Modern Considerations in Merger Reviews
On September 21, 2022, TransPerfect Legal Solutions hosted its second annual Antitrust Clearance & Merger Enforcement Conference in Washington, DC. Industry experts discussed a range of topics including substantive developments in antitrust law and legal tech, and managed review in antitrust matters.
In the presentation on Modern Considerations in Merger Reviews, moderator Kenneth McGinnis was joined by panelists Oral Pottinger, Partner at Mayer Brown, Christopher Williams, Antitrust Partner at Perkins Coie, and Leslie Overton, Partner at Axinn, Veltrop & Harkrider to explore how public interest and social justice objectives are impacting the merger clearance process.
Changing Enforcement Approach
Oral Pottinger kicked off the discussion by highlighting the changing enforcement winds. The changes have indicated a new focus by the regulators toward social and public welfare issues. There has been an increased proactive and expansive approach by the Federal Trade Commission (FTC) and Department of Justice (DOJ) to address these issues. These agencies, whose roles are to oversee and investigate mergers and acquisitions and enforce federal law prohibiting anti-competitive behavior and consumer protection in the economy, have been more aggressive in pursuing transactions they believe have an impact on the public interest. This focus-shift has left some firms unsure of how to counsel their clients. For example, will parties draw a staff attorney from the regulator who will advocate for the deal overall, or who will go along with the policy-making front office?
Pottinger went on to discuss this substantial uncertainty and agency shift from economic considerations pertaining to a proposed transaction, toward the public interest. It has become clear that the government is setting a new agenda. Executive orders have been issued with a stated goal to protect economic competition. This has led to the issuance of warning letters at HSR filing time, as well as subpoenas and CIDs before a transaction is even announced.
Pottinger described this by saying that if an agency gets the slightest hint of a transaction (the purchase or sale of a corporation or its assets that is large enough or potentially large enough to reach the statutory scrutiny of the federal regulators), they will issue subpoenas or CIDs to make their intentions known that the transaction will be scrutinized.
Pottinger said that even during the auction process (where a corporation or investment group offers to sell assets or an entire company when multiple buyers have expressed interest to purchase), there is uncertainty and a sense that both the FTC and DOJ are shaping whom the ultimate purchasing party might be, and are looking less at the risks of anti-competitive behavior and more at consumer welfare, labor market impacts, and sustainability. Moreover, these bodies are now willing to partner with other government agencies to broaden their enforcement, including the NLRB and the USDA.
The panel was then handed off to Leslie Overton, who drew the distinction between anti-discrimination enforcement to address social racism and antitrust enforcement to address economic racism, and stated that, “if the argument is that racism is purely a social issue and has nothing to do with our economics-based approach to antitrust, that reflects a fundamental misunderstanding about the nature of racism. Economics are involved, and systemic racism is sometimes about crushing competition, whether that is for fair wages, jobs, or housing.”
Using the FTC’s recently released policy statement on “gig work,” Overton described that policy statement as one that covers both consumer protection and competition. She noted that gig workers are disproportionately people of color; 30% of Latino adults, 20% of Black adults, and 19% of Asian adults report having engaged in gig work compared to only 12% of white adults. Using this as an example, Overton explained that it appears the FTC is striving to impact underserved communities—defined as communities where a scarcity of goods or services is more common, such as densely populated communities of color or rural communities. Anti-competitive behavior leaves underserved communities such as these without access to the purported benefits of competition.
Overton described, in part, the FTC’s strategic plan for fiscal years 2022 through 2026, wherein they have added a new objective to support equity for historically underserved communities through the FTC’s competition mission. The plan notes that underserved communities are often low-income, rural, veteran, and/or communities of color that may be more susceptible to the harms caused by anti-competitive conduct and mergers. She drew particular attention to where the FTC noted that merger analysis should consider effects on workers and restrictive covenants.
Overton illustrated that diverse consumers are also less likely to have a bank account and thereby unable to amass credit. She specifically noted a study from The Brookings Institute that concluded there is less competition in financial services in underserved communities compared to predominantly white neighborhoods, and it is therefore likely that the FTC’s mission will be to bring more competition for consumer services to underserved communities. Overton reiterated that while there is no precedence to use US antitrust laws to explicitly consider race or racism, the agencies are suggesting that we begin to think strategically about using antitrust as a tool for addressing underserved communities and sustainability.
Christopher Williams wrapped up our panel by discussing regulators’ shifting focus to labor issues. Previously, antitrust enforcement was simply used to preserve competition for goods and services within the economy overall. Williams stated that the agencies “are now much more aggressive” when it comes to enforcement. Transactions are subject to far more scrutiny, and the agencies are far more circumspect of private acquirers, such as private equity companies, than in the past. He said that there is a broader suspicion surrounding mergers and acquisitions today than there has been in a long time. Transactions are being examined more closely. This is having an impact on the possible benefits of the transaction, which is felt throughout the marketplace, and it is having a chilling effect on the marketplace overall in terms of how deals are being assessed by market actors.
Williams highlighted that some antitrust practitioners find many issues arise that require court settlement. He explained that the problem with this approach is that the agencies’ new enforcement procedures have led to what he termed “deal fatigue”—where the agencies’ review and approval processes were so laborious and burdensome that the opportunity to go to trial and have the court settle the law never really gained enough traction. As a result, the law remains unresolved.
Williams went on to discuss how it is possible that enforcement focusing on anti-competitive behavior within underserved communities will see more activity, as will areas of environmental sustainability, labor protection, and anti-competitive practice. He noted that now, both the FTC and the DOJ have a greater appetite for more aggressive enforcement behavior, much more so than previous administrations (where the litigation drumbeat sounded but nothing happened).
Today, the action is very real. Agencies have more capacity and many more attorneys with trial experience than they used to. This allows them to bring challenges to the courts, whereas before they did not have such resources or experience.