After Responding to the Second Request

• Pages: 357-388

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.

11 U.S.C. § 363(b)(2)(B).

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.