DAMITT Q3 2024: Tricks and Treats in Merger Enforcement

U.S. Merger Enforcement Shows Its Teeth

The Number of Significant Merger Investigations in 2024 Has Already Passed 2023

Agency-Announced Abandonments Continue to Soar in Relation to Other Outcomes

A full 60 percent of U.S. significant merger investigations concluded in the first three quarters of 2024 ended in an agency-announced abandoned transaction.

FTC Commissioners Raise Concerns About Transparency on Abandonments in Agency Data

At DAMITT, we always welcome additional information from the agencies that helps the public understand the merger enforcement environment.  We rely on agency information to compile these very reports. But as we previously noted in our DAMITT 2023 Annual Report, “there are reasons to question the high counts of abandoned or restructured transactions” in recent agency reports. That statement was made in reference to the agencies’ HSR Annual Report to Congress (“HSR Report”) for FY2022, which now has been corrected and lists two fewer abandoned or restructured transactions.

In that regard, however, Commissioner Holyoak has issued a dissenting statement raising concerns with how the agencies continue to count abandoned transactions in the HSR Report for FY2023. That statement acknowledges that the HSR Report “counts an abandoned transaction as a win in the HSR Annual Report even though the parties to the transaction never made an HSR filing,” such that “the Commission uses the HSR Annual Reports as a vehicle by which to take credit for abandoned mergers despite the transaction having no relationship to the operation of the HSR Act.” It then adds: “Consequently, the reported figures in the HSR Annual Reports have likely been inflated beyond what an unsuspecting reader would expect – i.e., a reader of an HSR Annual Report would expect to be reading about only transactions for which an HSR filing had been made.”

Beyond counting non-reportable transaction, Commissioner Holyoak also raised broader issues about the FTC’s methodology, as follows:

“The HSR Annual Reports – including this year’s report – historically have tabulated top-line numbers reflecting, for example, the number of ‘abandonments’ in a given fiscal year. But how does the Commission define an abandonment? The HSR Annual Reports themselves have never provided an adequate definition. They merely report on transactions that were ‘abandoned or restructured as a result of antitrust concerns raised during the investigation.’ The reports do not define ‘abandoned,’ ‘restructured,’ ‘result,’ ‘concerns,’ or ‘investigation.’ Each of these terms are subject to a variety of interpretations. Because the Commission operates without a specified definition, it prevents consistent treatment of the tabulated numbers across administrations and invites gamesmanship in a Congressionally mandated report.”

These mirror concerns that we raised in our DAMITT 2023 Annual Report, and they remain a significant handicap to the public in assessing the available data. As Commissioner Holyoak concluded: “To be sure, it is not necessarily improper for the Commission to provide additional information beyond what Congress has required. But the Commission should not provide a report that lacks a transparent methodology and therefore has the potential to mislead Congress and the public.” To his credit, Commissioner Ferguson has similarly issued a dissenting statement highlighting meaningful discrepancies in the HSR Report that are “also likely would go unnoticed by all but the most careful reader,” insisting that “[t]he agencies should agree on a single methodology for the report and clearly explain the methodological choice to Congress.”  As careful readers of the HSR Report, we wholeheartedly agree.

U.S. Agencies Confirm Historically Low Number of Complaints and Consents in FY2023

Setting aside abandonments, the agencies’ HSR Report for FY2023 also highlights another fact previously highlighted in our DAMITT 2023 Annual Report: 2023 saw a historically low level of verifiable merger enforcement activity.

As the reader may recall, last year some media headlines—citing numbers from the agencies’ HSR Report for FY2022 – were all abuzz that the U.S. agencies were setting “New Record” high for merger challenges. At the time, we said that felt “like a verifiable whopper by DAMITT standards,” given that our data showed the FY2023 instead with record lows. We specifically pointed to a significant lag in the HSR Report data published by the agencies. As we wrote at the time: “As a preview for the next HSR Report, the agencies only entered two pre-complaint consent decrees in fiscal year 2023. That is a drop of 87 percent, but you may not get that information from some press sources until the agencies file their next HSR Report to Congress in late 2024. Remember: you heard it here first.” Indeed, as shown in the reproduced graphic below, we projected overall that the agencies’ next HSR Report to Congress would show a 74 percent drop in combined complaints and consent decrees in FY2023.

We are happy to report that our projections for FY2023 actually match the official figures released in the HSR Report for FY2023 in late 2024, as expected. Our 2023 report has now been fully validated by the official figures.

As a silver lining for the agencies, we can now project the number of combined complaints and consents are up 29 percent for FY 2024, as shown below. 

We expect the agencies to get around to confirming these figures sometime in late 2025.

Average Durations Remain Just Under Eleven Months

EU Merger Control Trails Behind, but in the Same Substantive Direction

EC Activity Rebounds Slightly but not Enough to Even Come Close to Previous Average

Article 22 is Dead, Long Live Article 22

We had previously questioned whether the new approach to Article 22 EUMR followed by the EC would herald a new era in EU merger control, leading to an increased number of deals being reviewed, and more importantly an increased number of significant investigations. The European Court of Justice (ECJ) closed this chapter at the end of Q3, finding that “the General Court erred in law in its interpretation of the first subparagraph of Article 22(1) of Regulation No 139/2004, by holding that the Member States may, under the conditions set out therein, make a request under that provision irrespective of the scope of their national rules on the ex ante control of concentrations [and] in holding that the Commission had been right, by the decisions at issue, to accept the referral request and the requests to join under Article 22 of Regulation No 139/2004.” Ultimately, under the short-lived new approach to Article 22, only three cases ended up being reviewed, leading to one prohibition (which was eventually overturned) and two abandonments.

We had noted in the DAMITT Q2 2024 report that “a negative ruling [i.e. against the EC’s interpretation] could give strength to voices already calling for an overhaul of the EU and national merger control regimes.” Our prediction turned out to be true. In the mission letter to the new nominee Competition Commissioner, Teresa Ribera Rodríguez from Spain, President Von der Leyen asked that she “address risks of killer acquisitions from foreign companies seeking to eliminate [SMEs and small midcaps] as a possible source of future competition.” Leaving aside the reference to foreign companies, which would deserve a longer article, the focus on killer acquisitions is telling, particularly as it reflects the EC’s continued intend to counter potentially anti-competitive acquisitions.

Any subsequent change to EU merger control will however take time, so what should merging parties expect in the meantime? Commenting on the Illumina / Grail judgement, exiting EU Commission Executive Vice President Vestager stated that “the Commission will continue to accept referrals made under Article 22 of the Merger Regulation by Member States that have jurisdiction over a concentration under their national rules where the applicable legal requirements are met. In the last few years, several Member States have introduced provisions allowing them to request the notification of transactions that do not meet national thresholds, in situations where they might have a significant competitive impact.” In practice, this is encouraging Member States that have the abilities to call in otherwise non reportable deals to refer them for review to the Commission. EC officials have also come out suggesting that parties faced with the risk of their deal being called-in in one or more Member State may want to voluntarily submit their deal to the EC for legal certainty.

This reference to the looming risk of call-in power is not a mere threat. Indeed, at the time of this report, 10 EU Member States have some ability to call in deals that do not meet the usual thresholds, and at least three other countries are considering amending their rules to give their competition agencies such powers. An unexpected calling-in of a transaction can significantly impact deal timetables, and parties need to be aware of that fact when assessing their transactions.

One Phase I Remedy Case, and Two Phase IIs

In terms of outcomes, the EC once again cleared only one transaction with remedies in Phase I, in line with its recent quarterly average since 2023. This brings the proportion of significant investigations cleared in Phase I with remedies to 38 percent, slightly higher than the 31 percent observed in 2023 but still nearly 20 points below the 2011-2016 average.

This confirms that the trend observed in previous DAMITT reports continues, with Phase I remedy cases now representing only one percent of all Phase I cases concluded in 2024, the lowest proportion of cases cleared with remedies in Phase I since DAMITT started tracking.

The EC also concluded two investigations after an in-depth investigation this quarter, one cleared with remedies and one ultimately abandoned by the merging parties. While not reaching the highs observed in the U.S., the proportion of abandoned deals out of all significant investigations is also rising in the EU.

Average Review Duration Remains Lengthy

Conclusion

Parties to transactions subject to significant merger investigations continue to face an elevated risk of seeing their deal blocked or abandoned on both sides of the Atlantic, even if the intervention rate shows that relatively few deals receive this level of scrutiny. To ensure the ability to defend their deals through a potential investigation, parties to the average “significant” deal in the U.S. should plan on at least 12 months for the agencies to investigate their transaction and may want to add on additional time to address the continuing uncertainty at the agencies. Parties should also plan for another 6 to 12 months if they want to preserve their right to litigate an adverse agency decision.

On the EU side, parties to transactions likely to proceed to Phase II should allow for at least 23 months from announcement to clearance and should less than ever rely on the theoretical deadlines provided for in the EU Merger Regulation, even after the deal has been formally notified – although this trend may be reversed or at least slow down in the second half of the year. Parties should also be aware that the European Commission is less and less likely to accept remedies without an in-depth investigation. If parties still plan on obtaining a Phase I clearance with commitments, they should factor in around 10 months from announcement to a decision, with significant time set aside for pre-notification talks with the Commission and the potential need to pull and refile their filing – and be prepared to go to Phase II even if they have taken all possible precautions.