Building on recent changes to and statements about the merger review process since Lina Khan became Chair, the Federal Trade Commission (FTC) announced Sept. 28, 2021, that it would expand the substantive scope of its information requests in merger reviews to encompass “additional facets of market competition.” Under this broader scope, the agency may give greater scrutiny to deals between parties that are not horizontal competitors in the same line of commerce or have relatively small market shares, as the FTC explores new theories of harm. Other announced changes to the merger review process include requiring the parties to submit organizational charts and other information before engaging with the agency about modifications to the information requests, mandating advance disclosures concerning the use of e-discovery tools, demanding full privilege logs (instead of the partial logs previously accepted), and expanding access to second requests for Commissioners and agency staff.
These policy changes are the latest developments in the Biden administration’s push for more robust antitrust enforcement and continue an ongoing transformation of FTC practices under Chair Lina Khan. In a blog post announcing the changes, Holly Vedova, Director of the FTC’s Bureau of Competition, echoed previous comments that rising numbers of filings under the Hart-Scott-Rodino Act are straining agency resources and necessitate revisions to merger review investigations. The announced changes, however, appear likely to make the merger review process more onerous for the parties and add to the FTC’s workload as it conducts broader inquiries into potential competitive harms.
In the most fundamental change, the agency announced that the information requests it issues to conduct an in-depth investigation, commonly referred to as “second requests,” will seek information about “additional facets of market competition.” The post identifies three potential examples: (1) the effects of a transaction on labor markets, (2) cross-market effects and (3) effects on competitive incentives from an investment firm’s involvement in a merger.
This announcement demonstrates the Khan FTC’s broader willingness to expand beyond antitrust law’s longstanding “consumer harm” standard to take into account other types of harms in merger reviews. Merging parties should expect agency inquiries into potential effects on competition in areas beyond those the agency has historically probed. For example, deals between parties that are not horizontal competitors in the same line of commerce, which previously may have received early termination, may instead be the subject of a merger investigation.. Likewise, companies with small market shares in concentrated industries may see a more robust review, as could those that compete for employees. These planned inquiries put into action directives from President Biden’s executive order related to competition, which pressed for greater scrutiny of labor markets, among other directives. They also bring into question whether the FTC will issue revisions to the Horizontal Merger Guidelines to encompass these new areas of review.
The FTC also announced that it will impose new disclosure requirements before considering requests for modifications of second requests. Under the updated guidance, agency staff will consider modification requests only after a party explains the duties of employees involved in the merger process and those responsible for relevant lines of business. A merging party must also explain how it maintains responsive data before seeking a modification. This change may delay a company’s ability to prune irrelevant employees and business units from investigations until further into the document collection process, imposing greater costs on the merging parties and pushing back closings.
In another change that may delay completion of investigations, the agency will now require merging parties to explain in advance how they will use e-discovery tools to identify responsive information. This new requirement seems particularly geared toward the increasingly common use of technology-assisted review in responding to second requests. This requirement would appear to provide the FTC with the opportunity to approve or deny the parties’ use of technology-assisted review, which could lead to protracted negotiations. The disclosure requirement, and any pushback received from the FTC concerning disclosure of e-discovery tools, may lead to further delays, as parties will be required to wait to begin reviewing for responsive documents.
The agency also signaled greater scrutiny of attorney-client privilege claims, abandoning its practice of allowing merging parties to submit partial privilege logs. Given the volume of documents companies often submit as part of a second request, drafting a full privilege log is likely to increase the time and expense of complying with second requests.
In a final change, the agency announced it was expanding access to information requests within the agency and to all Commissioners. Previously, the FTC Chair had discretion over whether to provide second requests to other Commissioners, who did not receive them routinely. This new policy appears aimed at addressing recent public criticisms from Commissioner Christine Wilson that she was forced to seek second requests directly from merging parties after failing to obtain them from the Chair.
While the FTC notes that some of these changes will bring its practices in line with the Department of Justice (DOJ), it is less clear whether others (for example, the “heightened scrutiny to a broader range of relevant market realities”) will be shared by DOJ. Notably, DOJ has not announced plans to examine factors beyond the consumer welfare standard. This creates the possibility for divergent outcomes depending on the agency that reviews the merger.
Companies contemplating mergers or acquisitions should anticipate more sweeping inquiries and should consider whether their transaction may receive scrutiny under the expanded scope for merger reviews. Companies that receive second requests should be prepared for more upfront disclosures and negotiations with FTC staff and additional delay and cost associated with the process. McGuireWoods attorneys stand ready to counsel companies on these and other issues related to this announcement and the merger review process.