In light of the rapidly changing coronavirus (COVID-19) situation, Troutman Sanders and Pepper Hamilton have postponed the effective date of their previously announced merger until July 1, 2020. The new firm – Troutman Pepper – will feature 1,100+ attorneys across 23 U.S. offices. Read more.
In response to the global COVID-19 pandemic, the competition law enforcement agencies are implementing policies and procedures aimed at operational continuity while reducing the risk of the spread of the virus among their staff and the population more generally. Although the responses of the enforcers have not been monolithic, they suggest that the review of notified transactions will be slower, and parties filing for deals that could present substantive competition issues should take time in advance of filing to prepare explanatory materials that will assist staff’s analysis of those issues. We have provided a short summary of the guidance provided by some jurisdictions and recommendations for businesses considering transactions during this time period.
The U.S. Federal Trade Commission (FTC) and the U.S. Department of Justice (DOJ) have implemented a temporary protocol. The Premerger Notification Office’s (PNO’s) portion of the FTC website also includes practical updates on that protocol. Until the situation becomes clearer, the agencies will not grant early termination of the Hart-Scott-Rodino (HSR) waiting period. The agencies also will be more likely to request at least extended timing agreements to complete their review of competitively significant transactions. The authorities have also postponed all scheduled depositions temporarily and will reschedule them using secure videoconferencing.
All premerger filings must be made electronically, though the parties will be required to submit hard copies or DVDs of the filings made after the resumption of normal agency operations. All internal and external meetings are being conducted by telephone or video conference (where possible), absent extenuating circumstances.
The Competition Bureau of Canada (Bureau) has also taken measures to ensure that its staff are working remotely, whenever possible, and that any communications among staff are by phone, email or other electronic means. The agency has substituted hard copy letters with an email from the signatory for, among other things, advance ruling Certificates, no action Letters and written opinions. Most important to merger reviews, the Bureau has reported that it is becoming increasingly difficult for staff to reach the third parties necessary for the agency to test the market, for example customers and competitors. The Bureau has advised that the difficulties in reaching third parties working remotely could affect staff’s ability to narrow the issues in the first 30 days of a merger review and that staff will try to alert the parties to what would be a realistic timeline under the circumstances.
The Directorate-General for Competition has encouraged companies to delay merger notifications originally planned until further notice, if possible. If parties do decide to proceed with their transactions, they are strongly encouraged to file electronically and submit hard copies later. In addition, the Commission announced that it has put in place certain measures to facilitate continuity in the enforcement of the EU merger regulations. For example, all classroom courses, training events, nonessential business trips, external meetings and conferences have been canceled, and all employees with “noncritical” functions have been instructed to telework. Staff who handle critical functions will continue to be present at work, working in shifts. All group visits are suspended, but staff will make decisions on whether to hold meetings with visitors (fewer than five) on a case-by-case basis.
China’s competition law enforcement agency — the State Administration for Market Regulation (SAMR) — is prohibiting in-person meetings and requiring parties to submit premerger notifications electronically or through the mail. Despite these precautions, SAMR is actively reviewing transactions and communicating with the parties by email and telephone. There is no indication that its process has slowed.
The Korean Fair Trade Commission (KFTC) has not requested that parties delay their transactions or the filing of notifications, but it has requested that parties advise them if their matter is time-sensitive. Staff members below the position of director are taking turns working from home. Although the KFTC has not announced that the review of merger filings will be delayed, it has been reported that it has postponed a number of hearings. Therefore, although the M&A Division's case handlers are trying to work as usual, if a merger case is expected to go to a KFTC hearing for remedies, there may be delays in the hearing process.
The Brazilian competition law authority is discouraging face-to-face meetings, but has otherwise not changed its ordinary procedures.
Although the competition enforcement agencies continue to operate and some have made only the smallest of adjustments for COVID-19, parties with transactions that might present substantive horizontal or vertical reviews should stop to consider the effect of the virus on their merger review process. The parties should anticipate the greater risk that the competition agencies will be even more stretched and cautious than usual. Below are some considerations in light of the measures that authorities have taken to reduce risks to their staffs and those with whom they would typically interact until the current situation improves.
Risk allocation and premerger notification coordination obligation provisions in purchase agreements should be adjusted to take into account the likely delay of premerger notification(s). At a minimum, this includes adjusting the “outside date” and considering whether to push for cost-shifting related to longer merger reviews or investigations and/or triggers for such cost-shifting and reverse termination fees.
Consider softening restrictions on the buyer or the parties jointly reaching agreements with authorities that will delay the statutory or customary waiting periods to allow the flexibility necessary to accommodate staffing and other challenges facing the agencies. This would also include eliminating any language that would prohibit the buyer from “pulling and refiling”1 under the U.S. system. Allowing the authorities more time to conduct their review could be critical to avoiding or narrowing Second Requests in the United States and the later phase, more onerous reviews in other jurisdictions.
Parties can produce information in addition to the premerger notification filing during the applicable initial phase or waiting period or even before the filing is made.
This could include a detailed email or cover letter provided with the filing that confronts and explains directly the documents submitted as part of the premerger filing and/or addresses why the competitive overlap between the parties is not problematic.
This includes information that might resolve staff’s questions about the transaction during the investigation’s preliminary phase, which could reduce the need for a Second Request or allow staff to more narrowly tailor the Second Request. A good starting point of potential information to provide early would be the U.S. FTC’s “Guidance for Voluntary Submission of Documents During the Initial Waiting Period.”2
In publicly announced or disclosed transactions, where a significant investigation is contemplated, the parties should consider gathering and including home or mobile telephone numbers for the third-party stakeholders so important to most enforcement agency merger reviews. This will often not be practical but, where possible, could make a difference in the timing and outcome of the agency’s analysis.
Instead of preparing PowerPoint presentations that require a great deal of oral explanation and supplementation, consider preparing thorough white papers and detailed explanatory letters along with strong visual support that can be reviewed thoroughly online on “home office” devices (e.g., charts, maps and tables). All materials should clearly indicate the source for each relevant element of the visual support.
Do not be as reluctant to retain an economist well before submission of the premerger notification materials in any transaction likely to raise significant substantive questions.
This will allow you to better anticipate agency concerns and to prepare advocacy materials that are designed to be persuasive when viewed on a small home computer/laptop screen.
This will also ensure that transaction and other data typically requested and relevant in competition investigations is gathered and prepared in the most user-friendly format to expedite as much as possible the very detail-oriented analysis of the agencies.
The antitrust teams at Pepper Hamilton and Troutman Sanders are available and happy to assist you in considering the applicability and/or wisdom of the above suggestions in your proposed transaction.
1 In cases where the agency has narrowed but not resolved its questions, merging parties sometimes give staff more time by withdrawing their HSR filing and refiling. This procedure resets the HSR timing provisions without the need to pay an additional filing fee.
The material in this publication was created as of the date set forth above and is based on laws, court decisions, administrative rulings and congressional materials that existed at that time, and should not be construed as legal advice or legal opinions on specific facts. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship.