JANUARY – MARCH 2021: HIGHLIGHTS
As the United States rounds the corner toward getting the COVID-19 epidemic under control within its borders, the US antitrust enforcers have seen a major spike in Hart-Scott-Rodino (HSR) premerger filings. The spike, as well as other potential considerations under the new Biden administration, prompted the Federal Trade Commission (FTC) and the US Department of Justice (DOJ) to suspend grants of early termination, which remain in place.
The healthcare and technology industries can expect to remain under close watch by US enforcement agencies as the Biden administration continues to appoint progressive antitrust scholars to key leadership and advisory roles.
Senator Amy Klobuchar (D-MN) is leading the charge in progressive antitrust reform in Congress by introducing legislation that seeks to make significant changes in the antitrust laws, including easing the legal standards to challenge mergers.
For the first time in many decades, the FTC has filed suit to block a vertical merger (Illumina’s acquisition of Grail), indicating a more aggressive posture towards vertical transactions. In 2017, the US District Court for the District of Columbia ruled against the DOJ’s challenge to the AT&T/Time Warner vertical transaction. The outcome of this new FTC challenge therefore will have a significant impact on whether the antitrust agencies can successfully litigate a vertical merger.
The European Commission is focusing on “green killer acquisitions,” highlighting the interplay between the EU competition rules and the European Union’s environmental protection objectives. The Commission does not expect its review of transactions to change significantly, however, even if “out-of-market” green efficiencies are taken more seriously, because it is difficult to quantify merger-specific green efficiencies.
On March 26, after extensive analysis of deal activity and enforcement practice, the Commission publishedits evaluation of the functioning of the EU merger control rules in light of rapidly changing market realities, including lessening the burden to file transactions under the simplified merger procedure.
In parallel with the publication of its evaluation findings, the Commission issued practical guidance on when it might be appropriate for an EU Member State to refer to the Commission a non-notifiable, yet potentially problematic, merger pursuant to Article 22 of the EU Merger Regulation (EUMR). This guidance has the potential to create meaningful new transaction risk for mergers by subjecting more deals to in-depth Commission review.
In March, the UK Competition and Markets Authority (CMA) published updated guidelines on its approach to analyzing mergers. The updated guidelines reflect the significant market developments that have taken place (particularly in the digital arena) since the CMA last issued merger guidance in 2010.
KEY THEMES AND TAKEAWAYS
There were 837 premerger filings in the first quarter of 2021, with HSR premerger filings hitting a 10-year high in February. On February 5, the FTC announced that the transaction threshold for required HSR premerger filings has been adjusted from $94 million to $92 million for 2021. The threshold is adjusted on an annual basis relative to changes in the gross national product. The threshold normally increases year over year, but it declined this year because of the economic contraction arising from the pandemic.
On February 4, the FTC and DOJ temporarily suspended HSR early termination grants. The agencies cited the increased number of filings and the presidential administration transition as the reasons behind the temporary suspension. The agencies did not give a timeline for reinstatement, and will review the current early termination procedures and processes during the suspension period.
The healthcare industry likely will see an increase in M&A transactions this year after the sector took a beating in 2020 from the COVID-19 pandemic. The antitrust agencies, Congress and the Biden administration have indicated that healthcare mergers and acquisitions, including vertical transactions, will face increased scrutiny. The FTC has already announced several initiatives aimed at the healthcare industry.
In January, the FTC also announced a retrospective study by the FTC’s Bureau of Economics to analyze the effects of consolidation among physician groups and healthcare facilities from 2015 through 2020. The FTC issued orders to six health insurance companies to file special reports and provide data to aid the study. This may signal that the FTC is more likely to investigate and potentially challenge small non-reportable physician group and healthcare facility acquisitions.
In March, the antitrust agencies and state attorneys general announced their participation in a cross-border working group aimed at building a new approach to pharmaceutical mergers. The working group is spearheaded by the FTC and will include the DOJ Antitrust Division, state attorneys general, the Canadian Competition Bureau, the European Commission and the CMA. Among other issues, the working group plans to update theories of harm, assess characteristics of a successful divestiture buyer, and consider price-fixing and other “regulatory abuses” in merger review. One consideration that is likely to be part of this review is whether the traditional approach of evaluating transactions based on narrow product overlaps is the proper framework, or whether regulators should evaluate these transactions using a broader perspective.
We expect technology companies will remain under heavy scrutiny during the Biden administration. President Biden has nominated Lina Khan to fill one of the vacant FTC commissioner seats. An outspoken critic of “Big Tech,” Khan is well known for advocating that leading technology firms should be scrutinized for the alleged effect their conduct has on competitors. Khan has repeatedly argued for a departure from the consumer welfare standard, which is focused largely on prices to end consumers, and instead suggests that a broader framework of potential harms should be considered. On March 5, progressive antitrust author and law professor Tim Wu was named to the National Economic Council as a special assistant to President Biden on technology and competition policy. Wu is known as an outspoken critic of Big Tech and is an advocate for using enforcement power to break up monopolist firms.
Senator Klobuchar (D-MN) is leading an antitrust policy ramp-up that includes legislative proposals across the antitrust spectrum, including making it easier for the federal antitrust agencies to challenge transactions. For fiscal year 2021, Congress has approved a budget increase of $20 million for the FTC and $18 million for the DOJ Antitrust Division. The budget increase provides welcome relief to the antitrust agencies, whose resources have been taxed by aggressive merger enforcement, including several ongoing litigations.
The Competition and Antitrust Law Enforcement Reform Act of 2021, introduced on February 4, would increase the FTC and Antitrust Division budgets by more than $300 million each for fiscal year 2022. Among many proposed changes, the bill would lower the standard of proof for government enforcement actions by prohibiting mergers that “create an appreciable risk of materially lessening competition.” The current standard prohibits mergers where the effect “may be substantially to lessen competition.” The bill would also shift the burden of proof in certain enforcement actions from the government to the merging parties to show that the merger is not likely to materially lessen competition. Mergers or acquisitions subject to burden shifting include:
– Acquisitions that significantly increase market concentration
– Acquisitions by an acquirer with at…
Read More: US, UK, EU Antitrust Cases: Q1 2021