Law360 (May 22, 2020, 5:55 PM EDT) -- The uncertainty of getting a merger vetted by antitrust authorities while COVID-19 ravages markets means companies will likely be giving themselves even more time to complete the deal, a cushion that one study indicates has already been growing to compensate for lengthening investigations.
Government merger reviews were already taking longer before the COVID-19 pandemic, but today's stay-at-home orders are further drawing out the time antitrust authorities need to vet a deal, so merging parties will likely be building even more time into their deadlines for completing tie-ups.
The U.S. Department of Justice and the Federal Trade Commission have tried hard amid the pandemic to keep reviews chugging along even as their staffers conduct virtually all business remotely.
But practitioners say a particular challenge of reviewing mergers from afar is getting third parties — such as other market participants and merging parties' customers — on the phone to discuss how a tie-up affects them. As a result, companies anticipating extensive scrutiny will likely pad deadlines in their merger agreements in order to navigate longer antitrust probes.
"There is going to be a fundamental slowdown," said Steven Levitsky of Bona Law PC.
Third parties, according to Amanda Wait, a partner at Norton Rose Fulbright and a former FTC lawyer, have other priorities at the moment. She said she has heard from the agencies that it's taking longer for enforcers to hear back on their information requests to those entities.
The U.S. agencies have also needed extra time, even as a precipitous drop in merger notifications during the pandemic gives them fewer deals to review.
The DOJ said March 17 that it was asking businesses currently pursuing deal clearance to permit a 30-day addition to previously inked timing agreements, the extensions merging parties allow enforcers carrying out an in-depth merger investigation.
The slowdown isn't as bad as the agencies feared, however. Both the FTC and DOJ had also initially said in mid-March that because of the pandemic they would not grant transactions early terminations to the initial 30-day waiting period, but they then reinstated the early terminations weeks later for deals that don't raise any antitrust concerns.
"I think the agencies have done a good job trying to keep up some momentum," Levitsky said.
But the pandemic is still having a visible impact, including the FTC pumping the brakes on multiple in-house merger challenges.
"It's another indication of difficulties in trying to do this kind of work remotely," said Stephen Calkins, a former FTC general counsel who is now a professor at Wayne State University Law School.
Across the Atlantic, the European Commission has delayed its tie-up investigations considerably, asking merging parties to put off deal notification where possible as the agency scrambles to approve state aid projects aimed at combating the pandemic.
Built-in merger clocks had slowed even before the pandemic, according to data based on deals disclosed by publicly traded companies and reviewed in Dechert LLP's latest Antitrust Merger Investigation Timing Tracker, which looked at "significant" competition probes.
"Things have been kind of stretching out for a whole variety of reasons," said Abbott "Tad" B. Lipsky Jr., an FTC and DOJ alum who now heads the competition advocacy program at the Global Antitrust Institute at George Mason University's Antonin Scalia Law School.
Dechert defines "significant" U.S. investigations as those that yielded a challenge, merger clearance settlement, agency closing statement or the abandonment of a deal accompanied by a press release from the responsible enforcer. Its analysis is based on the length of time from a deal's public announcement until the probe closes and cannot account for nonpublic conversations with enforcers. Agencies like to note that outliers can significantly skew the data.
The DAMITT report for the first quarter of 2020 found companies that faced a significant probe by U.S. antitrust officials gave themselves 12 months from deal announcement to final closing on median between 2011 and 2014. That jumped to a median of 15 months between 2015 and 2019. And DAMITT indicates that the time continues to increase, with an 18.2-month median time frame for transactions that involved a significant U.S. merger review that wrapped up in Q1 2020.
"We have noticed that it's taking more time to complete reviews, even before COVID," said Joel Mitnick, a partner at Cadwalader Wickersham & Taft LLP and a former FTC trial attorney. For deals likely to be heavily investigated, Mitnick said he is recommending that companies bake in more time now than five years ago, and the pandemic is spurring recommendations for even more of a cushion.
One possible factor driving the built-in time increases is a significant ramp-up over the years in how long U.S and European merger reviews take, up to 11.1 months on average from the time the transaction was announced to the completion of a DOJ or FTC investigation, according to the DAMITT data for reviews that wrapped in the first quarter of 2020.
With agency officials describing a precipitous drop in merger filings, one of the Dechert partners behind the DAMITT report, Rani A. Habash, said the pandemic's precise impact on built-in times is hard to gauge at the moment.
"There's not a lot of data out there right now," Habash said.
DAMITT looks only at merger reviews in Western countries. But one former agency official said broader global dynamics may be driving company decisions to give themselves more time.
D. Bruce Hoffman, the FTC's most recent competition bureau chief, who left the agency late last year and is now a partner with Cleary Gottlieb Steen & Hamilton LLP, notes that China's merger reviews are also known for their length.
R. Mark McCareins, a Northwestern University professor at the Kellogg School of Management and former co-head of Winston & Strawn LLP's global competition practice, similarly said the huge number of international jurisdictions that have now imposed their own antitrust merger reviews may have contributed to how parties time their deals.
"We don't have any kind of global competition review," said McCareins, asserting that the overlap, and differences, between enforcement regimes, has forced companies to be "very realistic" about their timing if their deals require reviews in multiple jurisdictions.
Any sense that a deal is likely to face significant antitrust scrutiny is likely to weigh heavily on built-in times, according to Hoffman, who said merging parties can spend a great deal of energy negotiating deadlines. As for when certain dates might be pegged, "I think it very much depends on who the party is and what they want to accomplish," Hoffman said.
"It's actually a very important strategic decision," Hoffman said, one that interacts with many other parts of a deal and is negotiated by the parties based on many different factors, not all of them related to antitrust.
The U.S. agencies have tried in recent years to shorten review times, instituting reforms such as the publication of sample deals inked with companies facing major investigations that govern various aspects of the probe, particularly timing.
According to a February speech by DOJ Antitrust Division chief Makan Delrahim, the enforcer has made important progress in speeding reviews, consistently "meeting or beating" a pledge for the agency to complete the investigation phase of a review and inform the parties of its position within six months.
Mitnick said, however, that while the added transparency is helpful, it's not clear reforms have reduced review times. Agency reviewers, he said, "just keep asking more and more questions until you're able to satisfy their issues or you're able to force a clock to start under whatever timing agreement you have."
Extra questions, Mitnick said, seem to be coming in particular from agency economists who want more and more data. And Levtistky said the agencies also appear to be putting in additional effort to ensure they understand mergers, perhaps in response to criticism that they've been too permissive in allowing deals to go forward.
Companies too simply have more information that must be parsed, according to Wait.
"There's more to review," she said. "There's more burden."
--Editing by Jill Coffey.
For a reprint of this article, please contact firstname.lastname@example.org.