FTC vote reverses longtime ‘prior approval’ stance for mergers

Prior to 1995, companies that violated the law in a previous merger were required to obtain prior FTC approval for any future transaction in the same product and geographic market for which a violation was alleged. As part of the 1995 policy statement, the Commission did away with that requirement, requiring prior approval only when a “credible risk” of an unlawful merger existed.

“Since the FTC substantially reduced using these prior approval provisions, the agency has encountered numerous examples of companies repeatedly proposing the same or similar deals in the same market, despite the fact that the Commission had earlier determined that those deals were problematic,” FTC Chair Lina Khan said during Wednesday’s meeting. “Companies have also, in several cases, sought to buy back assets that the Commission ordered those same companies to divest.”

Compliance message: “By rescinding a policy that lacked logic and rigor, the Commission is making clear to the market that it will seek, depending on the facts and circumstances, appropriate fencing-in relief to prevent repeat offenses by firms that propose illegal mergers,” Commissioner Rohit Chopra stated. “Firms pursuing anti-competitive mergers—and the lawyers who assist them—should take note.”

The Commission voted 3-2 to rescind the 1995 policy. In a dissenting statement, Commissioner Noah Joshua Phillips argued the move would result in less competition.

“A blanket policy of routinely requiring prior approval will impose significant costs on companies that enter into merger consents,” Phillips said. “The government would be competitively handicapping those companies for an undetermined duration, preventing them from competing on a level playing field against rivals.

“A company under an FTC order may have to bid higher—for instance, diverting resources from research and development, incurring debt, or lowering salaries—to compensate the seller for the uncertainty and the longer lead time required to obtain prior approval. Companies under an FTC order may not even be considered in a bidding process for a company considering a sale.”