New Merger Rules Survive Change in Administrations

Since taking up residence in the White House for a second time, President Donald Trump has rolled back many policies put in place by his predecessor, Joe Biden. This week, however, Federal Trade Commission Chairman Andrew Ferguson announced that guidelines for reviewing corporate mergers developed under the Biden administration will remain in effect – a rare example of the Trump and Biden administrations seeing eye to eye.

Those guidelines are related to new rules that took effect on February 10 for premerger notifications under the Hart-Scott Rodino Antitrust Improvements Act, more commonly referred to as HSR. Lina Khan, chair of the FTC under Biden and a frequent target of conservative politicians’ ire, said the revised approach “marks a generational upgrade that will sharpen the antitrust agencies’ investigations and allow us to more effectively protect against mergers that may substantially lessen competition or tend to create a monopoly.” Formalized in October, the changes are the first to the HSR merger-review rules in nearly 50 years. They essentially lower the threshold for what is considered anti-competitive behavior by companies. Moreover, they mandate that companies provide substantially more detailed information under their duty to inform the federal government of proposed mergers than they have in the past.

Specifically, regulators want to know more about aspects of proposed combinations such as the competitive overlap between the companies involved and the combined entity’s ownership structure. The new rules ramp up the scrutiny of deals involving private equity shops, in particular, as well as those involving companies with market shares of 30% or more in their sectors. The upshot is that the changes should make it harder for companies to consummate mergers than in the past.

What will be more difficult for companies in practice? First, the legal costs of completing mergers could increase materially. The FTC and Antitrust Division of the Department of Justice have estimated that complying with the new HSR rules will add an average of 68 hours of additional legal work to a transaction, with some deals requiring upwards of 120 hours. Not to mention, regulatory authorities will have to peer over more documentation and disclosures because of the new requirements, which will likely translate into delays in closing mergers.

There’s also a new element of uncertainty that must be factored into the calculus for corporate leaders mulling over a merger. If you’re the head of a company that has a dominant competitive position in its sector, the changes present opportunities for even more time-consuming roadblocks to get in the way of completing a transaction. The potential investment of resources and energy may scare off dealmakers before even starting down the road of evaluating a merger proposal.