After Responding to the Second Request

Pages357-388
357
CHAPTER IX
AFTER RESPONDING
TO THE SECOND REQUEST
Once the parties submit a certification of substantial compliance with
the Request for Additional Information and Documentary Materials
(second request) to the reviewing agency,795 they must decide whether to
place the agency under time constraints triggered by substantial
compliance imposed by the Hart-Scott-Rodino (HSR) framework.
Assuming the staff agree that the parties are in substantial compliance
(which, as discussed below, is itself sometimes a significant issue), the
HSR Antitrust Improvements Act (HSR Act) imposes a thirty-day
waiting period before the merging parties may consummate their
transaction,796 unless the reviewing agency terminates early the second
waiting period. As the parties near completion of their preparation of
responses and production pursuant to the second request, among the
immediate questions and issues are the following:
xWhen should the parties certify substantial compliance?
xIs it better for the parties to a consensual transaction to certify
substantial compliance simultaneously?
xShould a certification of substantial compliance be accompanied
by a willingness to commit not to close a transaction for some
period beyond the period prescribed in the statute?
795. In a tender offer, the second waiting period commences with the
acquiring person’s substantial compliance with the second request and the
failure of the target substantially to comply with a second request does
not prevent the ten-day clock from starting. 16 C.F.R. § 803.20(c)(2).
796. If the proposed sale of assets or voting securities is pursuant to a plan for
reorganization under Chapter 11 of the Bankruptcy Code, then the regular
waiting periods apply. However, if a trustee sells certain assets outside
and apart from an overall plan of reorganization for a company in
bankruptcy (to raise funds for the trustee, bankers, lawyers, etc.), a
shorter initial waiting period of fifteen days and a second waiting period
of ten days (after substantial compliance with a second request) applies.
358 The Merger Review Process
xIf a challenge in some form is likely, have the parties determined
what their positions will be concerning possible settlement
scenarios?
There is no requirement that the parties agree to an agency request
for an extension. However, until an extension is agreed upon, the staff
must proceed on the assumption that if the agency concludes the
transaction will be anticompetitive, the investigation must be completed.
This means that the necessary papers must be prepared and an agency
decision reached in time to seek a temporary restraining order before the
expiration of the waiting period. Internal agency deadlines to complete
each of these steps impose additional pressures. As a result, and as
discussed more fully below, refusing to grant an extension or provide a
commitment not to close is sometimes considered a hardball tactic that
can force an agency’s hand. The parties risk the agency switching from
constructive dialogue into litigation preparation mode.
Throughout the review process, parties may decide to submit “white
papers” addressing various issues raised by the staff. White papers are
memoranda setting forth the factual and legal arguments supporting
clearance. While they are not required, it is typical in a serious case for
the parties to submit comprehensive white papers around the time that
they certify substantial compliance.
White papers are most persuasive when they set forth realistic and
supportable market definitions, do not make unsupported or
unsupportable arguments, and do not attempt to address every issue.
White papers targeted at what the parties believe to be the agency’s
primary concerns can often be quite effective. They are closely read. In
some situations, white papers can contain a mix of economic, factual,
and legal arguments. In other situations, the parties may prefer to submit
separate white papers on economic topics.
Copies of any white papers along with supporting materials should
be provided to all individuals reviewing the matter (including, when
appropriate to the extent applicable, Bureau Directors and Deputy
Directors, Commissioners, the Assistant Attorney General, the Deputy
Assistant Attorney General for Antitrust, and the Director of Civil
Enforcement).
A. The Agency’s Continuing Investigation
When the parties certify substantial compliance, the first thing the
staff must do is decide whether it agrees with the certification.
After Responding to the Second Request 359
Once the staff completes this review, it has two basic options:
(1) send a letter setting forth deficiencies in the production, or (2) notify
the parties that the submission is complete. In the latter case, the agencies
advise the parties as to the date on which the new waiting period expires.
In the former case, the party receiving the deficiency notice can try to
resolve the deficiencies, negotiate with the agency regarding the
deficiencies, or contest the deficiencies (the appeal process and litigation
alternative that can be utilized are discussed in Chapter VII.D).
While keeping the timing pressure on the staff has some advantages,
it may also force the staff to err on the side of a conservative assessment
of the level of compliance, which could result in a lengthy notice of
deficiencies. In some cases a party may fail to cure deficiencies in its
production, even after notification by, and negotiation with, the staff. A
party may provide inaccurate data, submit an incomplete response, or fail
to answer a particular interrogatory or specification in any meaningful
way.797 In the event of a party’s noncompliance, the agency may apply to
the district court for relief under Section 7A(g)(2) of the Clayton Act.798
Although an action under (g)(2) is rare, it is a powerful tool for the
agencies because if the (g)(2) action is successful, the district court is in
most cases required to extend the waiting period until the party
substantially complies with the request. The district court may also order
compliance, or grant other equitable relief.799
After receiving a certification of substantial compliance with the
second request, the staff must organize its efforts and set priorities. The
staff is confronted with three principal challenges. First, the staff must
reach a conclusion as to the transaction’s effect on markets in which
there continue to be serious concern. Second, the staff must prepare for
797. See, e.g., Complaint, FTC v. Blockbuster, Inc., No. 05-CV-00463
(D.D.C. Mar. 4, 2005); Complaint, FTC v. Hearst Trust, No. 01-CV-
00734 (D.D.C. Apr. 4, 2001).
798. 15 U.S.C. § 18A(g)(2).
799. In 2004, the Federal Trade Commission authorized the staff to file a
complaint against Arch Coal, Inc. in federal district court for a temporary
restraining order under § 7A(g)(2), but Arch Coal withdrew its
certification of substantial compliance and provided additional
information before the complaint was filed. Fed. Trade Comm’n, Bureau
of Competition, Antitrust Enforcement Activities, Fiscal Year 2003 to
February 29, 2008, at 18, available at http://www.ftc.gov/reports/aba/
abaspring2008.pdf.

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