The number of announced M&A deals for US targets increased to 12,933 in 2020 from 11,382 in 2019. However, this increase corresponded with a decrease in aggregate deal value to approximately USD1.41 trillion from USD1.68 trillion. Similarly, the number of announced M&A deals involving US acquirors increased to 12,390 in 2020 from 11,526 in 2019, but the reported aggregate deal value for these transactions decreased to approximately USD1.44 trillion from USD1.59 trillion. Of the transactions announced in 2020, 462 deals with an aggregate value of USD569.40 billion were announced for US public targets, compared to 440 deals with a reported aggregate value of USD976.53 billion were announced in 2019. For the first quarter of 2021, 3,942 deals involving US targets were announced with a reported aggregate deal value of USD653.48 billion, and 3,995 deals involving US acquirors were announced with a reported aggregate deal value of USD665.98 billion. For this period, of the transactions announced, 140 deals were announced for US public company targets with an aggregate deal value of USD211.84 billion.

The target industry sectors showing the greatest deal activity in terms of total equity value for 2020 were:

The transactions announced (whether or not closed) in 2020 with the highest value included:

Noteworthy transactions include the following:

Noteworthy transactions include the following:

Noteworthy transactions include the following:

Noteworthy transactions include the following:

Noteworthy transactions include the following:

Other noteworthy transactions include the following:

The novel coronavirus (COVID-19) pandemic caused extreme market turbulence in the first half of 2020, with the total volume of newly issued senior financing, mezzanine financing, short term financing, and bridge loans falling to USD25.0 billion in February and none in March (which had not been seen since March 2008). The market recovered during the second half of 2020 and new issuances of commercial loans reached pre-pandemic levels by the fourth quarter of 2020, with USD42.9 billion in new issuances in September 2020, consistent with the USD41.3 billion in new issuances from September 2019. A number of large and noteworthy public M&A transactions were financed with debt:

2020 was also marked by a large increase in special purpose acquisition company (SPAC) activity. SPACs raise capital through an IPO and then seek to effect, typically 18 to 24 months after the IPO, a business combination with a privately held target. The business combination, also known as a “de-SPAC” transaction, effectively allows the target to “go public” through the merger rather than a more customary and expensive initial public offering. The market for de-SPAC transactions grew from 39 in 2019 to 100 in 2020, representing a growth in total deal value from USD24.4 billion in 2019 to USD152.7 billion in 2020. This trend has continued into the first half of 2021, during which 167 de-SPAC transactions were announced with a total value of over USD380.5 billion. In addition, North American private equity firms had almost USD980.0 billion in reserves as of the end of 2020. These reserves, in combination with the large number of SPACs seeking a target, have caused increasing valuations and average deal values that have trended upwards.

A public company is a company that has securities registered with the US Securities and Exchange Commission (SEC). It is subject to periodic reporting and other requirements set out in the US Securities Exchange Act of 1934 (Exchange Act). Subject to a limited exemption for non-US companies, the Exchange Act requires a company to register its securities with the SEC if any of the following apply:

The main means of obtaining control of a public company are through:

In each case, the acquisition is typically carried out through a wholly-owned subsidiary of the bidder, so that the target becomes a wholly-owned subsidiary of the bidder. In some instances (for example, a merger of equals), an acquisition can be completed:

In 2020, the markets grappled with the effects of COVID-19. M&A activity during the first half of 2020 was substantially less than the level of activity in the first half of 2019. However, activity accelerated in the second half of 2020 as markets recovered from the downturn earlier in the year and inexpensive financing became more readily available. In addition, the structure of M&A deals has shifted to account for the effects of COVID-19, including the inclusion of material adverse effect (MAE) exceptions for changes, effects, or conditions arising out of COVID-19 in M&A deals for US target companies. In November 2020, the Delaware Court of Chancery held in AB Stable VIII LLC v. Maps Hotels and Resorts One LLC et al. that COVID-19-related economic effects did not constitute an MAE for the target, particularly as those effects fell within a calamities exception to the MAE definition. The Delaware Court of Chancery ruled that an MAE definition that did not expressly carve out the impacts of pandemics or epidemics still excluded the impact of COVID-19 within other exceptions, in this case the calamities exception, suggesting that broader exclusions of industry-wide impacts would also cover COVID-19 related impact. In April 2021, the Delaware Court of Chancery similarly held in Snow Phipps Group, LLC v. KCake Acquisition, Inc. that a COVID-19-related financial decline experienced by the target's business did not constitute an MAE for the target. In Snow Phipps, the Delaware Court of Chancery found that the COVID-19-related sales decline, which the court found was linked to government stay-at-home orders in response to COVID-19, fell into the exception of excluded effects arising from or related to changes in law or governmental orders even though the effects were also related to COVID-19, which was not an excluded clause under the definition of MAE.

In 2020, there was an increase in both the volume and size of SPAC IPOs and SPAC acquisitions, 248 SPACs launched IPOs, with an average size of approximately USD334.0 million, raising total gross proceeds of approximately USD82.8 billion to be deployed in de-SPAC transactions. This was approximately four times the activity level and volume for 2019 when there were 59 SPAC IPOs with an average IPO size of approximately USD230.5 million and gross proceeds of approximately USD13.6 billion. During Q1 2021, 274 new SPACs were listed and SPACs raised more than USD80.0 billion in total gross proceeds. In April 2021, the level of activity for SPAC deals slowed, partly due to new financial reporting guidance for SPACs issued by the SEC, which classified SPAC warrants as liabilities instead of equity instruments. However, almost 400 existing SPACs have yet to find a target, with most existing SPACs expecting to have until early 2023 to complete a business combination.

Hostile bids have been increasingly used in recent years (for further details on how a hostile bid is made, see Question 14). However, hostile transactions are still relatively uncommon because they often take longer to complete and have a more uncertain outcome than negotiated and recommended transactions because of takeover defenses and defensive actions (see Question 6 and Question 25).

In addition, potential bidders may not be comfortable with the limited scope of due diligence in a hostile bid (see Question 7), which impacts, among other things, the ability to assess liabilities, synergies, and the likelihood of regulatory approvals. A hostile bid can turn into a recommended transaction before it is completed (for example, II-VI Incorporated’s proposed USD7.0 billion acquisition of Coherent, Inc. in 2021).

Public takeovers, whether by tender offer, merger, or other means, are regulated at both the federal (securities and antitrust laws) and state (corporate law) levels. In addition, industries including banking, utilities, insurance, airline, media, and communications are independently regulated and are subject to significant restrictions on investments by both US and non-US persons (see Question 27).

The following principal federal regulations govern public takeovers:

The SEC usually enforces the federal securities laws and regulations, although opposing parties in a hostile takeover and shareholders can also bring an action on their own behalf or derivatively on behalf of the company. Acquisitions of US companies (or non-US companies with significant US interests) must also comply with the antitrust filing and waiting period requirements of the Hart-Scott-Rodino Antitrust Improvements Act 1976 and the rules and regulations under it (HSR Act) (see Question 27).

The following principal state laws apply to mergers and tender offers:

The most common jurisdiction for US public companies to be incorporated in is Delaware. Delaware's business combination statute (section 203, Delaware General Corporation Law (DGCL)) prohibits a bidder who has acquired 15% or more of a company's outstanding stock from engaging, for a three-year period following the acquisition, in any business combination with the company. The prohibition does not apply if any of the following occur:

The Exchange Act's tender offer rules fully apply to tender offers for securities involving a target incorporated outside the US if those securities are registered under the Exchange Act, subject to relief from selected provisions depending on the percentage of the non-US target's shares owned by US shareholders. Certain procedural requirements and anti-fraud rules under the Exchange Act apply to all tender offers made to US shareholders, regardless of where the target is incorporated or whether the target has securities registered under the Exchange Act.

Before contacting a potential target, a bidder usually conducts preliminary due diligence enquiries by reviewing the publicly available information about the target. After contacting the target, if the parties sign a confidentiality agreement, the target generally makes non-public information available for the bidder to review. Confidentiality agreements for public targets typically contain a standstill provision, which prevents the bidder from acquiring the target's shares without the target's consent and otherwise engaging in other hostile activity for a period of time (often one to two years from the signing of the confidentiality agreement).

A bidder's legal due diligence usually focuses on:

A bidder also conducts business, financial, tax, and accounting due diligence on the target.

If the target's shareholders are to receive securities from the bidder in the transaction, the target may also undertake a due diligence review of the bidder's business, which is generally focused on the same items but may be less extensive, depending on the amount of the bidder's securities that the target's shareholders will receive. The scope of this review is also generally dependent on the proportion of the consideration to be paid in securities.

In addition, if the bidder is a competitor of the target, due diligence may be conducted by a limited number of the bidder's personnel for confidentiality or regulatory reasons.

In a hostile bid, the bidder must rely on information about the target that is publicly available until the transaction turns into a recommended deal.

In both recommended and hostile transactions, a bidder conducts due diligence enquiries by reviewing information that is publicly available, which includes:

While US securities laws do not require a bidder to keep confidential non-public information about a proposed bid, a premature leak in the marketplace could have negative consequences, including:

If the target's stock trades irregularly because of acquisition rumours, the relevant stock exchange may require that the target confirm or deny whether it is engaged in negotiations. In addition, if the bidder's or target's stock trades irregularly prior to announcement, the relevant exchange may conduct an investigation into potential insider trading. These investigations are customary in US public company acquisitions.

A bidder commonly requests that significant shareholders and the target's executive officers enter into, concurrently with the signing of the merger agreement, tender or voting agreements obliging them to tender their shares or to vote in favour of the merger. All these agreements and their principal terms must be disclosed in Schedule TO or in the proxy statement (see Question 16).

However, arrangements with key shareholders that fully lock up a transaction and preclude the board from pursuing a higher offer may be invalid and unenforceable. For example, a court found an arrangement to be invalid because it included both:

(Omnicare Inc v NCS Healthcare Inc (Del 2003).)

In contrast, a court held to be acceptable a voting agreement with majority shareholders that required those majority shareholders to vote against any alternative acquisition proposal for 18 months following the proposed transaction (Orman v Cullman (Del Ch 2004)). In that case, the proposed transaction was subject to majority of the minority approval, which meant that it could not be completed unless a majority of the minority shareholders approved it.

US securities laws contain no general restrictions on open market purchases that a bidder can make before announcing a bid, other than the disclosure requirements (see below, Disclosure Requirements) and insider trading issues that arise if the bidder has non-public material information about the target. However, purchases should be conducted in a way that avoids them being characterized by the SEC or the courts as a de facto (creeping) tender offer subject to the tender offer provisions of the Exchange Act (including the requirement to pay the same purchase price to all shareholders).

In determining whether purchases constitute a tender offer, the SEC and the courts assess various factors, including whether:

Significant pre-bid stakebuilding is likely to be impracticable (and costly if a bid fails to succeed) because of the restrictions or disclosure requirements imposed by:

In sizeable transactions, long before a bidder reaches the 5% threshold requiring a filing with the SEC on a Schedule 13D (see below, Disclosure Requirements), a bidder building a pre-bid stake is required to make an HSR Act filing, which must be made before acquiring USD94.0 million of voting securities (see Question 27).

Any person (or group of persons acting together) acquiring more than 5% of any class of a target's equity securities that is registered with the SEC is required to file with the SEC a Schedule 13D within ten days of the acquisition (section 13(d), Exchange Act). That person or group must also amend its Schedule 13D filing promptly (usually within a day) whenever any material change occurs in the facts set out in that filing. Notification is made in a publicly available filing with the SEC (Rule 13d-2(a), Exchange Act).

Certain types of bidders, for example, registered broker dealers, banks, and other regulated entities, and bidders of up to 20% of a target's securities who, in each case, do not intend to change or influence control of the target, can disclose more limited information in a Schedule 13G filed with the SEC with occasionally more lenient filing deadlines (Rule 13d-1(b), Exchange Act).

The use of derivative positions to mask stakebuilding may violate the SEC's reporting requirements (see CSX Corp v Children's Inv Fund Management (UK) LLP (2d Cir 2011)).

In addition, all transactions in the target's shares that occur during the 60 days before the commencement of a tender offer must be disclosed to the SEC and the target's shareholders, if made by any of the following:

The large trader reporting rule (Rule 13h-1, Exchange Act) was adopted by the SEC in 2011. Under this rule, any person must make a Form 13H filing with the SEC if they engage in substantial trading activity in either:

There is an exemption to the Form 13H requirement if the acquisition of shares is part of a tender offer or merger and acquisition transaction. However, bidders acquiring a target's securities to gain an initial foothold prior to commencing a tender offer are subject to this filing requirement.

The SEC also has a separate disclosure requirement (Rule 13f-1, Exchange Act) for institutional investment managers that exercise investment discretion over USD100.0 million or more in Section 13(f) securities, which generally include:

Institutional investment managers who meet this threshold are required to file a quarterly report on Form 13F with the SEC. On 10 July 2020, the SEC issued a proposed rule to raise the reporting threshold from USD100.0 million to USD3.5 billion and increase the types of information that must be provided on Form 13F, among other changes. However, this proposed change faced significant pushback during the comment period for the proposed rule, which ended on 29 September 2020, and the proposed change was not made.

Recommended bids are usually carried out through a merger agreement. In a tender or exchange offer, the merger agreement governs both the offer and the second-step merger (see Question 14). The merger agreement specifies the consideration to be paid to the target's shareholders and addresses, among other issues:

A target often agrees to pay a termination fee to a recommended bidder if the merger agreement is terminated on specified triggering events, for example:

Numerous courts have upheld termination fees, provided the fee amount is reasonable and does not preclude an alternative transaction. Typically, termination fees range from 2% to 4% of the equity value of the transaction (although a Delaware court decision has suggested that enterprise value may be the appropriate measure in certain cases), with larger transactions mostly at the lower end of this range and smaller transactions at the higher. Delaware courts have emphasized that there is no bright-line test for the acceptability of the size of termination fees, although the Chancery Court noted that a break-up fee of 5.55% may have an "unreasonably preclusive effect on potential bidders" (In re Converge, Inc. Shareholders Litigation, (Del. Ch. Nov. 25, 2014)).

Other mechanisms have also been used to discourage competing offers, to compensate the bidder for its expenses and lost opportunity, or both including:

Reverse break-up fees are often used by both private equity and strategic buyers to limit their exposure in certain cases, for example, when financing becomes unavailable or the transaction is terminated because of the failure to obtain required regulatory approvals. Unlike the termination fees payable by a target in a fiduciary out, there is no legal restraint on the size of reverse termination fees. Accordingly, while reverse termination fees typically range from 3% to 7% of equity value of the transaction, in some cases, reverse termination fees exceeding even 10% of equity value have been agreed to by the parties to a transaction in the course of negotiations.

There is no legal requirement for a bidder to have committed funding before announcing an offer, although the sources and amount of funds, and any material conditions attached to the financing, must be publicly disclosed. As a practical matter, targets often insist that the bidder has committed funding for all the cash needed for the transaction (usually in the form of an equity commitment letter) at the time of signing the merger agreement.

Cash tender offers. Cash tender offers are subject to certain requirements, including:

(Sections 14(d) and (e), Exchange Act.)

Exchange offers. Exchange offers are subject to the same rules as cash tender offers. In addition, the bidder must file a registration statement with the SEC that provides information on the bidder, offer, transaction, and securities to be issued to the target's shareholders (Securities Act). The offer must remain open until the SEC declares the registration statement effective.

Statutory mergers. A one-step statutory merger is accomplished by entering a merger agreement subject to the approval of the owners of a majority (or a supermajority if required by state law or the target's incorporation documents) of the target's outstanding shares. In preparation for the shareholders meeting, the target sends a proxy statement (which is subject to pre-approval by the SEC) to its shareholders. If the requisite number of the target's shareholders vote in favour of the merger, subject to satisfying all other closing conditions, the bidder can complete the transaction in one step.

Under the all holders or best price rule (Rule 14d-10, Exchange Act), the consideration paid to any shareholder for securities tendered in a tender or exchange offer must be the highest consideration paid to any shareholder for securities tendered in that offer, and all shareholders must have an equal right to elect the type of consideration from among those offered.

In contrast, structuring an acquisition as a one-step merger may allow a bidder to offer different forms of consideration to different shareholders.

There is a specific exemption from the all holders or best price rule for amounts offered or paid in accordance with employment compensation, severance, or other employee benefit arrangements so long as those amounts are:

In addition, there is a non-exclusive safe harbor for employment compensation, severance, or other employee benefit arrangements that are approved by the target's compensation committee (or similar committee of independent directors) or, if the bidder is a party to the arrangements, of the bidder.

Once a merger agreement has been executed, the bidder and target issue a press release announcing the agreement and stating that either:

The press release, often made jointly, describes the material terms of the transaction.

In a recommended transaction, a tender or exchange offer commences as soon as practicable after the execution of the merger agreement. Bidders typically commence the offer with the publication of a summary advertisement in a daily newspaper with national circulation describing the key terms of the offer. As soon as practicable on the date of commencement, the bidder must deliver a Schedule TO (the principal disclosure document for a tender offer (see Question 16) to the:

While the bidder is only required to provide the tender offer materials (see Question 16) to target shareholders that request it, the bidder usually mails these documents to all target shareholders on the date of commencement.

A company does not have a general duty to disclose material non-public facts or corporate developments, including the existence of merger negotiations. However, under the anti-fraud provision of the Exchange Act, a company is required to disclose merger negotiations that it deems to be material if any of the following applies:

(Rule 10b-5, Exchange Act.)

In addition, the stock exchange or market on which the parties are listed may require disclosure when rumours or unusual market activity indicate that the confidentiality of merger negotiations can no longer be maintained (see section 202.03, New York Stock Exchange (NYSE) Listed Company Manual).

Merger negotiations should be disclosed if they are material to investors based on the:

A hostile bid is usually structured as a tender or exchange offer, often accompanied by a proxy contest in which the bidder attempts to convince the target's shareholders to replace the target's incumbent directors with the bidder's nominees at an annual or special meeting. Once the bidder's directors are in place, most takeover defenses can be dismantled, including redemption of the target's shareholder rights plan (commonly referred to as a poison pill). If the target has a staggered board with, in most cases, only one-third of the directors elected at each annual meeting, a proxy contest, which would take two or more years to win, can be impracticable.

Hostile offers are initiated in one of the following ways:

The timetable for acquiring a public company varies depending on, among other factors:

In the absence of regulatory approvals or other restrictions, a cash tender offer is generally the quickest way to acquire control of a public company, primarily because the offer documents are not subject to the SEC's prior review. In cash tender offers, SEC review of the offer documents occurs after the commencement of the offer and, depending on the nature of any comments to the offer documents, may not result in any extension of the offer.

In a recommended transaction, a cash tender offer can commence shortly after the execution of the merger agreement and can often be completed within five or six weeks. A cash tender offer must remain open for at least 20 business days from the date on which the summary advertisement is published and the Schedule TO is filed with the SEC. The offer must be left open for at least ten business days after any change:

In addition, the bidder must keep the offer open for at least five business days following any other material change. These changes must be filed with the SEC and disclosed (usually by press release) to the target's shareholders.

Within ten business days of an offer's commencement, the target must file with the SEC and deliver to its shareholders a statement of whether the target's board recommends acceptance or rejection of the offer, remains neutral, or is unable to take a position. In a recommended transaction, this statement is usually filed with the SEC and mailed to target shareholders simultaneously with the offer to purchase.

After the initial offer period and any extensions expire, bidders may elect to accept tenders during a subsequent offering period of at least three business days, provided that, among other conditions:

Bidders sometimes use subsequent offering periods or a top-up option (an option to acquire newly issued shares of the target) to reach the threshold required to carry out a short-form merger.

If the offer is successful, the bidder completes a second-step merger to acquire the remaining target shares. If the bidder is able to acquire a sufficient number of shares (typically 90% in most states, although a simple majority may also be sufficient in Delaware) in the offer (or under a subsequent offering period or on exercise of a top-up option), the bidder can complete a short-form merger, which does not require a shareholder meeting, promptly following completion of the offer.

Under a 2013 amendment to the DGCL, in certain circumstances a bidder can effect a short-form second step merger (without a shareholders meeting) if, following the first step tender offer, the bidder holds sufficient shares to approve the merger under the target's certificate of incorporation (usually a majority of the outstanding shares).

Otherwise, unless the target's certificate of incorporation permits shareholder action by written consent, a shareholders meeting is required to approve a second step, long-form merger (requiring majority or supermajority shareholder approval, depending on state law or the target's organizational documents).

An exchange offer is generally subject to the same minimum offering and mandatory extension rules as a cash tender offer, with the additional requirement that the offer must remain open until the SEC declares the registration statement effective. As the preparation of a registration statement can be burdensome, and the SEC review process to declare the registration statement effective is generally lengthier than in the case of a cash tender offer, the timing for an exchange offer is often longer than for a cash tender offer. An exchange offer typically also adds several weeks to the cash tender offer's timetable because it requires registration of the securities to be issued and may require approval by the bidder's shareholders, if either:

In the absence of any regulatory approvals or other restrictions, a one-step merger usually takes significantly longer to acquire control of a target than a cash tender offer because:

Additional delay can result if the offer requires the issuance of more than 20% of a class of the bidder's securities listed on the NYSE or NASDAQ or an amendment to the bidder's incorporation documents, which each require shareholder approval. However, if regulatory approvals or other conditions to the closing of the merger will necessarily delay the closing, the parties can elect to proceed with a one-step statutory merger given that shareholders can withdraw their tendered shares at any time before the closing of the tender offer, which adds uncertainty to a tender offer process with a long offer period.

A tender or exchange offer by a bidder is accepted by the target's shareholders when they tender their shares. At that point, the bidder must purchase the tendered target shares at the offered price, subject only to the satisfaction of the offer conditions including:

A tender or exchange offer (hostile or recommended) involves the following documents:

In an exchange offer, the bidder also prepares a registration statement on Form S-4 (for US companies) or Form F-4 (for non-US companies) containing a prospectus with additional disclosures, including:

If material, the registration statement must include pro forma financial information giving effect to the business combination.

If a bidder's financial statements are required, bidders that do not have US Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS) financial statements must reconcile their existing financial statements to US GAAP or IFRS, often substantially delaying the commencement of an offer. In addition, if the bidder and target use different accounting principles, the preparation of any required pro forma financial statements may be delayed.

In a one-step merger, the target delivers to each shareholder a proxy statement and proxy card before the shareholders meeting. The proxy statement, which also serves as a prospectus if the bidder is issuing securities, is the primary disclosure document filed with the SEC in connection with a merger and includes much of the same information contained in an offer to purchase (see above, Tender and Exchange Offers).

In a second-step merger, if the bidder has already acquired sufficient voting power to guarantee the outcome of the vote, it can choose to make the target send to the shareholders only a short-form information statement concerning the merger.

There is no requirement for the board to consult employees. However, if the target has employees represented by unions, the terms of the collective bargaining agreements for these employees may require the bidder or target to take certain actions in connection with a merger.

Usually, if a bidder has acquired a significant stake in a company and has no intention of increasing its stake, it is not obliged to make an offer for the remaining shares. However, several states (for example, Maine, Pennsylvania, and South Dakota) have control share cash-out provisions, under which the other shareholders can demand that the bidder purchase their shares at a fair price if a bidder gains voting power of a certain percentage of a company.

While there are essentially no limitations imposed on the type of consideration that a bidder can offer in a public takeover (section 251, DGCL), the forms of consideration that are most commonly used in public takeovers are cash, equity securities, or both.

A bidder offering both cash and securities can allocate the consideration among the target's shareholders by either:

In selecting the consideration to be offered, a bidder's analysis focuses on, among other things:

In addition, a bidder's choice will be influenced by corporate and securities law considerations and by regulatory concerns.

A non-US bidder often has additional considerations which mitigate against offering securities as consideration, including:

The consideration offered by a bidder determines whether the acquisition can qualify, in whole or in part, as a tax-free transaction for the target's shareholders under the Internal Revenue Code of 1986 (IRC). Generally, an exchange of stock of one company for stock of a second company is tax-free to the target's shareholders if the transaction qualifies as a reorganization under section 368 of the IRC (reorganization) or a transfer to a controlled corporation under section 351 of the IRC (IRC 351 transaction).

To qualify as a reorganization, a transaction must satisfy several requirements. In particular, a sufficient amount of the aggregate consideration (varying from about 40% to 100% of the consideration, depending on the type of reorganization) paid to the target's shareholders must be stock of the bidder or its immediate parent company and, in certain reorganizations, the stock must be voting stock. In the event that a transaction fails to qualify as a reorganization, the bidder's acquisition of the target can still be treated as a tax-free transaction to the extent the transaction qualifies as an IRC 351 transaction.

To qualify as an IRC 351 transaction, persons must transfer property (for example target shares) to a company, and those persons, in the aggregate, must own at least 80% of the total voting power and 80% of the number of shares of each class of non-voting stock of that company immediately after the transfers. A typical structure used by bidders to achieve tax-free treatment under section 351 of the IRC in a transaction that otherwise fails to qualify as a reorganization involves both:

The shareholders of the bidder and the target that transfer their shares to holdco are treated as a transferor group so that the transaction can be treated as a tax-free IRC 351 transaction.

If a transaction qualifies under sections 351 or 368 of the IRC, a target's shareholder defers the gain in its shares until the shareholder disposes, in a taxable transaction, of the stock received. However, if the target's shareholder receives cash or other non-stock consideration (boot) in the reorganization or IRC 351 transaction, the shareholder must recognize gain equal to the lesser of:

Additionally, non-qualified preferred stock (generally redeemable preferred stock for which there is not a real and meaningful likelihood of participation in corporate growth of the target) is treated the same as cash and, therefore, is taxable to a recipient shareholder. Certain transfers intended to qualify as IRC 351 transactions or reorganizations that are made to a non-US corporation may be treated as taxable transactions.

All-cash offers generally close more quickly than offers that include securities in the consideration (see Question 14).

Generally, there is no requirement to offer a minimum level of consideration. However, the all holders or best price rule (see Question 14) requires the consideration to be paid in a cash tender or exchange offer to be the same for all owners of an identical class of securities. Additionally, in some states, fair price anti-takeover statutes (see Question 6) require a bidder to pay equivalent consideration to shareholders in both the tender offer and the squeeze-out merger of a two-step bid, deterring coercive two-tier, front-end loaded offers.

Depending on state law, the target's shareholders who do not tender their shares in a cash tender offer (in the case of a two-step transaction, that is, a tender offer followed by a second-step merger) and who do not vote in favour of a merger, may be entitled to appraisal rights. Provided that the target shareholder has followed certain procedural requirements, it is entitled to payment equal to the value of its shares as determined by a court, which may be higher than, equal to or lower than the amount offered by the bidder.

There are no restrictions on the form of consideration that a non-US bidder can offer to shareholders. However, when a non-US company uses its own shares as consideration to acquire a public company in the US, the bidder is subject to the registration requirements of the Securities Act, unless an exemption applies. Non-US bidders often offer securities in the US in the form of American Depositary Shares (shares issued under a depositary agreement representing the underlying shares of a non-US issuer that trade in the issuer's home market).

In a long-form merger, all of the target's shareholders are bought out and the bidder becomes the target's sole shareholder.

In contrast, a tender or exchange offer invariably leaves a bidder with minority shareholders in the target. While there is no compulsory offer mechanism in the US, a bidder can use a second-step merger (see Question 14) to buy out the remaining minority shareholders.

Currently, 35 states restrict a bidder that surpasses a certain ownership threshold in a company (usually between 10% and 20%) without the requisite board or shareholder approval from gaining control of the company. In most cases, bidders are restricted for a specified time after surpassing the ownership threshold, with waiting periods ranging from two to five years.

Under SEC rules for de-listing securities from a national securities exchange (for example, the NYSE), either the company or the relevant exchange (generally for violation of the exchange's rules) can initiate a de-listing by filing a Form 25 with the SEC. The de-listing becomes effective ten days after the Form 25 is filed, and the company's withdrawal from section 12(b) registration under the Exchange Act will take effect 90 days after that filing.

In a company-initiated de-listing, the company must certify that it has complied with all applicable state laws and exchange rules governing the de-listing of its securities. The company must also notify the exchange in writing at least ten days before filing the Form 25, contemporaneously issue a press release announcing the de-listing, and post the notice on its website.

In the case of an exchange-initiated de-listing, the exchange must, in addition to filing the Form 25, provide:

To terminate the target's periodic reporting and other obligations under the Exchange Act, a separate filing to de-register must be made to the SEC. Otherwise, a de-listed company may retain its status as a registered issuer for the purposes of the Exchange Act and continue to be considered a public company (see Question 4).

Subject to its fiduciary duties, a target board has many defenses available to it, for example:

A target board's ability to take defensive measures is limited by the directors' fiduciary duties under the applicable state law. The judicial doctrine known as the business judgment rule generally protects a board from liability for its actions if it acts:

However, the standard of review in a hostile bid can be more rigorous. In Delaware, for example, when defensive actions are taken, the board faces a higher level of scrutiny, requiring that the defensive actions be "reasonable in relation to the threat posed" (Unocal Corp v Mesa Petroleum Co (Del 1985)). In addition, Delaware law states that, if a board has made the decision to pursue the break-up or sale of control of a company, a board's overriding duty is then to maximize the near-term value realized by shareholders (Revlon v MacAndrews & Forbes Holdings (Del 1986)).

Despite the higher standard of scrutiny of defensive actions, a target board's ability to preserve a company's independence in the face of a hostile bid was strengthened by a 2011 decision of the Delaware Court of Chancery (Air Products & Chemicals, Inc v Airgas, Inc (Del Ch 2011)), which indicates that the board of a Delaware company can "just say no" and refuse to negotiate with a bidder or withdraw its poison pill if it believes that the bidder's proposal undervalues the company.

The federal government does not impose transfer duties on the sale of shares in a company incorporated, listed in the US, or both. Sales or other transfer taxes, including real property transfer taxes, may be payable, subject to defined exceptions, under the laws of a particular state or locality.

Merger control filing analyses are typically conducted during the bid process, and depending on the bid requirement, may be a condition to submitting a bid. The filing analysis determination will often directly impact the overall timeline for the closing of the transaction, as any relevant approvals, including waiting period expirations, can take several months to obtain. Merger control filings are usually only submitted after the parties have signed a definitive transaction agreement, though in limited instances and jurisdictions, parties can submit merger control filings prior to the signing of a definitive agreement.

For certain regulated industries, additional regulatory approvals may be required in addition to the antitrust and CFIUS reviews. These regulatory approvals may include the Department of Transportation and the Federal Energy Regulatory Commission, among other regulatory agencies.

Under the Defense Production Act of 1950 as amended by the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), the US President is authorized to review certain foreign investments in or acquisitions of US businesses to determine whether they raise national security issues. If the President decides as a result of that review that there remain unresolved national security concerns, the President can block or unwind the transaction or approve it subject to certain conditions.

FIRRMA is administered by the Committee on Foreign Investment in the United States (CFIUS), an inter-agency body chaired by the US Treasury Department (Treasury) to which the President has delegated certain authority. Prior to FIRRMA, CFIUS jurisdiction was based exclusively on whether as a result of a transaction a non-US person could acquire control of a US business. Control was determined by whether the non-US investor could make key decisions for the US business, for example, shutting down operations, choosing a board, or moving offshore. CFIUS regularly asserted jurisdiction over minority investments based on an evaluation of the level of equity that would be held by the non-US investor and the governance or veto rights that the investor would acquire.

The law governing CFIUS was overhauled by enactment of FIRRMA in August 2018, in which the US Congress attempted to patch what were perceived as holes in coverage that permitted non-US investors, especially from China, to gain access to US technology without being subject to CFIUS jurisdiction. Additionally, the Department of Commerce added companies such as Huawei, SenseTime, and Hikvision, among others, to its list of entities prohibited from obtaining hardware, software or technology that are subject to US Export Administration Regulations. The administrative process of implementing FIRRMA was finalized in comprehensive regulations issued by the US Treasury Department in 2020. Among the more significant changes are the following:

Beyond TID US businesses, there is no authoritative list of specific sectors in which an acquisition, merger, or investment raises national security concerns. Even if not mandatory, it is advisable that any transaction involving a US business that does significant business with the US government or its contractors (particularly in the defense or intelligence sectors) be formally notified to CFIUS. The same applies to investments in infrastructure, for example the transportation, telecommunications, and energy sectors, especially when the activities of the US business are connected to the telecommunications or energy grids. Transactions involving non-US parties that are partially or wholly state-owned also attract increased scrutiny. The extent to which the US business being acquired makes products subject to US export control laws is another factor to consider when deciding whether to make a CFIUS filing.

In addition, CFIUS has previously focused on acquisitions, investments, or mergers with certain types of US businesses, including those in the following sectors:

The law requires a 45-day investigation in cases involving critical infrastructure if the committee determines that the transaction could impair national security and that the threat has not been mitigated, and for investments by an entity controlled by a foreign government. This 45-day investigation period can be waived by agreement of high-level CFIUS agency officials. In practice, the President has only blocked a small number of transactions, as parties to a transaction either enter into a mitigation agreement to enable the transaction to proceed, or voluntarily withdraw their CFIUS notice.

In addition, applicable US federal laws and regulations impose limitations on the aggregate ownership of companies in certain industries that can be owned by a non-US owner. For example, limitations are placed on non-US ownership of certain companies in broadcasting, airline, and shipping industries, among others. The limit is often set at 25%, though it is higher in some industries and there are certain industry-specific exceptions.

Although no M&A transactions were blocked outright in court by the US Federal Trade Commission (FTC) or US Department of Justice (DOJ), the FTC secured a preliminary injunction in respect of Peabody and Arch Coal’s proposed joint venture, which led to the parties, the two major competitors in the market for thermal coal in the Southern Powder River Basin and the two largest coal-mining companies in the US, abandoning the joint venture.

A number of transactions were reportedly terminated by the parties after the FTC or DOJ (as applicable) challenged the deal. According to the DOJ, parties terminated their transaction in two instances (including Visa’s proposed acquisition of Plaid, which was terminated in January 2021 after the DOJ filed a lawsuit to block the transaction). The DOJ also won in the first ever arbitration of a merger in respect of Novelis Inc.’s proposed merger with Aleris. Prior to filing the complaint, the DOJ reached an agreement with the companies to refer the matter to binding arbitration and as a result, Novelis was required to divest certain assets to complete the merger. Of the 28 transactions that were challenged by the FTC in its fiscal year 2020, eleven were terminated by the parties after the FTC raised concerns.

With respect to transactions that were blocked or unwound after CFIUS review, Chinese gaming company Beijing Kunlun Tech Co. Ltd. reportedly agreed to a request by CFIUS to divest its dating application business Grindr LLC. Beijing Kunun Tech Co., Ltd. had acquired Grindr through two separate deals between 2016 and 2018 without submitting the acquisition for CFIUS's review. This action reflects CFIUS's keen focus on transactions that arguably give non-US access to sensitive personal data of US citizens, an existing practice that was codified by FIRRMA and its implementing regulations. In addition, in March 2020, President Trump ordered the Chinese company Beijing Shiji Information Technology Co., Ltd. to divest its stake in Stayntouch, Inc. following a CFIUS review of the transaction. Stayntouch provides mobile application software for hotels that allow guest connections to hotels and real-time communication between guests and hotels.

Reportedly for similar concerns over access to US citizens' personal data, in late 2019, CFIUS began a post-closing review of the acquisition by ByteDance Ltd., the Chinese parent of social networking service TikTok, of Musical.ly, a US business that was integrated into TikTok once it was acquired. On 14 August 2020, President Trump issued an executive order demanding ByteDance to divest all interests in assets or properties used for TikTok’s US operations and any data obtained or derived from US users. The Trump administration subsequently endorsed a transaction that would result in Oracle Corporation, Walmart Inc., and other US investors holding a majority ownership stake in TikTok, but agreement has not been reached in that transaction and Trump’s administrative actions ended up in federal courts, where early rulings went against the Trump administration’s restrictions on TikTok. The Trump administration appealed the rulings in December 2020. However, in February 2021, serving notice of a new direction on such issues, the Biden administration indicated in federal court that it was undertaking a wide-ranging review of the risks posed by Chinese companies with potential access to the data of US citizens that could eliminate the need for the TikTok litigation. In June 2021, President Biden terminated Trump’s executive orders involving TikTok, but embraced and expanded on another, broader Trump executive order designed to secure the information and communications supply chain. That directive charges an interagency group headed by the Commerce Department to come up with recommendations “to protect against harm from the unrestricted sale of, transfer or access to US persons’ sensitive data…by persons owned or controlled by, or subject to the jurisdiction of direction of, a foreign adversary”. It also calls for recommendations of additional legislative or administrative actions to address the risks associated with connected software applications developed by persons owned or controlled by foreign adversaries. Additionally, it requires the Secretary of Commerce to monitor transactions on a continuing basis involving connected software applications that may pose an undue risk of sabotage. Following these developments, the US government and TikTok mutually agreed to dismiss the litigation in July 2021.

In 2020, the US antitrust agencies concluded the second-highest number of significant US merger investigations over the past decade, tied with the Obama administration’s final year at 33, eight of which resulted in litigation, the most in the last ten years. The average duration of significant merger reviews dropped slightly to 11.4 months down from 11.9 months in 2019.

A number of notable enforcement actions have occurred involving public companies.

The DOJ required divestiture of digital do-it-yourself tax preparation business for the USD7.1 billion merger of financial software companies Intuit and Credit Karma to proceed. The department said that without this divestiture, the proposed transaction would substantially lessen competition for digital do-it-yourself tax preparation products, which are software programs used by American taxpayers to prepare and file their federal and state returns. Credit Karma's tax business was spun off to the fintech company Square.

The DOJ also required Zen-Noh Grain Corporation to divest nine grain elevators in nine geographic areas located in five states along the Mississippi River and its tributaries in order to proceed with its proposed USD300.0 million acquisition of 35 operating and 13 idled grain elevators from Bunge North America Inc. According to the complaint, the defendants were two of only a small number of competing grain purchasers in nine geographic areas and without the divestitures, the combined company likely would have been able to pay less for grain and lower the quality of services offered to farmers.

The FTC similarly required significant divestitures in respect this year, with one key case being the merger between two national pharmaceutical companies subject to conditions. The first was AbbVie's proposed USD53.0 billion acquisition of Allergan on the basis that the proposed acquisition would likely result in substantial competitive harm to consumers in the market for treatment of exocrine pancreatic insufficiency, or EPI, a condition that results in the inability to digest food properly. The FTC also alleged that the acquisition would eliminate future direct competition between AbbVie and Allergan in the development and sales in the US of certain drugs used to treat Crohn’s disease and moderate-to-severe ulcerative colitis. The FTC required divestitures of Allergan's assets related to two drugs to Nestlé and rights and assets related to Brazikumab, a drug in development to treat Crohn's disease and ulcerative colitis, to AstraZeneca.

While US antitrust authorities (including state attorneys general) can investigate any merger or acquisition, only transactions that meet the requirements of the HSR Act require that parties notify the US Federal Trade Commission (FTC) and Antitrust Division of the DOJ and observe the statutory waiting period before closing. Unless the parties qualify for an exemption, the HSR Act requires notification of acquisitions of voting securities, non-corporate interests, or assets if all of the following criteria are met:

Pre-merger notification is mandatory if the filing thresholds are triggered unless an exemption applies.

Mergers and acquisitions whose effect may be to substantially lessen competition, or to tend to create a monopoly, are prohibited (section 7, Clayton Act of 1914). Transactions can also be challenged under section 1 or 2 of the Sherman Antitrust Act of 1890 or, by the FTC, under section 5 of the Federal Trade Commission Act of 1914. Generally, in assessing whether a transaction will substantially lessen competition, the government considers whether, in any relevant market, the transaction is likely to result in either:

If a transaction is subject to the HSR Act, the parties cannot close the transaction before the applicable waiting period expires or terminates early. The initial waiting period for most transactions is 30 calendar days, beginning on the day after the FTC and DOJ receive complete HSR filings and ending on the 30th day after that date. The initial waiting period for all-cash tender offers and certain insolvency transactions is 15 calendar days.

In all-cash tender offers and other acquisitions of voting securities from third parties, the waiting period begins the day after the FTC and DOJ receive the complete HSR filing from the acquiring party. The parties can request early termination of the HSR waiting period, which allows the agencies to exercise their discretion to terminate the waiting period before it expires. If early termination is granted, there is a public disclosure on the FTC's website, including the identity of the parties to the transaction. As of 4 February 2021, the FTC and DOJ announced a temporary suspension of early termination grants, and as of the law stated date, has not resumed or announced a timeline for resuming early termination grants.

The FTC or DOJ can extend the initial waiting period by issuing a request for the submission of additional information or documentary material from a person filing a notification (also known as a second request). This automatically extends the waiting period by an additional 30-calendar-day period (or ten calendar days in the case of all-cash tender offers and certain insolvency transactions) that only begins to run following the receipt of the requested additional information or documentary material by both parties. At the end of the extended waiting period, the parties are free to close the transaction unless the investigating agency obtains an injunction in a federal district court blocking the transaction. Investigations that proceed to the second request stage can often take up to one year or more to be resolved.

In addition to the antitrust rules, public takeovers in industries such as banking, utilities, insurance and communications may be subject to approval by one or more regulatory agencies.

There are no restrictions on repatriation of profits or exchange control rules for non-US companies.

In addition to the reporting requirements applicable to holders of more than 5% of a company's equity securities (see Question 10) or the acquisition of securities with a value in excess of the applicable antitrust threshold (see Question 27), the following restrictions (each of which is subject to certain exceptions) apply to persons dealing in securities of the parties to the bid:

As businesses and governments continue to respond to COVID-19, the M&A landscape will also continue to experience the repercussions of the pandemic:

The trend of buyers and sellers increasingly focusing on ESG factors, particularly those relating to climate change, privacy, and labor practices, accelerated in 2020 and will likely continue to gain prominence in corporate governance as a whole. Activists and institutional investors such as Blackrock, Vanguard, and State Street have pushed the boards of companies to act on ESG measures, while new funds have been formed to invest in companies with high ESG attributes. With respect to M&A dealmaking, buyers are expected to increasingly consider the impact of an acquisition on their own ESG profile and want to consider potential reactions from customers, employees, and other constituencies based on a perceived or actual change in purpose or ESG attributes when pursuing an acquisition. Meanwhile, sellers may consider the impact of ESG factors when these factors may have implications for valuation or, in some cases, the continued mission of the target company following closing.

In February 2020, the US Treasury Department finalized regulations that expand the jurisdiction and powers of CFIUS. The new regulations extend CFIUS jurisdiction to certain non-controlling investments in US companies that deal in critical technologies, perform certain functions in facilities considered critical infrastructure, and maintain or collect sensitive personal data of US citizens. The new regulations, which implement congressionally mandated changes in FIRRMA, also extend CFIUS jurisdiction to certain real estate investments and make mandatory certain non-US investments in US TID businesses (that is, US businesses that develop or produce certain critical technologies, own or operate US critical infrastructure, or possess or collect sensitive personal data of US citizens). CFIUS was also active in reviewing transactions in 2020, and in some cases, pressured companies to undertake divestitures or levied civil penalties for violations.

CFIUS's activities coincide with actions from other agencies in respect of critical infrastructure and assets. In March 2021, regulations that allow the Department of Commerce to review and unwind information and communications technology and services transactions that pose an undue risk to the US's critical infrastructure, digital economy, national security, or the safety of US persons became effective. These actions also represent the heightened focus on Chinese investments in sensitive sectors of the US economy. FIRRMA requires that every two years the Secretary of Commerce submit to Congress and CFIUS a report on foreign direct investment transactions made by Chinese entities. The report must include an analysis of patterns found in Chinese investments, including "the extent to which those patterns of investments align with the objectives outlined by the Government of the People's Republic of China in its Made in China 2025 plan". In addition, the Export Control Reform Act of 2018 requires a review of license requirements for exports, re-exports, or in-country transfers of items to countries subject to a comprehensive US arms embargo, including China.

In 2020 and 2021, there have been increased calls to apply antitrust laws in novel ways and aggressive enforcement, especially concerning big tech companies. Most notably, President Biden’s recent Executive Order on Promoting Competition in the American Economy and several proposals for legislative reforms were announced. These structural initiatives have emerged alongside various continuing litigations against big tech arising from prior studies by the agencies and an uptick in bringing cases against vertical mergers and mergers involving the acquisition of nascent competitors. A nascent competitor is a firm that’s prospective innovation poses a threat to an incumbent (the theory of harm being that the transaction could eliminate future competition or innovation despite the parties not currently being actual or close competitors). This was evidenced by the FTC establishing the Technology Enforcement Division (TED) in 2019 and the 2020 DOJ reorganization to create a section solely devoted to technology matters, including the review of technology and digital platforms mergers.

On the litigation side, the FTC and DOJ continue with their increased interest in pursuing nascent competition theories of harm and vertical theories of harm such as input foreclosure or raising rivals' costs and customer foreclosure. Despite the agencies issuing revised guidelines for evaluating vertical mergers under US antitrust laws (Vertical Merger Guidelines) on 30 June 2020, both these and the Horizontal Merger Guidelines are likely to be reviewed in the near future, as explicitly “encouraged” by the Executive Order. Further revisions to the Vertical Merger Guidelines were not unexpected given that the FTC's two Democratic commissioners had previously voted against the issuance of the new Vertical Merger Guidelines, each arguing that they did not sufficiently address potential competitive harms. Amendments to the merger guidelines may be the most significant and enduring impact of the Executive Order on antitrust law given their important practical, and overarching philosophical, role. Although these changes will take time to move through the relevant procedural steps, sentiment for quickly commencing the process exists.

In terms of key enforcement activity, on the vertical front, the FTC filed a lawsuit in federal court to block Illumina’s USD7.1 billion proposed acquisition of Grail, a maker of a non-invasive, early detection liquid biopsy test that can screen for multiple types of cancer in asymptomatic patients at very early stages using DNA sequencing. According to the FTC, Illumina is the only provider of DNA sequencing that is a viable option for these multi-cancer early detection or MCED tests in the US. Grail (and its competitors) rely on Illumina's DNA sequencing technology, the FTC asserts, and Illumina's acquisition of Grail would reduce innovation in the market for MCED tests. The trial was set for 24 August 2021, and shows that the agencies’ willingness to challenge vertical mergers.

The trial for the FTC’s challenge of tobacco giant Altria's completed USD12.8 billion purchase of a minority stake in electronic cigarette company Juul Labs Inc occurred in June 2021, with the court yet to make a decision. Filed in April 2020, the complaint alleges that Altria's acquisition of a 35% stake in the outfit was part of an illegal agreement between the companies not to compete for the sale of electronic cigarettes. Altria allegedly took steps to shut down its own Nu Mark e-cigarette operations after commencing deal discussions with Juul.

On the nascent competition front, on 9 December 2020, the FTC and 46 states sued Facebook accusing it of buying and freezing out small start-ups to choke competition and seeking, among other things, to unwind its acquisitions of WhatsApp and Instagram, landmark deals now about a decade old. In June 2021, the FTC was dealt a blow when Judge Boasberg of the U.S. District Court for the District of Columbia found that the FTC failed to show that Facebook had monopoly power in the social-networking market and the FTC had to decide whether to file an amended complaint by 19 August 2021.

In December 2020, the FTC also sued to block Procter & Gamble’s acquisition of Billie, a NY-based start-up that sells razors and body wash on the basis that the proposed merger would eliminate innovative nascent competitors for wet shave razors to the loss of consumers. The parties abandoned the merger about a month later. The FTC had previously sued to block Edgewell Personal Care’s (maker of Schick razors) USD1.37 billion deal to acquire the razor start-up Harry’s, Inc., another direct-to-consumer brand, which similarly was abandoned as a result.

In January 2021 Visa also called off plans to acquire fintech start-up Plaid for USD5.3 billion after the DOJ sued to block the deal alleging that Visa was trying to eliminate a nascent competitive threat to its dominance in online debit transactions in the country. That case challenged the merger directly but also included a claim under Section 2 of the Sherman Antitrust Act alleging monopolistic practices.

Given most of these merger cases were brought under the previous administration, they are arguably the baseline of what to expect going forward for merger enforcement with things likely to ramp up under the democratic administration.

The notable developments have been:

There have been several recent reforms that will affect US takeovers, including:

President Biden issued a sweeping Executive Order and accompanying FACT Sheet with the stated goal of using existing antitrust laws and policy to reduce the trend of corporate consolidation, increase competition, and promote competition in the US economy. The Executive Order establishes a new White House Competition Council and calls for several significant reforms relevant to mergers. For example, President Biden asks the DOJ and FTC to review both the horizontal and vertical merger guidelines and various agencies have been given deadlines to submit reports to the White House Competition Council on the competitive nature of several specific markets, for example, directing the Treasury Department to, within 270 days, submit a report examining the impact on competition of large technology firms’ and other nonbank companies’ entry into consumer finance markets.

In addition, the Executive Order specifically criticizes, and seemingly encourages, challenges to completed mergers that have led to significant market consolidation. This is not surprising, as one of the architects of the Executive Order, Tim Wu, has written recently and favorably about after-the-fact challenges

The Executive Order by itself does not impose new regulations. Therefore its success will depend on government agencies implementing the suggested policies, some of which are likely to face court challenges. However, the Executive Order does intensify the current administration’s already significant focus on antitrust enforcement and heightened scrutiny of big business and underscores the comprehensive agenda for antitrust reform already underway by lawmakers and enforcers on both sides of the political aisle.

Calls for changes to antitrust law have been intensifying in recent years but now significant steps have been taken to create wide-scale legislative updates. Several bills make up a new package with the two most relevant to merger control work being the Merger Filing Fee Modernization Act and the Platform Competition and Opportunity Act. While the Merger Filing Fee Modernization Act is likely to pass, the fate of the Platform Competition and Opportunity Act is less clear. It represents the comprehensive search by legislators and enforcers of ways to more aggressively enforce antitrust laws to tackle entrenchment of bigness, particularly in the tech industry.

The Merger Filing Fee Modernization Act would decrease HSR filing fees for smaller transactions but raise HSR filing fees for all transactions that are more than USD500.0 million. It would also authorize additional funding for the DOJ Antitrust Division and FTC to assist with investigations.

Specifically, the bill would appropriate USD252.0 million for DOJ’s Antitrust Division (25% above the Division’s USD201.2 million FY 2022 budget request) and USD418.0 million for the FTC (7% above the agency’s USD389.8 million FY 2022 budget request). The proposed HSR filing fees would range from USD30,000 for the smallest reportable transactions (representing a USD15,000 decrease) to USD2.25 million for the largest reportable transactions (representing a USD1.97 million increase).

The Platform Competition and Opportunity Act aims to promote competition and economic opportunity in digital markets by specifying that certain acquisitions by covered dominant online platforms are unlawful. If passed, it would shift the burden of proof in acquisitions to certain covered online platforms to prove that the target is not a competitor, or nascent competitor, and that the acquisition does not enhance the platform’s market position or its ability to maintain the position, regardless of the size of the acquired entity or any competitive effects from the transaction.

Of particular note is a push by New York State to introduce a separate merger control regime under the Twenty-First Century Antitrust Act, which was passed by the state Senate in a 43 to 20 vote in June 2021. If enacted, it would make the state the first industry-agnostic premerger regime in the nation.

However, the proposed thresholds are significantly lower than required under the federal HSR regime. It also requires only a very low level of nexus with the New York State. The reportability threshold of the potential New York premerger notification requirement is currently both:

The Bill’s size-of-transaction threshold would be 10% of the existing HSR Act requirements. The size-of-person threshold would be:

Unlike the HSR size-of-person test, only one party needs to satisfy the NY size-of-person test, which is a low nexus requirement. Both the size-of-transaction and size-of-person test would adjust annually in tandem with the HSR Act threshold changes. The Bill would also require parties to observe a mandatory 60-day notice period before closing, double the 30-day requirement under the HSR rules. However, unlike under the HSR rules, parties would be able to close deals at the end of the waiting period even if the Attorney General elects to open an investigation.

Both the FTC and DOJ have made statements about a number of mergers filings impacting on their ability to properly investigate transactions. On 3 August 2021 the FTC announced that it had been hit by a tidal wave of merger filings that is straining the agency’s capacity to rigorously investigate deals ahead of the statutory deadlines. In response, it will begin sending a standard letter to parties for deals it cannot fully investigate within the requisite timelines to alert them that the FTC’s investigation remains open and reminding companies that the agency may subsequently determine that the deal was unlawful. While the FTC and DOJ can always investigate transactions after closing, it has been rare in practice so the use of these letters does add an extra element of uncertainty to transactions being investigated by the FTC, at least until more is known about how the FTC will use the letters in practice.

Extra deal uncertainty had already been created in February 2021 when the FTC and DOJ suspended the common practice of providing early termination notices for deals that raise no antitrust concerns. The agencies said at the time that they needed to institute the temporary suspension in light of the new administration, an unprecedented volume of merger filings, and the ongoing pandemic but have not indicated if or when early terminations will be restored.