In a continued departure from traditional practice, the US antitrust enforcers (particularly the Federal Trade Commission) have been increasingly using merger control to police and prevent perceived anti-competitive conduct by notifying parties. As we saw last year, the FTC is particularly focused on expanding the scope of unfair competition under Section 5 of the FTC Act by exhuming decades old precedent. The result has been a recent trend in requiring new commitments from parties in merger enforcement matters to address conduct issues outside the narrow scope of the transaction.

These spooky trends are only expected to continue with proposed revisions to the US merger guidelines highlighting the importance of historical conduct and changes to the merger notification form that will expand disclosures on potentially anticompetitive conduct outside the scope of the deal. As a result, diligence on potential pitfalls will be increasingly important for companies looking at future deals and take a more important role in assessment of targets.

Reviving historical theories of conduct violations in the merger control process

Several examples of recent FTC enforcement highlight this recent trend toward a revival of what were thought to be long-buried theories of harm. Focusing on these issues in merger control reviews gives the agencies more practical leverage over the parties to secure consents to allow deals to proceed, thereby helping to build more recent enforcement precedent to help move the law. The trend is a marked departure from prior practice that highlighted a separation of merger review and conduct enforcement.

• Quantum / EQT. In August, the FTC entered into a broad ranging consent with the parties in permitting natural gas producer EQT’s proposed acquisition of a portfolio company of private equity firm Quantum with several other investments in the sector. While not taking issue with the deal itself, the FTC was concerned that Quantum would be acquiring a minority stake and board seat in EQT through the stock-based consideration. Billed as the agency’s first enforcement targeting interlocking directorates in four decades, the FTC didn’t just require the parties to waive its board seat and other minority interests while it sold down its minority interest. The agency further required a commitment not to take board seats on any of the top 7 competitors and submit to ongoing monitoring for up to 10 years. The FTC also took issue with other avenues of potential information sharing between the parties, requiring the parties to take steps to unwind an unrelated joint venture. The FTC cited past practices of information exchange and public signaling competitive strategy, which has been a policy point for Chair Lina Khan.

• Amgen / Horizon. In response to Amgen’s proposed acquisition of Horizon, the FTC sued on a theory that the acquirer would use bundling practices to tie sales of its smaller pharmaceutical products to the blockbuster products it was purchasing. To bolster this claim, the FTC cited past bundling practices for unrelated products in contracts with Pharmacy Benefit Managers (who are themselves currently a focus of FTC review). In the past, the FTC had declined to bring a bundling theory in merger control, believing it was better suited for conduct enforcement (see, for example, the DOJ’s approval of the Whirlpool / Maytag deal). However, in the updated Section 5 Guidelines, the FTC specifically identified bundling (as well as related tying and exclusive dealing arrangements) as conduct that they consider both an incipient violation of antitrust law and a violation of the “spirit” of antitrust law. Entered into during the course of litigation in front of an FTC administrative law judge, the resulting settlement required Amgen to commit not to bundle Amgen products with the key Horizon products it acquired and submit to ongoing monitoring for 15 years.

Proposed expansion of disclosures in the merger notifications

This trend is only expected to expand in future enforcement practice. The proposed changes to the HSR form are also set to dramatically reinforce this new approach of addressing conduct issues in merger enforcement. If enacted as proposed, the changes would require broad disclosures on anticompetitive conduct outside the narrow scope of a notified deal.

New proposed disclosures would require parties to self-report issues on outside conduct in businesses implicated by the overlap or vertically related products. Examples of disclosures include restrictive arrangements in commercial agreements, the terms of related licensing agreements, and employee non-competes. Parties will also be required to submit a new category of ordinary course strategy documents for these businesses that will give insight into broader conduct.

Finally, the proposed changes would require certain new broad disclosures on all businesses within the acquiring and acquired parties, including broad information on all directors in the corporate group and their other board positions to support enforcement targeting interlocking directors.

Importance for companies looking to make acquisitions

The ultimate effect of all these spooky developments is that parties should focus on clearing out any potential skeletons in their closets. Do your diligence in deals and make sure your houses are in order before you file to avoid any chilling consequences.