2020, (available at https://www.ftc.gov/system/files/documents/reports/hart-scott-rodino-annual-report-fiscal-year-2020/fy2020_-_hsr_annual_report_-_final.pdf).