Federal Trade Commission Returns to its Throne
On July 21, 2021, the Federal Trade Commission rescinded a longstanding 1995 Policy Statement that limited the Commission’s ability to deter anticompetitive or problematic mergers and acquisitions. Prior to the 1995 Policy Statement, the Commission required a company that allegedly or actually violated the law in a previous merger or acquisition to seek approval from the Commission prior to executing a transaction related to a similar product or geographic location regardless of the size of the transaction. The deviation from the venerable policy represents a transition back to a time when the Commission harbored greater authority and involvement in the early stages of problematic transactions.
The 1995 Policy Statement on Prior Approval and Prior Notice Provisions. In 1995 the Commission reduced the burden on companies during the pre-approval process of a merger or acquisition transaction. The Commission noted that under the Hart-Scott-Rodino Act (HSR), parties meeting a specific threshold in a qualified transaction are required to notify the Commission and the Department of Justice of the proposed transaction. The 1995 Policy Statement expressed that the Commission would primarily rely on the HSR process to learn about and review potentially problematic transactions. However, the Commission narrowly reserved the right to impose a prior-approval requirements on a party if it there was a credible risk the party would attempt a transaction of essentially the same assets.
Rescission of the 1995 Policy Statement. The Commission’s decision to pivot from the 1995 Policy Statement has widespread implications for every industry, including health care, as it addresses recurring “problem-child” transactions reviewed by the Commission through its oversight and approval processes. The change will allow the Commission to issue an order against parties that propose facially anticompetitive transactions or are alleged to be in violation of anti-competition laws without necessitating an HSR filing. Under the order, a party subject to a prior anti-trust action is restricted from entering into certain transactions for at least a ten year period, requiring advance approval from the Commission for any subsequent transaction affecting the relevant market which a violation was alleged. The shift in policy will address acquisitive entities that were willing to take risks in potentially anticompetitive transactions. Now these entities will be subject to the Commission’s pre-approval process and waiting periods.
The Commission is also less likely to issue an order to parties that abandon anticompetitive transactions if the transaction dissolves before the Commission investigates its merits. In the event the Commission attempts to block a transaction, and the parties later abandon the transaction, the Commission may levy a pre-approval order on the parties for future transactions. Importantly, the Commission possess the latitude to determine whether a pre-approval order is necessary to cover a product or geographic market beyond relevant markets affected by the transaction. Companies weary of the Commission’s authority should thoroughly vet proposals if they wish to operate without the Commission’s oversight restrictions.
This shift in policy undoubtedly adjusts the landscape for future transactions, including transactions within the health care industry. The Commission now has greater authority and oversight to regulate entities before a transaction is considered. Only time will tell whether the Commission will rule with an iron fist going forward and whether the Commission’s activity in the health care space will be impacted by this new approach.