In this podcast, Dionne Lomax, Managing Director of Antitrust and Trade Regulation, Affiliated Monitors, Inc., and Bevin Newman, partner, Sheppard Mullin, discuss Hart Scott Rodino (HSR) issues in health care transactions. Specifically, the podcast dives into which transactions are reportable, how the filing process works, and how the procedures have changed in light of the COVID-19 pandemic. From AHLA's Antitrust Practice Group. Sponsored by Affiliated Monitors, Inc.
To learn more about AHLA and the educational resources available to the health law community, visit americanhealthlaw.org.
In this podcast, Dionne Lomax, Managing Director of Antitrust and Trade Regulation, Affiliated Monitors, Inc., and Bevin Newman, partner, Sheppard Mullin, discuss Hart Scott Rodino (HSR) issues in health care transactions. Specifically, the podcast dives into which transactions are reportable, how the filing process works, and how the procedures have changed in light of the COVID-19 pandemic. From AHLA's Antitrust Practice Group. Sponsored by Affiliated Monitors, Inc.
To learn more about AHLA and the educational resources available to the health law community, visit americanhealthlaw.org.
Support for A H L A comes from Affiliated Monitors, Inc. A m i provides independent integrity monitoring and assessment services for companies in the United States and internationally. AMI monitors conditions imposed by federal and state regulators and approving mergers are in settling antitrust conduct investigations, and provides proactive assessments of corporate compliance programs and the compliance and ethics culture of organizations across a wide range of industries. For more information, visit www.affiliatedmonitors.com.
Speaker 2:So, hello everyone, I am Dionne Lomax, and I would like to welcome you to the Antitrust Practice Group podcast on H S R Essentials for Healthcare Companies. Before we get started, I would like to thank Affiliated Monitors Inc. For partnering with ALA's Antitrust Practice Group to sponsor this H S R podcast. So, full disclosure, I recently joined AMI as the managing director of Antitrust and trade Regulation, and I am delighted to work with a company that has spent the last 16 years successfully monitoring and assessing over 750 companies and individual practices. Our antitrust HSR expert today is Beon Newman. Hello, Beon. Well, and welcome.
Speaker 3:Hi there. Great. Great to be with you today.
Speaker 2:Great. That's great. So Bevin is a partner in the Antitrust and Competition Practice Group in Shepherd Mullins, Washington, DC office. Bevin is a strategic advisor to clients in cutting edge affiliations and collaborative arrangements. She focuses mo much of her practice in the healthcare industry, bringing over 20 years of experience, advising and defending globally renowned health systems, academic medical centers, providers, payers, and pharmaceutical companies undertaking significant transactions. These include mergers and acquisitions, joint ventures, intellectual property licenses, and innovative life alliances, as well as on a variety of conduct matters. Bevin represents clients before the Federal Trade Commission, the Department of Justice, as well as State Attorneys General on complex antitrust matters. Bevin is one of the most experienced Hart Scott Rodner Rodino Act, or H s R Act, as we like to say, in the antitrust world, um, in the country. So, Beon, thank you so much with all of that. I'm sure you are very busy, so I just really wanna thank you and welcome you. Um, and you know, I'm looking forward to hearing what you have to say about HSR Essentials as relates to healthcare companies. So let's, let's just go ahead and jump right in. So, first and foremost, tell us about the HSR Act and, and why you think it matters.
Speaker 3:Absolutely. Um, the, the HSR Act is one of two of the federal antitrust statutes that together allow the enforcement agencies, and there are two of those to vet mergers and other types of transactions, um, in advance so that they can avoid or ameliorate any potential harm to competition that may arise from that transaction. Um, that said, the HSR Act, which is, is near and dear to my heart, um, is a little different than, than most of the other antitrust statutes that we see. And I say that because the HSR Act actually applies to any transaction that meets completely objective thresholds. It doesn't take into consideration markets, competitive effects or any of those other substantive antitrust issues that you may associate with practicing anti law. And I know you've done that for a number of years. So it's, it's kind of unique in that sense. The application of the ACT itself is really mechanical. Um, I always give the example that, you know, a bubblegum company in Arizona can set out to buy a bicycle plant in Rhode Island, and they may still have to make an HSR filing, even though there's just no conceivable way that that could impact, um, competition in any way. So the ACT and its thresholds are designed to capture transactions that have a significant impact on US commerce, and then to provide the antitrust agencies with really the essential information about the companies and the transactions, um, with time to review that before the parties are permitted to close their transaction. So, um, again, the, I think the most important thing to, to understand about the HSR Act is that it doesn't matter if you don't compete, um, the HSR Act may still apply to your transaction for healthcare. I think, uh, healthcare companies in particular, I think that it's important to keep that in mind, um, because of some, because of the prevalence of antitrust enforcement actions in the healthcare space Right now, the, um, FTC issued its highlights, uh, yesterday for the, uh, of the last several fiscal years, and consistent with the last several years, the, in the percentage of enforcement actions that cover the healthcare and, um, life sciences industries is still hovering around half. So, um, this understanding whether or not your transaction is going to be caught up in heart, Scott Regina reporting really is important in terms of strategizing how you get a transaction that may, uh, raise some substance of antitrust concerns through that process, um, given the, given the attention that the, the industry altogether is getting from the agency these days.
Speaker 2:So, it's funny when you, when you said, um, the HSR Act is near and dear to your heart, I, I chimed in and said, oh, it's near and dear to my heart too. What I really should have said is, antitrust is near and dear to my heart,<laugh>, I, I left the HSR expertise up to other folks<laugh>, um, at my firm when I was in private practice. But, but it is good to be doing a podcast with someone that loves antitrust as much as I do. So, so you mentioned getting caught up in, in hsr, um, filing. How do you figure out if the HSR applies to your transaction?
Speaker 3:Well, as you can probably guess, we wouldn't be doing a podcast on this if it were, if it were simple. So, um, not a simple answer, but, uh, I mentioned the thresholds and, and I'll get to those in a minute. Um, but basically the HSR Act can apply to any direct or indirect acquisition of assets of voting securities or any kind of non-corporate interest. Figuring out if your transaction fits into one of those categories is, is never simple. Um, mostly because the FTC either through regulations implementing the ACT, or through voluminous informal guidance that it publishes regularly on its website, even through posts on its blog, um, can make those three categories cover pretty much anything. Um, so we generally start by asking ourselves a, a handful of questions. Um, who are the parties involved in the transaction? What is being acquired? What, if anything, does that acquire already hold with respect to anything, um, in the seller's family tree? What is the amount in the nature of the consideration, including, for example, debt that's gonna be assumed or paid off? And then when and under what conditions will that transaction take place? So anyone who's helping you, um, figure out if the HSR Act applies to your transaction, it's gonna, it's gonna start with those, um, those questions, once we know those, we can apply, um, the thresholds that I mentioned, and there are three. The first is the commerce test, second is the size of transaction test, and the third is the size of person test. Um, the first one's a giveaway. You can just assume that the commerce test is satisfied. Um, I, I, I think in, in over 20 years of practicing, I never actually had to think about that one. Um, the other two work together, and I, I, I kind of like to think of it as, you know, the, the three bears, um, in, in the first, first segment are transactions that are valued at, um, currently 94 million. Those are two small, they don't meet the size of transaction test, and they're not reportable, and we don't have to worry about size of person at all. In, in the last segment. There are very large transactions at the moment. Those would be valued over 376 million. Those deals are too big and they are reportable, and we still don't have to worry about the size of person death. So in the middle are the, um, transactions that fall between those two values. And those are reportable only if they're just right, meaning that they are reportable if the parties also meet the size of person test. So besides the person test, um, means that one person to the transaction generally has to have 188 million in assets or sales, and the other has to have at least 18.8 million in assets or annual net sales. Now, all of those thresholds, um, all those dollar amounts that I just threw out there are adjusted annually. And the new thresholds are generally announced in January, take effect around the last week of February every year. So there's a little more to all of those, but that's generally how the, how the thresholds work. Um, once you have all those pieces in place and you're, and you're thinking about all of those moving parts, um, then you have to really get down into the nitty gritty. The, the, the HSR Act itself, um, like pretty much every federal antitrust statute we've ever had is both very broad and very vague, and it doesn't tell you anything really about how to apply it. So the details of that, um, which can get pretty tricky, are set out, as I said, in a body of regulations and a volume of published formal and, and informal interpretations that, um, at least with respect to the informal guidance doesn't have any presidential value, but certainly provides a current, uh, picture snapshot of the agency's policies. So it's not uncommon for us to get all those facts, figure out what we think, and then go into the pre-merger notification office of the Federal Trade Commission and say, on an anonymous basis here, here's a hypothetical set of facts. Here's how we would apply the rules. What do you think? Do you agree with us? Um, that happens all the time. So, um, I think what that goes to show is that determining the application of the HSR Act can be very fact specific, and a small change in those facts can really, um, significantly impact your analysis and conclusions. So that's a long-winded way of my saying. It's, it's important for deal teams to keep the HSR Act in mind, um, as your, the contours of your transaction may change throughout the negotiation as assumptions about dollar values or confirmed or corrected through due diligence, really throughout the entire process, you need to keep your HSR practitioner kinda up to speed and, um, aware of things as they change.
Speaker 2:So, so I have to just say, I, I'm like, I love the fact that you were, that you referenced the three Bayers in connection with the h r threshold, and that's like literally the first time I've heard that, but I actually love it. I just have to say that before I ask you the next question. And that goes to, thinking back to the title of this podcast, right? H S R Essentials for Healthcare Companies. So, you know, is there something different about the healthcare industry as it relates to HSR ACT compliance?
Speaker 3:Um, not necessarily compliance, but as, as I mentioned, the HSR Act, in spite of its simplicity, covers a huge range of transactions. And in some cases, the federal agencies have recognized that certain types of transactions are very specific or common to healthcare and life sciences actually raised some rather unique issues. And so there are a few regulations and certainly some policies that the agencies have developed over the years to address these sort of industry specific transactions. Um, and I'll get into those, but just to give you a sense of what I mean when I say that, the HSR Act covers a huge list of transactions, um, in addition to traditional mergers and acquisitions of stock or assets, the HSR Act can cover the formation of brand new companies that can cover all manner of joint ventures. It can cover spinoffs split offs, it can cover the exercise of options or warrants or other convertible securities. Um, it can cover the acquisition of any of those in connection with a transaction or even as part of your compensation if you're a company executive. Um, in the, in the healthcare and life sciences spaces, it can cover membership substitutions when you have a non-stock corporation or, um, even exclusive, uh, intellectual property licenses and, and in some cases even a lease. Um, so those, those last two that I mentioned, the exclusive licenses and the membership substitutions in particular, are examples of transactions that can raise very specific HSR Act issues within the healthcare industry. So lemme start with the, um, exclusive licenses. An exclusive license to intellectual property can be treated under the ACT as the acquisition of the underlying intellectual property asset. So if I acquire an exclusive license to a patent for a particular field of use or a particular, um, indication, and my rights are exclusive even as to the licenseor, then I've acquired an asset for purposes of the HSR Act. Um, because this type of transaction is so prevalent in the pharmaceutical space, the FTC actually issued a, a regulation establishing that the HSR Act covers these transactions involving those licenses, the transfer, what they call all commercially significant rights to a patent in, in a therapeutic area, or for a particular specification, even if the licenser retained certain limited rights, for example, certain limited manufacturing rights or other co-writes that allow the licenser to work with the licensee in developing or commercializing the product covered by the patent. So, unlike in some other industries, co-development, co-promotion, co-marketing, commercialization agreements, all of those, um, can exist and you can still have an HSR after portable transaction if you're entering into an otherwise exclusive license. Um, more recently, the FTC has expanded the types of transactions, um, that the HS r f covers involving nonprofit organizations, and that has, that is specifically geared toward, um, healthcare providers. So the statute itself, as I, as I mentioned at the very beginning of our talk, um, covers assets and securities essentially. So things like non-profit companies, particularly in the provider space where you have things like non-stock membership, non-profit corporations that don't really fit into those categories have always posed a little bit of a conundrum that was addressed originally by, by a regulation that says if you acquire control of one of those companies, you're deemed to be acquiring all of its assets. So that's how we kind of fit those transactions within the four corners of the HSR Act. But there are a lot of deal structures involving types of companies that didn't actually transfer control as that term gets defined under the act. So for a very long time, a bunch of those transactions just simply weren't covered. But a little over a year ago, the FTC published guidance recognizing that you could have a reportable acquisition, even if you're not changing control, um, formally by change, by getting control of the board of directors, for example. And this, the way that the ftc, um, thinks about this is to to think about are you, um, obtaining the indicia of, or are there indicia of beneficial ownership over the assets of your affiliate, um, your transaction partner? So the FTC is really focused on all kinds of provider affiliations with this new policy. And again, this was published, um, it's, it's published on the website in, in terms of guidance, um, originally announced through, through a blog post. Um, but they, they wanna make it clear that even though you may not be attaining control of the board of directors, you can have a reportable transaction, um, if you're creating a, a new non-for-profit entity that will become a corporate member of, or have some other, um, significant governance control over one or more of your affiliating partners. So the FTC is going to look at things like whether the transaction confers the right to, um, authorize or approve changes in the articles, bylaws, those types of constituent documents. Um, whether you can approve the sale or lease of substantially, um, large portions of the assets, whether you can approve officers, um, whether you are involved in creating or approving strategic plans, capital budgets, um, significant contracts, all of those sorts of things that really go to more fun of more functional definition of control. Um, so that's, those are a couple of ways in which I think the healthcare industry has some, some rather unique concerns under the HSR Act analysis.
Speaker 2:Thanks. Thanks for sharing that. Yeah, it definitely sounds quite, quite involved<laugh>. Um, and so, so what are, where else are the tricky spots, you know, that a com that you would say a company needs to be aware of in determining whether or not the HSR Act applies to their transaction? What are some other nuances that they need to be aware of?
Speaker 3:Sure. So what, what we've covered so far, um, are really sort of the types of transactions that are covered and what those thresholds are. I think that there are two other pieces of the puzzle here in terms of determining your reportability re requirements. Um, the first is to determine the valuation to, to figure out if your deal actually meets those thresholds. And there's, there are of course, some basic rules for valuing things like assets and voting securities under the rules. Um, and a lot of times that's, um, that involves multiple steps. For example, you know, your, the value for purposes of the act, maybe something like, it's great, the greater of your purchase price go to fair market value, but even that can be a little bit complicated because one thing that I think some folks don't recognize, at least immediately is that the act is applying, um, the thresholds not just to what you're acquiring, but to what you actually hold as a result of the acquisition. So that means, for example, that if I am lucky enough to own, um, 94 million worth of stock, um, minus a penny, I actually have to file under the HSR Act to buy one more share for a dollar and a half, because that flips me over that threshold. And I also have to go through the exercise of figuring out what's the value of what I hold versus what's the value of what I'm acquiring. That isn't always the same test. So the bottom line is that you have to do this analysis, um, pretty much every time you think about a transaction. You can't look at something, um, just once, uh, in the healthcare space, I think that valuation question can raise some specific issues. Um, I've seen a lot of healthcare life sciences transactions that don't have a purchase price. There can be absolutely no consideration changing hands at closing. There is instead a capital commitment going forward or, or a stream of royalty payments or milestone payments. Um, I think it's more detailed than we wanna get into today, but the HSR Act rules, the agency's guidance cover all of those permutations and determining whether you meet those dollar thresholds under the HSR Act in some of those situations can be pretty complex. So, um, always good for the, the deal team to be, um, consulting with someone who, who knows the HSR Act. I think the, the, the second piece of the puzzle that we haven't talked about yet is whether an exemption applies to your transactions. There, there are literally dozens of scenarios where you may hit all the thresholds and have a reportable transaction, but the rules contain an exemption that applies. And as you can imagine, each exemption has a set of exceptions. The ftc, um, like most regulatory agencies, isn't very fond of ex of exemption, so it applies them pretty narrowly, but they're there. Um, if you're, I always caution that if you're gonna decide that your transaction is not reportable based on an exemption, you should definitely confirm that with an experienced attorney in this field. Um, but those are the, those are the other ways in which, um, this can get a little tricky.
Speaker 2:Okay, great. So, so now I kind of wanna get into a little bit of the nitty gritty of how, how the actual filing process works. Can you walk us through a bit about, practically speaking, how that filing process, um, takes, takes place?
Speaker 3:Sure. I would be delayed. Um, it's a form. Um, in most cases, each party to the transaction is gonna have to submit its own form, and you submit it to both the Federal Trade Commission and the Antitrust Division of the Department of Justice. And with that form, you also have to submit a number of, of documents. At the beginning of our conversation, I mentioned that the HSR Act, unlike most, uh, antitrust statutes, is purely mechanical. So unlike some other jurisdictions, um, like the EU and Canada, um, if some people are familiar with those, these kinds of pre-merger filings in the United States do not require a lot of information or discussion of how you define the market or what the, what your, who your competitors are or any other competitive issues. They really are just looking for information about the transaction and the parties themselves. Uh, there's a local asylum fee, and as a only one fee needs to be paid per transaction, even if there are multiple parties that have to file the form under the rules, technically the buyer is responsible for the fee, and it's graduated based on the size of the transaction. So the smallest is, um, 45,000. That would be the baby Bear<laugh>. Papa Bear pays, uh, 280,000. Um, the agencies as a practical matter, really don't care who pays as long as they get their money. So either parties can pay, they can split it. I, I've seen every permutation, it really doesn't matter. Um, so the, the form has, um, has eight parts, and it really is information about the parties filing notification, how they, how what their corporate family trees look like, um, a description of the transaction, their most recent, um, annual reports or, or, um, audited financial statements. They also ask for revenue information broken down by, um, industry codes so that they're comparing apples to apples. So they have a set of standard codes, um, that covers every segment of the economy, and you have to report at your enterprise level. So it's not, um, it's not terribly, uh, complicated. You don't have to break it down by legal entity, but at the enterprise level where, what activity you're engaging in generating revenues, and the agencies then can compare and see if you have any codes in common with your transaction partner, and that's their first clue that there may be some horizontal, um, direct head-to-head competition there. Um, if you identify any of those overlapping codes, then with respect to those, you have to provide some additional information, like what other transactions have you engaged in recently that covers those operations, and specifically where are you conducting those operations. Now, when it comes to the document attachments, those can get, um, a little more involved. So you have to, you have to provide what you would expect a copy of the, um, the agreement that's, um, at the center of your transaction, if you've found any non-competition covenants or separate agreements that between the parties, you have to submit that to. As I mentioned, there's some financial statements. In addition, there's, um, what we refer to as four C and 4D documents, because those are the sections of the form that, that, uh, call for these documents. They're basically the documents that you would want if you were a staff attorney sitting at the Federal Trade Commission, and you had a limited amount of time to think about a transaction and decide if it weren't a closer look from a competitive standpoint. So they're the documents, uh, that are created by or for, or sent to the real decision makers. So officers, directors that, um, discuss or analyze or relate to the transaction and cover a whole laundry list of competitive topics, competition, competitors, markets, market shares, the potential for sales or geographic, um, expansion, uh, or synergies arising out of the, the transaction. And of course, it takes about, um, the instructions on the form cover, like a page and a half to describe these documents. But at a high level, that's what these are. And you have to be, um, really diligent about finding those documents. They can be emails, they can be handwritten notes, they can be anything. And because it's such a discreet collection, getting that collection right is, is, is pretty important. So that all goes in as, as a package.
Speaker 2:Okay, great. So I, I know just yeah, of course, from experience, how complicated the<laugh> notification and report form can be. And I also know, however, that this is yet another area where healthcare transactions may have certain little tweaks or nuances. Can you share some of those nuances with us?
Speaker 3:Sure. I think, um, you know, with respect to the form itself, I don't think there are any healthcare specific, um, you know, pitfalls out there. But there are certain, um, types of companies, healthcare providers, uh, for example, that where there are overlapping co revenue codes. So you've got some, at least some overlap in the type of operations with your transaction partner. When you have to specify the geographies that you're covering that can get exceedingly detailed. Um, so for example, if you're a large multi-state, um, provider, multi-specialty provider practice, you're gonna have to list a street address for every single location you've got. Um, some other types of industries you're gonna get away with just providing the state<laugh>. Um, but, but for a lot of the healthcare provider space in particular, um, that, that, that detail can, that's required can be, um, excruciating<laugh>. Um, so giving yourself enough time to compile is important.
Speaker 2:Yeah, I would say anxiety producing, to say the least. Right,<laugh>.
Speaker 3:Okay.
Speaker 2:Exactly. Um, alright, so, um, so, so moving on, you mentioned four C documents, um, mm-hmm.<affirmative>, what happens? What happens when you miss one? You miss a four C? Oh my God, what happens?
Speaker 3:Okay, well, if you discover that you've submitted a form that's incomplete or incorrect, for example, you discover a four C document that was included, the agencies will tell you that you need to correct that deficiency. And unfortunately, that can mean that you need to complete a new search for those four C and four D documents to bring it up to date, re-certify your submission. Sometimes, um, in, in reality, I think it's more often than not, depending on the nature of the deficiency, the agency can tell you that they're going to restart the clock. So they, they bounce your filing as we call it. Um, so they restart the clock on that waiting period. And if there's, you know, if there's room for interpretation about whether something should have been included in the filing and you don't take those steps, then of course you run the risk of, of that becoming an issue down the road. So, for example, if the FTC decides that it is going to take a look at your transaction with the doj and they extend that waiting period by issuing a, a request for additional information, or even if during the the, during the waiting period they, they ask for additional documents and, and that document gets produced and the agency then believes it should have been submitted, the agency can, can then at that point, um, reject your filing and make, make you basically research and re-certify and start that clock all over again. And as you can imagine that, that, that gets much more painful as time goes on from your initial filing. So if you discover something is, is wrong a week into your waiting period, that's, that's, that can be difficult, but it, it's less difficult than than doing so three months into the waiting<laugh> into a, an investigation. And to be honest, if, if you're having that conversation well into an ongoing investigation, you've, you've now got something of a potential credibility problem with the agency that is in the middle of investigating your transaction. So it, it's something we should take seriously.
Speaker 2:Great. Great. Now, now one other question. So of course, I know from, from experience that sometimes there are certain documents that are particularly sensitive. And so for example,<laugh> let, let's say you have a, a document purported C document that it has maybe just two pages deal with the transaction, but it's like a hundred page document and all the other pages deal with a host of other transactions that the company is contemplating, or let's say the document just contains some really personal private information. What kind of practical advice can you share with business executives regarding, um, this issue?
Speaker 3:Um, well, that, that can always be an un unpleasant discovery. Um, as, as a technical matter, if a document is required to be submitted with the filing, there are only two very narrow reasons why you could produce less than the entire document. Um, you can redact things if they're actually legally privileged and with respect to board of directors minutes, you can limit your, uh, submission to an excerpt of the discussion of the transaction. But the fact that some other document discussed another deal that the company's preparing for just isn't one of those reasons. Um, so the best practice is, you know, the bottom line is that you end up producing those documents. Um, best practices would be to, to keep discussions of each transaction that is potentially reportable in separate and discrete documents that, I know that sounds a little crazy given that we store everything sort of electronically and, um, it, it, it doesn't make a whole lot of sense, but that, that is how, how it operates. Um, I've, I've certainly had conversations where, you know, maybe it's an HR related, um, discussion and there's personal privacy at issue. You certain you can reach out to the pre-merger notification office and, um, you know, get, get some accommodation to, um, or an, an agreement that you'll, that you'll maintain those documents, um, and make them available if the agency needs them. But they, you know, they generally are not gonna want, um, that kind of information anyway. So you, you can occasionally, um, work something out, but the, the business sensitivity of the information is almost never going to be a reason that you can withhold that information, unfortunately.
Speaker 2:Yeah. Much of the chagrin sometimes of, of executives.<laugh>,
Speaker 3:<laugh>. Yes.
Speaker 2:All right. So let's move on. Okay, so now we've submitted our H S R filing. Well, let's, let's take a step back. Now. We, we, it's been determined that the filing, um, that the transaction is H S R reportable, and now we've submitted our H S R filing. So what comes next?
Speaker 3:What comes next? Well, um, nothing really you have to, you have to hold still for<laugh>. There, there, there's a waiting period. Um, you have to, uh, observe the waiting period in most transactions. It's 30 days, it can be 15 days for certain bankruptcy situations or cash tender offers. Um, and, and you are not permitted to close the transaction without violating the act. Um, the agencies ha use that time, uh, to review your filing. They may reach out to your, your customers, um, other marketplace constituents to find out if there's a reason for, um, competitive concern with respect to the transaction. Um, they can issue additional requests for information on a voluntary basis during that time, at the end of the waiting period, um, they can, they can let the deal go. Um, and in which case, if, if that waiting period expires, you're free to close, um, or they can extend it by issuing what we call a second request for information and documents. And that's, um, an enormous, um, subpoena essentially, that calls for, uh, a significant amount of information, data documents, um, always subject to, um, negotiation with the staff, but it covers much, much more than just the transaction. It will cover all of your competitive operations so that the agencies can really get a sense of what is the potential competitive impact in the industry of your transaction. Um, and that suspend, as you said, suspende, that waiting period until after you've complied with the second request. In some situations, you can, um, if you are down to some issue that's really dispositive and discreet, and you think that just a little bit more time might help you to convince the agencies that they don't need to issue a second request, you have the option of pulling and refiling your, um, your pre-merger notification if you do that under the rules, once you can do it without incurring a second filing fee. So that's, that essentially is a way to give the agencies another 30 days.
Speaker 2:Okay. Okay. So unfortunately, we, we all know we're in the midst of this COVID 19 crisis. What, if anything, are the antitrust agencies doing at this time? Are they making any special concessions regarding compliance with the HSR Act during this time?
Speaker 3:Um, not necessarily with respect to compliance. Um, but they are starting in mid March when, when this all really hit. And the, the agencies, the FTCs pre-merger office, like many, uh, agencies here in Washington switched to remote operations. The ftc, which really had TRA traditionally accepted, um, physical copies of filing, switched to a mandatory temporary e-filing system. And, um, a lot of us are actually rather, um, optimistic that this may provide proof of concept that electric electronic filing should be the way the future, even at the fcc. Um, initially the agencies temporarily suspended granting what we call early terminations. Um, and that is either party can request, uh, that the waiting period be terminated early, um, and the, the agencies have complete discretion over whether to grant that or not, um, when to grant it during, during the pendency of the waiting period. It's entirely up to them, um, at, at least initially in order to sort of manage expectations. They said they weren't going to do that. They have, since resumed granting early terminations, I think we're seeing fewer of them, and they're coming a little bit later in the waiting period, but they are being granted. So, um, I think the, you know, the, the, the pre-merger office has got this. They're, they're, they're operating as usual. Um, the agencies have, um, you may have read or seen in the, in the press, they've announced expedited procedures for reviewing certain collaborations that are entered in connection with responding to the, um, to the pandemic. Mm-hmm.<affirmative>, um, this is, this is pursuant to some of the, um, the executive orders that the president has issued, and specifically both a, both antitrust enforcement agencies have a process for reviewing competitor collaborations through, um, basically advisory opinions or business review letters. They've committed to turning those around in less than a week, and they've been doing, so they've issued two now that, um, that I'm aware of both in the healthcare space, um, that as long as the collaboration relates to the, the pandemic response, um, this does not at all apply to the HSR F filings. And my hat is certainly off to the agencies. They've done a, they've done a good job. They're, they're clearly ready to go, um, to make that process work on a very expedited basis, but it does not apply to HSR X filing. Um, and in fact, I would say that, excuse me, I anticipate that merger reviews may take a little longer as this goes on. We do know that the agencies have been requesting extensions of time in certain investigations that are already underway, which they're doing through, um, timing agreements with the parties. There's also been, um, discussions, uh, if you look at the Twitter feeds of some of the commissioners, um, and some discussion among members of Congress that, uh, there should be the authority, um, on the part of the agencies to extend the waiting period and make other adjustments as needed under commissions of national emergencies. But so far, none of those suggestions have actually made it into any of the pandemic related legislation that's been passed to date. But we'll keep, we should keep an eye on it.
Speaker 2:That's great. Thank you so much. Um, mm-hmm.<affirmative>. So, so as you know, there are sometimes hiccups during this process,<laugh>, uh, no, all too well, there can be hiccups during this process. So can you give us your perspective on how things can go wrong and ways to remedy such problems when they arise?
Speaker 3:Sure. So, um, I'll start by saying that the agencies will come down very hard on devices for avoiding nhsr filing. Um, so if you are deliberately structuring your transaction to avoid having to submit a filing and observe the waiting period, um, that is looked upon extremely harshly. Um, most recently the DOJ settled a lawsuit for 5 million alleging that Shiba and Cannon devised a, a transaction in a way that while technically may have avoided the, the threshold effectively transferred beneficial ownership and, and risk of loss on all of that to of the target company, um, without observing that waiting period. And the, the complaint that the DOJ filed alleged that the only reason for structuring the transaction in that manner was to be able to close the transaction without observing the waiting period. Um, I think that case was a little bit interesting in that typically it's the buyer that gets, um, that gets the, the brunt of the penalty of the remedy in these cases. This actually split the, um, split the, the fine between the two parties. So, um, there, there's a, a whole collection of cases, uh, about failure to file in that sense. Um, you, you don't wanna be in that, in that position position. Um, on the other hand, inadvertent failures to file, um, as as complex as this area law is are not uncommon. There is a formal procedure for coming into compliance with the HSR Act. If you discover an inadvertent failure to file, um, you do have to come into compliance with the act. So you have to file, um, you have to observe the waiting period, all, all the while your penalties, which are very stiff. They're, um, the maximum civil penalty is over$40,000 per day for each day. You're in violation of the act. Um, you do have to come into compliance with the act, but at the end of the day, um, it's really been the policy of the compliance, um, office at the, at the Federal Trade Commission, that if it's truly an inadvertent and it's your first, um, first time that this has happened, they, they typically do not impose a fine. Um, you'll get a letter, you may have to commit to some, um, to putting a compliance program in place to avoid, uh, having a, a similar instance occur later on. Um, but I think the agency recognizes that it does happen.
Speaker 2:So, you know, another question. Um, you know, you can do everything right? You can dot every I cross every T with respect to your filing and its content, and you can still get in trouble it, okay? We've all heard this. Well, those of us in the antitrust bar<laugh>, we've all heard this term, quote unquote gun jumping, right? How can a company do everything right and still find themselves facing a gun jumping violation?
Speaker 3:Um, well, uh, if you are doing everything right, but with respect to the filing, but you are doing something to coordinate your activities, to hold yourself out in the marketplace, um, or to influence the interim operations of your transaction partner before that waiting period is over, you're violating the act. Um, and as I said, this goes, this goes back to the idea that the HSR Act reporting requirements are mechanical. It doesn't matter, um, if you are causing any competitive harm, you're not permitted to close that transaction or to, as a practical matter, take control of the acquiring company before, um, you complete this process. Um, it can be, uh, you can imagine, and, and I know, you know, from experience, but it really becomes a problem if there is a competitive overlap between the, the emerging parties or the affiliating parties. And, and there are competitive concerns, right? Because, um, you know, the agencies are concerned that if something, if the transaction doesn't go forward for some reason, um, then you, you, you've harmed competition, um, in the interim and it in maybe in ways that you can't recoup. Um, so observing the waiting period is important. Um, and observing the waiting period is something that I think people need to look at holistically. So you wanna be careful about not just the big decisions, you know, you clearly don't wanna go in and start signing contracts for your transaction partner. That would be pretty egregious. But even just, um, exchanging a lot of information, um, including, uh, your transaction partnering discussions or updates of what your interim operations look like if you're, if you're competing, can really add up. And, and when the agency start to see all of that, they look at that cumulatively. So, um, then even if you've got your, your HSR waiting period expires and you're ready to go forth with your deal, you may have to contend with another investigation of what did you do in the meantime that may have, um,<laugh> may have harmed competition in the interim. Um, that's, that's, you know, I've, I've seen that happen. You've seen that happen. Um, that's a really unpleasant, uh, unpleasant position to be in. So do observe the waiting period.
Speaker 2:Absolutely. Um, ditto. Um, okay, so this has been a wonderful discussion, but be, before we sign off, I have just one more question, and that is, do you have any other words of wisdom, um, any in terms of practical pointers and tips before, before I let you go,
Speaker 3:<laugh>? Well, of course I do. Um,<laugh>, it's, uh, I, I think, you know, we've, we've spent a, a while talking about this, um, wild and wonderful area of the law. It, it is intensely fact specific. It can be very complicated and the informal interpretations shift all the time. Um, so I think it's really important, um, to make sure that if, if there is any doubt about whether your transaction is reportable, that you're talking to somebody who understands the, this practice, um, and has some, some expertise here. Uh, it, I, I think that, um, a a lot of times, especially if you've got a transaction that, um, may raise some competitive concerns, figuring out how you're going to meet your obligations under the HSR Act can, can help with your strategy, can help, um, even as you're negotiating that kind of deal, um, can help you allocate the, the risks arising under the, um, antitrust laws. So, uh, I think it's important not only to work with someone who knows what they're doing under this act, but also to involve them pretty early. Um, it can, it can benefit you, it can, it can save you a lot of time and money and heartache in the end, um, to get this right.
Speaker 2:Right.
Speaker 3:So that, that would be my, that would be my words of wisdom.
Speaker 2:That, that's great. Beon, I cannot thank you enough for doing this. This has been wonderful. I've enjoyed this discussion immensely. And I also want, once again, wanna thank our sponsor Affiliated Monitors Inc. And I think that's it. We'll sign off.
Speaker 3:Thank you so much. It was a pleasure to talk with you, as always. Be well.
Speaker 2:All right. You too. Bye-Bye.