Phillips: FTC’s Prolonged HSR Suspension a ‘Gratuitous Tax’

It’s disappointing the FTC’s “temporary” suspension on granting early termination (ET) for mergers and acquisitions has dragged out for more than a year (see 2102080070), Commissioner Noah Phillips told us Tuesday. “Continuing to refuse ET for deals the agencies are not interested in investigating is nothing more than a gratuitous tax on normal market operations and the efficient allocation of agency resources,” said Phillips in a statement.

When acting Chair Rebecca Kelly Slaughter announced the temporary suspension for Hart-Scott-Rodino ET in February 2021, she said the agency anticipated the suspension would be brief. Since then, the FTC has publicly issued four ET notices, all allowed under specific circumstances involving second requests (see 2103120069).

The FTC is holding up for “no reason,” deals that pose no competitive issues, said Phillips: The suspension was “premised on a desire to avoid inadvertently allowing potentially anticompetitive transactions to evade scrutiny during a period of political transition, a heightened number of HSR filings, and the ongoing Covid-19 emergency.” The suspension wasn’t justified then, but now there’s even less justification, he said. The offices of Chair Lina Khan, Commissioner Slaughter and Commissioner Christine Wilson didn’t comment. DOJ, which backed the suspension, didn’t comment.

Ending the suspension would be like turning off the fire hose spigot when the fire inside the building is blazing, said antitrust attorney David Balto, a former FTC and DOJ official. Democrats have taken a valid position considering the need to take a closer look at deals without being under the pressure of a tsunami of merger filings, he added. An overlooked aspect of the debate is that many ET-granted deals have led to anticompetitive effects later, he said: Under the suspension, a “few hundred companies have the discomfort of having their deal evaluated for a couple of weeks. Big deal compared to the harm that comes out from a single deal” that turns out to be anticompetitive.

Companies aren’t owed the benefit of early termination, said Alex Harman, a former Senate and Public Citizen staffer. Now the Economic Security Project director-government affairs, antimonopoly and competition policy, Harman said the ET process is entirely discretionary and should be used only when it makes sense for antitrust agencies, if at all: “There is absolutely no reason to lift the suspension, and I think the agencies should reconsider early terminations altogether.” In a year with more than 4,000 filings, which is straining the agency, it’s good policy to “focus on reviewing the most problematic mergers instead of those that are likely going to be terminated early,” he added.

“The temporary suspension seems to be indefinitely continuing,” said ex-Competition Bureau Director Bruce Hoffman, now at Cleary Gottlieb. It’s hard to see the benefit in prolonging suspension of ET on about half of the agency’s transactions, he said. FTC and DOJ staffers are very skilled at spotting deals that have no competitive significance, said Hoffman. The rationale of a high volume of filings is questionable, he said, because clearing review of non-problematic transactions frees resources for the agency. Transactions that have any questions don’t get ET, he said: “It would be beneficial to the economy and staff of the agency to restore” ET.

“Temporary doesn’t seem like the right description,” said Morrison & Foerster's David Shaw, a former DOJ Antitrust Division deputy chief of staff. The prolonged suspension “probably reflects the general tone and tenor of Biden administration antitrust enforcers, especially at the FTC.” The current administration is “much more skeptical of mergers in general” and the value of M&A activity, he added. Khan’s FTC doesn’t appear to be focused on reaching a balance between stopping bad acquisitions but staying out of the way of pro-competitive or neutral ones, he said.