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Federal merger reviews are worrying the business community, as major deals increasingly get stalled or even torpedoed in the government’s meticulous enforcement process.
Some merger reviews are stretching beyond a year, a trend that is causing the business community to become more aggressive in their requests for a streamlined process, including for some type of deadline. Long reviews can be costly for the merging parties, and the uncertainty that surrounds the process can jeopardize their deal.
“I think the concern is rising,” Sean Heather, director of antitrust policy at the U.S. Chamber of Commerce, told Bloomberg BNA.
The problem is due to a mixture of factors, including a rise in the number of complex mega-mergers in recent years and an enforcement process that typically involves extensive data collection and analysis, according to Heather.
Meanwhile, as companies face the possibility of longer Federal Trade Commission and Justice Department reviews, transactions are also getting scrutiny from more antitrust regimes worldwide. Heather said the U.S. government should set an example by holding itself to a one-year timetable for all reviews. “There’s no reason why the government can’t make its case within a year,” he said.
Significant merger probes — ones in which some kind of public action such as a settlement was taken by the government — lasted an average of 9.9 months in 2016, compared with 7.1 months in 2011, an increase of about 40 percent, according to an analysis of by the global law firm Dechert LLP. There is little data on length of merger reviews that goes back farther than that.
“There’s no question that investigations are taking longer,” Paul Denis, an antitrust partner at Dechert’s Washington office, told Bloomberg BNA.
Companies also sometimes fail to do their part to expedite the process, Heather acknowledged. They can cause delays by not immediately providing the information the agency needs, or they may balk at making concessions.
Mergers also have grown in both size and complexity. According to Bloomberg Law’s Quarterly M&A Market Update, 81 large-market deals were announced in the first quarter of 2017, the most for any quarter in at least five years.
Yet the nation’s antitrust agencies haven’t seen a significant increase in staffing or resources.
There are a few recent high-profile examples of lengthy merger reviews. Walgreens Boots Alliance Inc.’s plan to acquire rival Rite Aid Corp. is still pending at the FTC, nearly 20 months after the merger was first announced in October 2015.
A deal between paint makers Sherwin-Williams Co.’s and Valspar Corp. was cleared by the FTC in late May, more than a year after it was proposed in March 2016.
The merger process at the Justice Department’s antitrust division is raising similar concerns. The department is still looking at a deal between DuPont Co. and the Dow Chemical Co. that was announced in December 2015. The U.S. is one of two remaining major global antitrust agencies yet to clear that deal. (The other is Canada.) It has already been approved with conditions by the European Union, India, Brazil, and Australia.
While these are extreme examples, the process has been slow for big, complex deals in general, according to practitioners.
The chamber is beginning to rate the issue as a top antitrust priority after getting feedback from concerned member companies — those that have gone through the process as well as outside observers, Heather said.
The 2016 average merger review length was a new record for the six years during which Dechert has tracked the merger data. Overall, a small number of disproportionately longer probes appears to be driving up the average, according to Dechert.
A big contributor to the average length of merger review last year was the government’s review of Halliburton Co.’s bid for rival oil-services firm Baker Hughes Inc. That deal was announced in November 2014 and ultimately abandoned in May 2016 after a DOJ challenge.
2017 is already shaping up to be another record year, Denis said. The Valspar/Sherwin-Williams transaction will be part of the firm’s data for the first half of 2017, which is expected in early July, he said.
Denis said there are several issues that might explain why mergers are taking longer, although it hasn’t been a focus of Dechert’s research.
“It’s hard to point to any one reason,” he said. “It’s certainly the case that merger investigations are growing in their complexity. Merging parties are making increasingly sophisticated arguments, and the government is doing increasingly sophisticated analysis.”
Also, both the FTC and DOJ have more often been insisting on up-front buyers in divestiture consent orders, which takes time, Denis said. An up-front buyer enters into a binding agreement with the merging companies for the sale of divestiture assets. The purchase agreement, as well as the buyer’s business plan and other information, must be presented to the government as part of the approval process.
In 2016, up-front buyers were required in 86 percent of consent orders, compared with about 43 percent in the 2011-2013 period, Dechert’s analysis found.
Another possible factor, according to the U.S. Chamber’s Heather, is the amount of information demanded when the FTC or DOJ issues a “second request” — a discovery procedure by which the agencies investigate mergers that raise competition concerns.
“There’s a view that second requests in recent years have become far more unwieldy and require the production of far more information than the agencies ever need or use,” he said.
FTC Acting Chairman Maureen Ohlhausen is sympathetic to industry concerns. In January, she said she was worried about the cost of second requests and “similar burdens” that companies experience in consumer protection investigations. She addressed the issue in a speech at the Heritage Foundation, a conservative think tank in Washington.
Ohlhausen has since launched an initiative to streamline information demands in both competition and consumer protection probes at the agency. Internal FTC working groups have formed to look at the issue, but the agency hasn’t released details, such as a timeline for action.
“Time will tell whether there is any real reduction in burden for merger reviews, and whether the FTC staff adheres to the initiatives,” Andre Barlow, an antitrust partner at Doyle, Barlow & Mazard PLLC, told Bloomberg BNA. “By beginning the process, however, the FTC is indicating that there are some issues with the current system.”
The goal, he added, is likely to implement modest changes that will make the FTC more business friendly, while also allowing staff to retain its ability to collect sufficient information and conduct adequate reviews.
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