FTC Letters Put American Companies In “Mother-May-I” Relationship With Unelected Bureaucrats

By: Tom Hebert

The Federal Trade Commission has started sending letters warning certain companies engaged in mergers and acquisitions (M+A) to proceed “at their own risk” until the FTC weighs in, according to a blog post from Bureau of Competition Director Holly Vedova. 

This is yet another part of FTC Chair Lina Khan’s plan to put every company in a “Mother-May-I” relationship with the government. These letters will only serve to dissuade companies from engaging in future M+A activity, a massive driver of innovation and economic growth. 

The Hart Scott Rodino Act of 1976 requires companies engaging in M+A activity above a certain threshold to notify the FTC and Department of Justice, the two agencies that enforce antitrust law, before the transaction is consummated. After a company provides the FTC and DOJ with a detailed filing with information about the transaction, the agencies have 30 days to determine if the transaction is anticompetitive in nature. 

If a bureaucrat determines that the M+A activity under review will negatively impact competition in a relevant market, the FTC or DOJ can request more information or materials from the filing parties, also known as a “second request.” Generally, the reviewing agency then has another 30 days to examine the new information once the company fulfills the second request. 

If the reviewing agency believes that the transaction will harm competition, it can file an injunction in federal court to prevent the transaction from being consummated. If the reviewing agency does not challenge the transaction before the waiting period expires, the transaction goes ahead unimpeded.

In the letters, the FTC is warning companies against making deals even if the agency does not challenge the transaction before the waiting period expires. The letters threaten legal action and “aggressive enforcement” of antitrust law against companies that consummate a transaction after the waiting period expires and before the FTC weighs in. This could lead to deals being delayed for months or even years as companies wait for an FTC bureaucrat’s approval. 

Not only will the FTC’s aggressive posture likely lead to companies abandoning current pending deals, it will dissuade firms from engaging in innovation-driving M+A activity in the future.

Mergers generally increase efficiency that reduces production costs, leading to lower prices and increased output for shoppers. Acquisitions allow larger firms to quickly deliver innovative new products to consumers because they have the scale and infrastructure to do so. More than half of all startups say that their most realistic long-term goal is to be acquired by a larger firm, providing a key incentive for entrepreneurs to assume the massive risk that comes with starting a new company. M+A activity ultimately benefits all Americans with lower prices and greater access to innovative products and services. 

Ultimately, Khan’s tenure so far has created an enormous cloud of uncertainty for American companies, exactly the opposite of what the economy needs as we attempt to rebound from a pandemic-induced recession. These letters are just the latest example of Khan’s partisan weaponization of the FTC and will have a massive chilling effect on current and future M+A activity.