October 16, 2021

Volume XI, Number 289

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October 15, 2021

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October 14, 2021

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HSR Practice Alert – FTC is Making Changes to Respond to the “Massive Surge” in HSR Filings

Yesterday, the FTC announced certain changes in response to the continuing “massive surge” in HSR filings. See Reforming the Pre-Filing Process for Companies Considering Consolidation and a Change in the Treatment of Debt | Federal Trade Commission (ftc.gov).

First, although providing no specifics, the FTC announced that it and DOJ are working together to update the formal HSR rules:  “The FTC is currently in the process of working with the DOJ to update its existing merger filing rules.”

Second, the FTC is reviewing its “voluminous” published database of informal interpretations out of a concern that some of them“ may not reflect modern market realities or the policy position of the Commission.” The FTC has historically provided informal HSR interpretations by email in response to anonymous inquiries, and then published some of those on FTC’s website to provide general, informal guidance. However, the announcement cautioned: “These interpretations are not reviewed or authorized by the Commission and do not carry the force of law.’ The FTC will review these and then “determine the best path forward.”

Third, the FTC changed its treatment of debt in situations where the payoff of debt “benefit[s]” a selling shareholder.  Previously, funds used to payoff target debt at closing could be excluded from the size of transaction in equity deals. The FTC expressed concern that parties were abusing its informal interpretations on this point and “sidestepping” HSR reporting requirements:  “Target companies may be incentivized to take on debt just before an acquisition, so that the acquiring company can retire the debt as part of the deal. These deals then are not being reported to the FTC and the DOJ, which means that merging parties are effectively sidestepping the law and avoiding accountability.”

The FTC’s announcement did not provide a precise definition or list of examples of what types of debt payoff “benefit” a shareholder and fall under the new treatment.  Parties should carefully analyze what type of debt can be deducted.  It appears that at a minimum, payoff of the following two types of debt should now be included when determining the HSR size of transaction in light of FTC’s new guidance: (1) payoff of debt owed to a selling shareholder or (2) payoff of debt incurred by the target in order to make a distribution to a selling shareholder.

Copyright © 2021, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume XI, Number 239
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About this Author

Leo Caseria Antitrust & Competition Attorney Sheppard Mullin Washington, DC
Partner

Leo Caseria is a partner in the Antitrust and Competition Practice Group in the Washington, D.C. and Los Angeles offices. 

Areas of Practice

Leo advises companies on antitrust issues in civil litigation, government investigations, mergers and acquisitions and proposed or contemplated business strategies. He has litigated numerous antitrust cases in federal and state courts, including cases based on alleged price-fixing, market allocation, boycott, monopolization and attempted monopolization.  He also has experience in consumer protection issues relating to...

202-747-1925
John D. Carroll Antitrust Lawyer Sheppard Mullin
Partner

John D. Carroll is a partner in the Antitrust & Competition Practice Group in the Washington, D.C. office.

Areas of Practice

John’s practice focuses on civil and criminal antitrust matters, including mergers & acquisitions, strategic counseling and compliance, and global cartel investigations, where he represents clients before the Department of Justice Antitrust Division, Federal Trade Commission, and international and state antitrust enforcement authorities.

Prior to private practice, John was in the Mergers I Division of the Federal Trade...

1.202.747.1951
Bevin M.B. Newman Antitrust Lawyer Sheppard Mullin Law Firm
Partner

Bevin Newman is a partner in the Antitrust and Competition Practice Group in the firm's Washington, D.C. office.

Areas of Practice

Bevin is a strategic adviser to clients in cutting edge affiliations and collaborative arrangements. She focuses much of her practice in the healthcare industry bringing over twenty years of experience advising and defending globally renowned health systems, academic medical centers, providers, payers, and pharmaceuticals companies undertaking significant transactions, including mergers and acquisitions, joint ventures,...

202-747-1940
Malika Levarlet, Attorney, Sheppard Mullin, Corporate Practice, mergers
Associate

Ms. Malika Levarlet is an associate in the Corporate Practice Group in the firm's Washington, D.C. office.

Areas of Practice

Ms. Levarlet's practice focuses on advising international and domestic companies in connection with mergers and acquisitions, cross-border transactions (with a focus on U.S. and European companies), joint ventures, licensing agreements, and corporate governance. She represents clients operating in a wide range of industries including technology, hospitality, fashion and apparel, healthcare, financial services, and aerospace and defense...

202-772-5331
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