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FTC Revives Merger Reporting Requirements for Startup Deals (1)

July 21, 2021, 6:34 PM; Updated: July 21, 2021, 8:45 PM

The Federal Trade Commission voted along party lines to rescind a decades-old policy that limited the agency’s ability to track the ongoing acquisitions of companies that were flagged in previous deals for competition issues.

FTC Chair Lina Khan and her two fellow Democrats at a meeting Wednesday voted to repeal the agency’s 1995 policy statement on “prior approval and prior notice provisions” in merger cases. The statement had loosened merger review reporting requirements for acquisitions of startups and other smaller companies. Before 1995, companies that had settled with the FTC to get approval of an acquisition had to notify the agency of any deals, regardless of their size, for the next 10 years.

Typically, only the deals that are of certain size—currently $95 million—trigger FTC review under the Hart-Scott-Rodino Act.

The vote marks the FTC’s latest move to bolster its ability to investigate and scrutinize the conduct of large companies that are scouring to buy startups and smaller companies that could pose future competition.

“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,” Khan said at the meeting.

“Companies have also in several cases sought to buy back assets that the commission ordered those same companies to divest,” she said.

Khan didn’t provide details on the renewed prior approval and notice provision that the commission can again include in settlement agreements. But she said the FTC will use the provision on a case-by-case basis, depending on the “facts and circumstances of the proposed transaction, including when the structure of the industry and concentration of the market call for it.”

The two Republicans on the five-member commission voted against rescinding the 1995 policy statement, citing heightened uncertainty and additional costs for companies seeking to resolve competition issues with the commission.

“Given recent actions by this commission to bulldoze through other guardrails, I have heightened concerns about removing this one,” Republican Commissioner Christine Wilson said.

Business groups like the Computer & Communications Industry Association and the U.S. Chamber of Commerce criticized the vote outcome.

The FTC is “dismantling agency practices on a whim,” the Chamber said.

It was important for the FTC to send “the deterrent effect” to companies seeking deals that could be problematic, Democratic Commissioner Rebecca Slaughter said.

“Many of those mergers shouldn’t have been proposed in the first place and figuring out how we can send a message that we are not OK with these clearly competitive mergers is a really important thing,” Slaughter said.

The FTC will mull how to implement the revision in the coming months.

“Depending on how it is implemented, this policy change could as a practical matter give the FTC a veto over a wide range of deals going forward,” said Alexander Okuliar, global antitrust co-chair at Morrison & Foerster LLP. Okuliar previously served in the Justice Department’s antitrust division as deputy assistant attorney general for civil enforcement.

The FTC on Wednesday also voted unanimously to approve a new policy that expands consumers’ right to repair purchased products on their own or using third-party shops. The move follows a May 2021 report to Congress on problems with manufacturers’ limits on consumers’ ability to repair goods.

The commission also voted to retain a rule that requires manufacturers to include care labels on garments.

(Updated with additional reporting throughout.)

To contact the reporter on this story: Siri Bulusu in Washington at sbulusu@bloombergtax.com

To contact the editor responsible for this story: Roger Yu at ryu@bloomberglaw.com; Laura D. Francis at lfrancis@bloomberglaw.com

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