Shutdown Threatens to Add Merger Costs, Delay Deal Approvals

As the federal government shutdown reaches Day 10, companies are threatened with higher costs and delays for a backlog of mergers awaiting regulatory approval.

Bradley Arant Boult Cummings LLP, Foley & Lardner LLP, and Milbank LLP are among law firms warning clients about potential slowdowns to Hart-Scott-Rodino Act, or HSR, reviews as the government operates with fewer staff. The Federal Trade Commission and Justice Department, which are running with 60% or less of their usual workforce, vet premerger filings to weed out anticompetitive practices before certain deals can close.

The shutdown exacerbates what’s already become a more difficult regulatory hurdle. Companies and law firms have complained that a new layer of merger disclosure rules in effect this year have added time and complexity, doubling what used to be a two-week review.

The budgetary standoff is also hampering another key dealmaking body, the Treasury Department’s Committee on Foreign Investment in the United States, which reviews transactions that could pose national security issues. The committee’s deadlines are automatically paused in the event of a shutdown, according to Arnold & Porter.

A review slowdown could hit sectors that tend to draw more antitrust scrutiny—such as health care, technology, and energy—especially hard. Numerous deals are scheduled to close in this year’s fourth quarter, but the shutdown could punt them into next year, said Mark Pendleton, a partner in Bradley’s corporate and securities practice.

For private equity-backed deals, delays mean investors will have to wait to get their biggest returns, which come from sale revenue after deals close.

“Time kills transactions,” Pendleton said.

Deals pending closure this quarter include Constellation Energy Corp.'s acquisition of Calpine Corp., Berkshire Hathaway Inc.‘s aquisition of OxyChem, and Sunoco LP‘s acquisition of Parkland Corp.

Inside law firms and legal departments, general timeline uncertainty makes it harder for attorneys to advise clients on a process that’s usually able to be forecasted, Pendleton said.

Relatively straightforward deals free of antitrust concerns likely won’t be impacted much by furloughs—but they’ll still have to wait out the full statutory 30-day waiting period for HSR reviews, said Greg Neppl, a partner in Foley’s antitrust practice.

The second Trump administration previously brought back the ability to terminate that waiting period early, allowing deals to close sooner, but the FTC suspended the option when the government shut down Oct. 1.

FTC staff normally have 30 days to review HSR filings. But under the shutdown, more companies will probably pull and refile their documents to buy more time for staff reviews, said Kevin Hahm, antitrust partner at Hunton. But this strategy has its drawbacks—pulling and refiling could not only delay deals, but complicate them, trigger certain risks and payments, and create tension among the deal’s parties, Pendleton said.

“For these larger deals, there certainly is a tendency to want to have a clear understanding of what the government review process will be before engaging in the transaction,” he said.

Companies also might have to dedicate more time to answering questions about their filings as the FTC and DOJ operate with fewer staff reviewing premerger notifications, Neppl said.

If the 30-day review period doesn’t produce enough certainty to green light a deal, the agencies can issue a “second request.” That’s essentially a subpoena for extensive documentation, information, and data, Hahm said. It’s unclear if second requests, which can last the better part of the year, will tick up during the shutdown. But if they do, that will “very seriously” impact the abilities of companies to close deals, he said.

The extent of turbulence to mergers and acquisition reviews will largely depend on how long the government shutdown lasts, Neppl said.

That issue of when the standoff will end is all Pendleton hears. “Everyone’s hoping this is a game of chicken and everything goes back to normal quickly,” he said.