As governments, markets, businesses, and consumers grapple with the impact of COVID-19, companies negotiating transactions are operating in an increasingly complex environment. The coronavirus pandemic has created a public health crisis, convulsed financial markets, and disrupted global supply chains. These developments have introduced a range of commercial and practical challenges to M&A strategy and negotiations, ranging from the applicability of force majeure clauses to ensuring the health and safety of deal teams. In addition to these challenges, companies must take into account the impact of COVID-19 on the review of transactions by the U.S. antitrust authorities under the HSR Act.
In this article, we (A) explain how the agencies have responded to COVID‑19 so far, highlighting important changes to the merger review process and (B) provide practical guidance regarding how to effectively navigate this new landscape. We will update this guidance as the enforcement landscape continues to evolve.
On March 13, the Federal Trade Commission (FTC) announced that, due to the COVID-19 pandemic, the Premerger Notification Office (PNO) is implementing a temporary e-filing system for the submission of HSR filings to the U.S. antitrust authorities. As of March 17, the PNO is no longer accepting filings in hard copy or DVD format. Instead, all filings must be submitted electronically through a secure file transfer protocol. The PNO will also accept e-signatures on affidavits and certification pages. While the temporary system is in place, the agencies will continue to review filings as usual, and the PNO will answer questions regarding HSR rules and filing procedures via email. Early termination of the 30-day HSR waiting period was temporarily suspended as the temporary system went into effect — it has since been reinstated, albeit on a more limited basis than is typical.
More broadly, the FTC Bureau of Competition (BC) has implemented several additional changes to its usual practices. Nearly all BC staff are working remotely, with internal and external meetings – including those involving staff, the Front Office, or the Commissioners – conducted by phone or videoconference. In addition, the Front Office and BC staff are conducting a review of all investigations and litigation matters to determine if modifications to timing agreements or statutory timing provisions are warranted. BC Director Ian Conner has acknowledged that some proposed modifications may be inconvenient, and that parties may be reluctant to agree to them. However, he warned that if the agency does not have sufficient time to complete its work, it will take affirmative action if necessary (e.g., filing a lawsuit to block a transaction). To maintain continuity of core operations, the FTC is also reallocating its resources and reducing participation in non‑enforcement activities such as conferences and public events. Finally, travel will only be permitted in compelling circumstances subject to approval from the Front Office.
On March 17, the Department of Justice Antitrust Division (Antitrust Division) announced a series of similar changes to its civil merger investigation processes intended to ensure continuity of operations, “protect the health and safety of its work force and the parties that appear before it,” and
“ensure that the Division can continue to review transactions efficiently and effectively.” Consistent with guidance issued to federal agencies by the U.S. Office of Personnel Management (OPM), Antitrust Division staff will operate under a “mass telework directive.” The Antitrust Division will review HSR filings through the new e-notification system. Absent extenuating circumstances, all meetings will be conducted by phone or videoconference. Scheduled depositions in civil matters will be postponed and rescheduled to take place via secure videoconferencing technology. For current and future merger investigations, the Antitrust Division is requesting parties to extend timing agreements by an additional 30 days following compliance with Second Requests. If circumstances require, the Antitrust Division may revisit its timing agreements with merging parties.
In addition, Assistant Attorney General Makan Delrahim has stated that the Antitrust Division is limiting employee travel to “mandatory needs,” and broadly examining the impact of COVID-19 on “all of [its] operations,” including “high-profile mergers . . . [and] a number of criminal prosecutions” that could be impacted by courthouse closures or issues with grand juries. The DOJ has also announced that, in light of the COVID-19 crisis, it is focused on identifying anticompetitive conduct in the manufacturing, distribution, and sale of public health products such as face masks and respirators, with violators facing potential criminal prosecution.
In light of these changes to the merger review process, so long as the COVID-19 crisis persists, companies should keep the following in mind as they formulate M&A strategy, and structure and negotiate deals:
1. The U.S. antitrust agencies remain open for business. While the COVID-19 crisis presents unique and unprecedented challenges, the FTC and DOJ have a strong track record of successfully managing emergencies, and are well positioned to continue operating in the near term. They have modified their practices, are prepared with continuity of operations (COOP) plans should circumstances worsen, are funded through the end of the fiscal year, and continue to function at full capacity. Moreover, the agencies are accustomed to handling large-scale disruptions. In the past decade, they have weathered three government shutdowns. During the last shutdown, which spanned more than one month, each agency furloughed more than half of its staff, and remaining employees worked without pay. Various operations relating to merger review were curtailed: the PNO did not respond to HSR-related inquiries, the agencies did not grant early termination, and merger investigations with no clock running under statutory deadlines were paused. Nevertheless, enforcement activity moved forward steadily. The agencies continued to accept and review HSR filings, waiting periods continued to run, and investigations proceeded more or less as usual. We would expect agency staff to demonstrate similar resiliency in carrying out their mandate during the COVID-19 crisis.
2. Merger reviews may encounter delays. Although the agencies remain open for business, parties should anticipate delays in receiving antitrust approval, and factor these delays into negotiations and deal timelines.
3. Communication is critical: be proactive. In order to mitigate the impact of delays on deal timing, parties to transactions that are being investigated (or that may raise questions) should consider taking a proactive approach, maintaining a high level of communication and engagement with agency staff. Clearly understanding (or anticipating) staff’s concerns and priorities, being accessible, and responding quickly to requests for documents and information can help parties optimize the waiting period, reducing the risk of a burdensome Second Request. To shrink turnaround times, companies should work with antitrust counsel and relevant employees in advance to ensure that they are prepared to respond promptly to requests. Advance planning is especially important to the extent that parties and counsel are working remotely pursuant to their own COVID-19 policies and procedures. Finally, when communicating internally and with agency staff, parties should understand that all participants in the process are operating in a remote WFH environment, which may require use of new technologies, or stress existing technology resources. To save time and minimize disruption, parties and counsel should be prepared with backup plans in case established communication channels fail.
4. Consult antitrust counsel and monitor developments in real time. The COVID-19 pandemic is a dynamic and unpredictable situation. Markets, citizens, governments, and businesses around the world are reacting to the crisis as it unfolds. Thus, while the U.S. antitrust authorities have provided helpful guidance regarding changes to the merger review process going forward, these protocols are subject to change at any time as circumstances evolve. In this environment, it is important for businesses to stay in close contact with experienced antitrust counsel and subject matter experts in other areas to monitor developments in real time.
Morrison & Foerster associate Eric Olson assisted in the preparation of this client alert.
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