The COVID-19 pandemic poses unprecedented challenges for merging parties and enforcement agencies.1 In the U.S., it has caused both the Department of Justice (DOJ) and Federal Trade Commission (FTC) to alter their longstanding merger review processes and practices. Given the continued spread of COVID-19 and ever-evolving government response, merger reviews will face delays as scarce resources are being reallocated, meetings are being postponed or canceled, and the agencies adjust to reviewing merger filings remotely.
This Wilson Sonsini alert concentrates on how the COVID-19 pandemic is likely to affect merging parties seeking approval from the DOJ and FTC and provides those parties practical recommendations.
DOJ and FTC Measures
On March 17, 2020, the DOJ and FTC announced changes to the antitrust merger review process. Both agencies remain open, continue to accept pre-merger filings, and are actively conducting merger review. However, most of the agencies' staff are working remotely, with the exception of emergency staff who must remain in the office to perform "mission-essential work."2 Because the majority of staff is remote, changes have been implemented for new filings and transactions currently under review.
Pre-Merger Filings
On March 17, the DOJ and FTC implemented a temporary electronic pre-merger filing system for submissions under the Hart-Scott-Rodino Act so they can continue to receive filings. However, while the parties ordinarily can request early termination of their filing and can sometimes gain antitrust approval in less than two weeks, that will no longer be the case as early termination will not be granted for any filing while this temporary system is in place.3 Instead, parties will not obtain approval until after the expiration of the statutory 30-day initial waiting period (or 15-day waiting period in the case of a cash-tender offer or bankruptcy sale). Because the system is new, we expect it may cause additional delays and parties may need to consider a "pull and refile"—depending on the specific circumstances of their transaction. When parties pull and refile, they restart the clock on the initial waiting period and provide the agencies an additional 30 (or 15) day waiting period without subjecting themselves to a Second Request.
Currently, the agencies are bound by the statutory 30 (or 15) day waiting period. However, because of overwhelmed staff resources, Congress is discussing legislation to provide the DOJ and FTC additional time to review mergers.4 The current Republican proposal would allow the agencies to extend the initial waiting period in 15-day increments. Some Democrats are proposing a 30-day extension that could be enacted by the agencies automatically for national emergencies, while other Democrats are pushing for a more extreme approach of automatically extending the waiting period through the COVID-19 national emergency, plus an additional 30 days. Legislation is likely, but the extent of the extension remains unknown.
Transactions Under Review
Transactions currently under review can expect delays. While the antitrust agencies remain bound by the statutory waiting period, we expect the agencies likely will need extra time to finish reviewing these mergers due to challenges with remote work, potential illness, delays in obtaining market feedback from third parties, inability to hold in-person meetings, and other competing concerns.
Parties that are currently in the initial 30-day review period should be prepared to quickly respond to any requests from the agency to best positioned to avoid delays. While we do not expect COVID-19 to influence the rigor of DOJ or FTC merger review, we do expect that current circumstances will make it more difficult for the agency to finish review during the statutory waiting period. For example, even if the parties respond diligently to all requests, the agencies also rely on market information from third-parties who may not have the resources to quickly respond during this time.
For mergers currently subject to a Second Request, the DOJ and FTC have moved all in-person meetings to phone or video conferences. Significantly, the DOJ has also stated that they will request an additional 30 days be added to timing agreements that govern these ongoing Second Requests to allow the agency sufficient time to review the transaction.5 The FTC similarly announced that it will reach out to parties for timing extensions as needed.6
Other Considerations
Merging parties should not assume the DOJ and FTC will ignore procedural breaches of merger rules and requirements. Despite deteriorating economic conditions and resource constraints, merging parties should expect robust enforcement against gun-jumping, including any pre-clearance integration or cooperation between the parties, and should prepare accordingly by ensuring the proper use of clean teams and other safeguards.
Given the economic impact of the pandemic, we expect a decrease in the number of mergers. However, during this period mergers are more necessary than ever. For companies that are merging, we expect a greater incidence of "failing firm" defenses for problematic mergers. As companies hit by the current economic conditions are acquired by competitors, merging parties are more likely to argue that the merger is less harmful to competition than allowing the business to shutter altogether. However, as in prior economic crises, we expect that the agencies will vigorously test any such arguments.
Wilson Sonsini Observations
While merger reviews will not be business as usual, U.S. regulators have shown no sign of grinding to a halt. In order to minimize the impact of COVID-19 on U.S. transactions, merging parties should:
- Assess deal timetables realistically. Drop-dead dates in agreements subject to a "live" merger review or those still being negotiated may need to be revised.
- Carefully review merger agreement provisions, including termination and material adverse change clauses, to assess risk allocation and any obligations on the parties to consummate the deal.
- Engage with the antitrust agencies as early as possible—even during deal negotiations. This will give the merging parties a sense of whether the DOJ or FTC will request additional review time. If parties attempt to push a filing through, there is a risk that the reviewing agency could issue a Second Request simply to buy time.
- Anticipate delays and resource limitations when assessing the companies' ability to meet deadlines for submissions and communicate these limitations up-front with the agency to avoid procedural sanctions. Overcome potential delays by compiling documents, information, and advocacy as soon as possible to give the agency maximum time to review.
- Depending on the specific factual circumstances, consider a pull-and-refile to grant the agency additional review time, particularly if significant time was lost due to sickness or teleworking constraints and the agency indicates it needs additional time to avoid issuing a Second Request.
- Identify key legal and commercial employees for the review process and ensure they have sufficient remote support to quickly assist in responding to any agency requests.
- (Over-)prepare any advocacy presentations. When meetings cannot be conducted face-to-face, clear and stream-lined presentations are necessary to land key messages and speed review.
Katie Glynn and Alexandra Keck contributed to the preparation of this Wilson Sonsini Alert.
[1] For information about the impact of COVID-19 on European merger reviews, see Wilson Sonsini client alert, The Impact of Covid-19 on Merger Reviews: Practical Considerations for Global Deals, https://www.wsgr.com/en/insights/the-impact-of-covid-19-on-merger-reviews-practical-considerations-for-global-deals.html.
[2] Press Release, Fed. Trade Comm’n, FTC Outlines Agency’s Response to Coronavirus Challenges (Mar. 17, 2020), https://www.ftc.gov/news-events/press-releases/2020/03/ftc-outlines-agencys-response-coronavirus-challenges.
[3] Press Release, Fed. Trade Comm’n, Premerger Notification Office Implements Temporary e-Filing System (Mar. 13. 2020), https://www.ftc.gov/news-events/press-releases/2020/03/premerger-notification-office-implements-temporary-e-filing.
[4] Antitrust Policy: Congressional Republicans, Democrats Discuss Extending Initial 30-Day Merger Review Period, 8 Capitol Forum 103 (Mar. 19, 2020) (subscription required).
