The HSR Act typically requires transacting parties to make pre-merger filings for deals valued over a certain dollar-value threshold (currently $92 million), unless exemptions apply. While agency rules have always required the assumption of liability to be included in the acquisition price if it is part of the consideration, the FTC previously advised that the retirement of debt need not be included in this calculation. The FTC’s new guidance, which states that “the full or partial retirement of debt should be included in calculating the Acquisition Price in any instance where selling shareholder(s) benefit from the retirement of that debt[,]” therefore represents a marked departure from its previous position. The FTC’s change in tune was triggered by merging parties’ use of debt in structuring deals so as to sidestep HSR filing requirements. It noted, for example, that under the old guidance, “[t]arget companies may [have] be[en] incentivized to take on debt just before an acquisition, so that the acquiring company c[ould] retire debt as part of the deal” and avoid the pre-merger filing obligations imposed by the HSR Act.
This announcement is the latest indication that antitrust enforcement continues to be a priority at the federal level, consistent with the stated goals of the Biden administration, though some uncertainty remains regarding the exact contours of the policy. The FTC “acknowledges that not all debt retired as part of a proposed transaction is consideration,” but does not expound on which types of debt, if any, are not consideration because they do not “benefit the selling shareholder(s).” Unless and until the FTC provides greater clarity, parties should tread carefully (especially because HSR Act violations carry a civil penalty of up to $43,792 per day).