Proposed COVID-19 legislation would pause merger activity

On May 5, 2020, 12 representatives wrote to House leadership requesting that the next stimulus bill include a moratorium on “all transactions that do not involve firms that are truly failing or bankruptcy transactions.”  This letter follows an earlier call to ban “unnecessary” mergers from House Antitrust Committee chair David Cicilline and an  April 28, announcement from Senator Elizabeth Warren and Representative Alexandria Ocasio-Cortez that they will be introducing legislation that would prevent large mergers from taking place during the pendency of the novel coronavirus pandemic. 

According to the press release announcing the proposed legislation, the Pandemic Anti-Monopoly Act would impose a moratorium on transactions that meet any of the following criteria:

• Would otherwise require submitting a Premerger Notification and Report under the Hart-Scott-Rodino Act of 1976, as amended; or
• Involve any of the following types of deal parties:
  • Companies with over US$100 million in revenue or financial institutions with over US$100 million in market capitalization;
  • Private equity companies, hedge funds or companies that are majority-owned by a private equity company or hedge fund; or
  • Companies with an exclusive patent that impacts the crisis, such as personal protective equipment.

The proposed legislation would also pause all waiting periods and deadlines imposed on the Federal Trade Commission and Department of Justice Antitrust Division during the moratorium.

Finally, the proposed legislation would direct the FTC to engage in rulemaking to establish a legal presumption against mergers and acquisitions that pose a risk to the government's ability to respond to a national emergency.

Under the proposed legislation, the moratorium would be in effect until the Commission “unanimously determines that small businesses, workers, and consumers are no longer under severe financial distress.” It is unclear what standard, if any, the Commissioners would have to follow to make such a determination.

Further complicating matters, several Commissioners have made statements both supporting and opposing a merger moratorium. Commissioner Rohit Chopra expressed support for Rep. Cicilline’s proposal, stating that “Moratoriums allow us to put a stop to some of the vulture instincts of those who are finding wounded small businesses and then go in and take them over and create more and more market power."  By contrast, Commissioner Noah Phillips has taken the opposite view, arguing that “American consumers stand to gain from pro-competitive mergers.”  Commissioner Phillips also noted that there has been a 60 percent decline in premerger notifications, suggesting that companies are essentially self-regulating their merger behavior during the pandemic.

In the unlikely event that these changes are enacted, they would create substantial impediments to merger and acquisition activity in the US and further complicate analysis to determine whether the HSR Act applies to a proposed transaction. Norton Rose Fulbright is carefully watching developments in Congress and would be happy to discuss concerns you may have about how these changes may impact your business.