Dive Brief:

• Almost three-quarters of proposed mergers that are subject to a second request under the federal government’s pre-merger review process are voluntarily restructured or abandoned, a report released a few weeks ago by federal antitrust regulators shows.
• That rate of abandonment or restructuring is substantially higher than in the previous administration and during the second term of the Obama administration, according to the report from the Federal Trade Commission and the Department of Justice. The data covers the first two fiscal years of the Biden administration.
• A drop in the two agencies’ efforts to negotiate settlements with companies might be behind the increase in abandonments and restructurings. The DOJ has entered into only four settlements and the FTC only one during the period. “Perhaps because formal settlements with the agencies are an unlikely outcome, there has been a recent uptick in parties taking matters into their own hands,” an analysis by Morgan Lewis says.

Dive Insight:

DOJ and the FTC, chaired by Lina Khan, seek second request reviews as part of the Hart-Scott-Rodino pre-merger review process. The HSR reviews are intended to give the agencies a chance to look at mergers of a certain size before they close to see if they pose a competitive risk.

A second request is like a subpoena; if one of the agencies thinks more information is needed to understand the competitive impact of the deal, it makes a second request.  

In the first two fiscal years of the Biden administration, the agencies sought second-request reviews in 1.6% of the 8,556 deals that were submitted for HSR review, a rate roughly comparable to what occurred in the last administration and during the last Obama term.  

“The data should provide some comfort to dealmakers,” David Brenneman, a partner at Morgan Lewis, said. “The likelihood of a major antitrust merger investigation has not increased from prior administrations and remains very low.”

What has appeared to change, though, is the rate at which the agencies seek settlements with companies whose deal is subject to a second request. Of the almost 9,000 HSR filings, only 0.39% were subject to settlement, a big drop from 1.04% during the last administration and 1.42% during the second Obama term. 

In its analysis, Morgan Lewis says this drop could be the reason 35%-45% of deals subject to a second request are abandoned, and an even higher percentage are restructured.

“The drop in settlements has increased the danger that a second request poses to deal completion, with data suggesting that parties to most second request transactions in the last year or two will abandon them to avoid litigation [or] abandon them during litigation,” the analysis says. 

In one high-profile abandonment, chip supplier Nvidia dropped its $40 billion bid for U.K. chip design provider Arm. In another, Lockheed Martin abandoned its bid for Aerojet after the FTC claimed it could keep rival companies from using Aerojet components to build missiles.  

The bigger the deal, the more likely it will be subject to a second request, the data show. 

“Transactions in the Biden administration valued in excess of $1 billion have been about three times more likely to be investigated and six times more likely to receive a second request than transactions valued below $300 million,” the Morgan Lewis analysis says. 

Certain industries are being targeted more, too. Deals in broadcasting and healthcare are especially more likely to get second requests than those in other industries. 

Almost 17% of those in broadcasting and 11% of those in healthcare were subject to second requests, compared to low single-digits in most other industries.   

Although deal abandonment and restructurings are up, the Biden administration doesn’t appear to be any more aggressive in suing companies than the previous administrations, and its rate of success and failure when it does sue is about the same. 

“The number of litigated cases continues to be small, and the Biden administration’s positive outcomes from merger litigation (i.e., injunctions or parties abandoning deals) are about the same as those of prior administrations,” the Morgan Lewis analysis says. 

Even if the litigation picture hasn’t changed much, the decreased likelihood that the Biden administration will seek a settlement could be impacting business decisions, the analysis says. 

“What is not possible to measure from these data is the extent to which parties’ inability to enter into formal settlements with the FTC and DOJ, as well as the perceived increase in enforcement and louder government rhetoric, is reducing the number of strategic mergers,” it says, “i.e., dampening mergers and acquisitions and consequently reducing innovation and efficiencies.”