Today I’m going to write about a little-noticed procedural change by antitrust enforcers that caused the lawyers who represent every large corporation, every foreign government, and every large private equity fund to scream in unison.
In other words, if you want to know why the government is so clumsy and stupid, this issue is for you. I’m even going to show you a way that you can help fix the problem, without much effort.
How to Make Corporate Lawyers Extremely Unhappy
Six weeks ago, the government put out an anodyne press release, designed to put normal people to sleep. It was titled “FTC and DOJ Propose Changes to HSR Form for More Effective, Efficient Merger Review,” and it was accompanied with a long and equally boring notification in the Federal Register, which is the official journal of the U.S. government. The Federal Register publishes hundreds of pages every day, full of announcements of new rules and minor changes to government forms. Most days, it’s not something to pay attention to.
But something about this one was different.
Immediately, corporate lawyers started complaining, especially those who focus on helping the multi-trillion dollar private equity industry buy and sell companies. “This is breathtaking and astonishing in its reach and potential impact to deals,” said James Langston, a partner at Cleary Gottlieb, a firm that represents Google, as well as private equity giants KKR and TPG. "It's a huge change,” according to Deidre Johnson, an antitrust lawyer at Ropes & Gray, whose clients include Bain Capital, Silver Lake Partners, and Thomas Lee Partners.
“If adopted, these proposed changes will have a dramatic impact on merger filings in the United States,” said one law firm. “An already robust, time consuming and expensive process will become exponentially more challenging.”
When something significant happens, these law firms send out alerts to clients. And oh, did the client alerts come, in a flood. “Burdensome.” “Sweeping.” “Idiosyncrasy.” “Dramatic.” The words are muted but full of passive aggressive rage, authored as they were by extremely angry multi-millionaire lawyers who often help their clients skirt the law. And here are some of the firms that sent out such breathless, angry notices. Wilmer Hale. Steptoe. Kirkland and Ellis. Dechert. Wilson Sonsini. Sullivan and Cromwell. Covington & Burling. Etc.
These names may or may not be recognizable to you, and may sound like 19th century shipping firms trying to sneak opium into China. But in the legal world, these law firm brands are as recognizable as Coke, Pepsi, Apple, or Google. Every single major corporation, bank, foreign government, and private equity firm has one or many of these law firms on retainer, which means that every single CEO or general counsel at each and every one was alerted about this change, probably multiple times.
This is a very big reaction, just for changing a filing form. So the question is, what did the antitrust enforcers actually do to inspire such rage?
Cardboard X-Ray Glasses Don’t Work
As it turns out, the change is relatively simple. The Federal Trade Commission and Antitrust Division are requiring big corporations and private equity funds who want to engage in big acquisitions to actually tell the government what they are doing. That’s it. That’s the change. Merging firms will soon have to fill out basic questions, such as “Why are you merging?” “Who is on your board of directors?” And “Who are the major creditors and investors in this merger?”
If that sounds obvious, a sort of ‘well shouldn’t they be doing that already?!?,’ well, you’re not wrong. In 1976, Congress passed a law known as the Hart-Scott-Rodino Act (HSR) mandating that companies notify the government upon any attempt to buy a company. In 1978, the FTC came out with an HSR form for firms to fill out, mostly a check-box type exercise to ensure they were paying the government filing fee.
The structure of the form didn’t seem like a big deal at the time. Only 150 firms a year even had to file this form, because mergers just weren’t common. But today, there are about 3,000 qualifying mergers a year, a little over nine major transactions every day. Imagine you’re a government lawyer, and you are handed a separate transaction in an industry you know nothing about, and you have to decide within three hours or so whether to take legal action. (...)
As it turns out, the change is relatively simple. The Federal Trade Commission and Antitrust Division are requiring big corporations and private equity funds who want to engage in big acquisitions to actually tell the government what they are doing. That’s it. That’s the change. Merging firms will soon have to fill out basic questions, such as “Why are you merging?” “Who is on your board of directors?” And “Who are the major creditors and investors in this merger?”
If that sounds obvious, a sort of ‘well shouldn’t they be doing that already?!?,’ well, you’re not wrong. In 1976, Congress passed a law known as the Hart-Scott-Rodino Act (HSR) mandating that companies notify the government upon any attempt to buy a company. In 1978, the FTC came out with an HSR form for firms to fill out, mostly a check-box type exercise to ensure they were paying the government filing fee.
The structure of the form didn’t seem like a big deal at the time. Only 150 firms a year even had to file this form, because mergers just weren’t common. But today, there are about 3,000 qualifying mergers a year, a little over nine major transactions every day. Imagine you’re a government lawyer, and you are handed a separate transaction in an industry you know nothing about, and you have to decide within three hours or so whether to take legal action. (...)
We’ve seen this dynamic over and over. Earlier this year, insulin cartel member Sanofi bought Provention, rolling up a small part of the insulin market, which will lead to higher prices and more leg amputations. One analyst, horrified, privately asked me, “how the Federal Trade Commission could let that happen?” I’m guessing that the FTC lawyers simply didn’t know what Provention did, and Sanofi hid it from them enough to move the merger through.
The number of such mergers is endless. Small dialysis firms. Fertility clinics. Landscaping. Street sweeping. Etc. In 2019, mining giants Barrick and Newmont consolidated 75% of the gold market in Nevada to form a corporation called Nevada Gold Mine - the new monopoly quickly got rid of the union. In 2019, a private equity firm rolled up all three major mail sorting software firms, without anyone noticing. Employees involved were baffled that no one in D.C. was looking.
Cynicism about politics in the U.S. is rife, for good reason. And there are certainly grounds for thinking the game is rigged. But one of the reasons that the government doesn’t stop these mergers, or many others, is simple. No one in the antitrust agencies knows what is happening. If you work in the industry, you know, but why would anyone assume antitrust lawyers would? They aren’t Gods, they are smart lawyers in an understaffed agency responsible for mergers in a $24 trillion economy. And the reason for this blindness is intentional, rooted in the poor design of the form meant to notify the government of corporate combinations.
With the old form, corporations didn’t have to list subsidiaries. They didn’t have to tell the government why they were merging, or who was on their boards of directors. They didn’t have to give the merger timeline, or if there was foreign money involved. They didn’t even have to describe the acquiring firm, only the target firm. They had to turn over internal documents about the merger, but only final drafts, which meant they knew how to hide documents from enforcers. It’s not that the old forms required no work, firms had to provide a bunch of useless data about where they fit into the economic Census. The old form was the equivalent of being told to do an X-Ray and being given cardboard X-Ray glasses from the 1950s.
by Matt Stollar, BIG | Read more:
Image: uncredited
[ed. Much more... but here's what you can do, specifically:]
The agencies put out this form, and it’s now available to read and for public comment. That means anyone can actually tell the government what they think about it. Usually only lobbyists and lawyers working for billionaires do that, because, well, only lobbyists and lawyers working for billionaires notice these kinds of changes. But now I’ve told you about it.
And if you want to submit a comment, you can do that here. There won’t be many comments in this docket, so your voice actually will matter. I would specifically recommend that you talk up the need to collect data on labor markets, because that’s something that seemed to particularly offend much of the antitrust bar. But say whatever you want.
The agencies put out this form, and it’s now available to read and for public comment. That means anyone can actually tell the government what they think about it. Usually only lobbyists and lawyers working for billionaires do that, because, well, only lobbyists and lawyers working for billionaires notice these kinds of changes. But now I’ve told you about it.
And if you want to submit a comment, you can do that here. There won’t be many comments in this docket, so your voice actually will matter. I would specifically recommend that you talk up the need to collect data on labor markets, because that’s something that seemed to particularly offend much of the antitrust bar. But say whatever you want.
