Chapter I. Background

• Pages: 1-50

The Merger Review Process 1

CHAPTER I

BACKGROUND

This chapter provides an overview of the merger review process at

the Federal Trade Commission (FTC or Commission) and the U.S.

Department of Justice (DOJ or Antitrust Division). This overview will

set the stage for the remainder of the Practice Guide, which addresses the

merger review process in chronological order, beginning with the

preparation that must take place before the transaction parties file their

notification forms under the Hart-Scott-Rodino Antitrust Improvements

Act of 1976 (HSR Act) and following the review process through filing,

initial review, issuance of, and compliance with a Second Request letter;

investigation by the agency’s attorneys and economists; decision making

at each agency; and potential resolution of agency challenges without

litigation. Non-Hart-Scott-Rodino merger investigations are also

discussed, as well as the role of third parties in the merger review

process; and multijurisdictional review.

This chapter: (1) describes the statutory basis for federal antitrust

review of mergers, (2) provides an overview of each agency and the

merger review process, and (3) discusses confidentiality considerations.

The chapter concludes with a brief overview of (i) the implications for

mergers of the Sarbanes-Oxley Act of 2002, which, although not

specifically related to antitrust review, has had a significant impact on

the U.S. corporate regulatory environment and (ii) the Exon-Florio

national security review process which is relevant to acquisitions by

foreign persons of U.S. businesses with national security implictions.

A. Statutory Authority

1.

Substantive Statutes

a. Clayton Act Section 7

The principal federal substantive law governing mergers,

acquisitions, and joint ventures is Section 7 of the Clayton Act.1 This

provision generally prohibits the acquisition of stock or assets by any

“person” where “the effect of such acquisition may be substantially to

lessen competition, or to tend to create a monopoly.” The acquisition of

1. 15 U.S.C. § 18. See Appendix 1 (Section 7).

2 Background

virtually any “asset” (using that term in its broadest sense) can be

reached by Section 7, including acquisitions of assets such as intellectual

property rights, real estate interests, and other contractual rights, as well

as the formation of a joint venture or the transfer of a joint venture

interest. Section 7 may be enforced by the Antitrust Division, the FTC,

state attorneys general, and private plaintiffs. 2

A full discussion of the substantive standards applicable under

Section 7 is beyond the scope of this Practice Guide. The reader is

referred to the extensive case law that has developed over the years.3

Also of particular help in understanding the substantive merger standards

and the federal enforcement agency positions with respect to mergers are

various merger enforcement policy guidelines and statements that the

DOJ and the FTC have issued.4 The National Association of Attorneys

2. Section 7, as originally enacted in 1914, applied only to the acquisition of

the stock of one corporation by another corporation. Several amendments

over the years expanded Section 7’s coverage to virtually all acquisitions

of stock or assets by any person.

3. See generally ABA Section of Antitrust Law, Antitrust Law

Developments (5th ed. 2002) [hereinafter Antitrust Law Developments

(Fifth)] and ABA Section of Antitrust Law, Mergers and Acquisitions:

Understanding the Antitrust Issues (2d ed. 2004), for a more thorough

review of the substantive aspects of merger review.

4. The principal such statement is the 1992 Horizontal Merger Guidelines

issued jointly by the DOJ and the FTC. 57 Fed. Reg. 41,552 (1992),

reprinted in 4 Trade Reg. Rep. (CCH) ¶ 13,104 (1992) [hereinafter

Horizontal Merger Guidelines]. Previously the DOJ had issued Merger

Guidelines in 1968, 1982, and 1984. Merger Guidelines – 1968, 33 Fed.

Reg. 23,442 (1968), reprinted in 4 Trade Reg. Rep. (CCH) ¶ 13,101

(1988); Merger Guidelines – 1982, 47 Fed. Reg. 28,493 (1982), reprinted

in 4 Trade Reg. Rep. (CCH) ¶ 13,102 (1988); Merger Guidelines – 1984,

49 Fed. Reg. 26,823 (1984), reprinted in 4 Trade Reg. Rep. (CCH)

¶ 13,103 (1988). Simultaneously with the DOJ’s publication of its 1982

Merger Guidelines, the FTC issued its 1982 Statement Concerning

Horizontal Mergers, reprinted in 4 Trade Reg. Rep. (CCH) ¶ 13,200

(1993). Also helpful to an understanding of substantive merger law

standards and federal enforcement attitudes are the DOJ’s 1988 Antitrust

Enforcement Guidelines International Operations, reprinted in 4 Trade

Reg. Rep. (CCH) ¶ 13,109 (1989); the DOJ and FTC’s 1995 Antitrust

Enforcement Guidelines for International Operations, reprinted in 4

Trade Reg. Rep. (CCH) ¶ 13,107 (1995); the DOJ and FTC’s 1994

Statements of Enforcement Policy and Analytical Principles Relating to

Health Care, reprinted in 4 Trade Reg. Rep. (CCH) ¶ 13,152 (1994); and

speeches by DOJ and FTC officials, some of which are reprinted in

Volume 7 of the CCH Trade Regulation Reporter; and many of which are

The Merger Review Process 3

General (NAAG) also has issued merger enforcement guidelines,5 which

differ in significant respects from the federal guidelines. Finally, the

American Bar Association Section of Antitrust Law has adopted

Guidelines that may be useful to counsel in dealing with the second

request process.6

In brief, application of Section 7 first requires a determination of the

product and geographic dimensions of the relevant market(s) within

which the competitive effect of the merger is to be analyzed.7 In

analyzing the competitive effect of a merger within the defined relevant

market(s), the key concerns are whether the merger will create or

enhance market power or facilitate its exercise either by coordinated or

unilateral conduct.

The vast majority of mergers that raise antitrust concerns are

“horizontal mergers,” i.e., mergers involving direct competitors within

the relevant market. In analyzing the competitive effects of a horizontal

merger, the starting point generally is a determination of the market

shares of the merging firms and concentration levels within the relevant

market. In some of the older case law, such factors appear to have been

the end of the analysis. Increasingly the enforcement agencies and the

courts apply a much more sophisticated analysis under which all factors

available on the websites of the Antitrust Division, at

http://www.usdoj.gov/atr, and the FTC, at http://www.ftc.gov. Both the

Antitrust Division and the FTC have also recently separately issued

guidelines regarding merger remedies. Antitrust Division Policy Guide

To Merger Remedies, available at www.usdoj.gov/atr/public/guidelines;

Statement of the Federal Trade Commission’s Bureau of Competition on

Negotiating Merger Remedies, available at www.ftc.gov/bc/best

practices. It is also anticipated that the agencies will issue a joint

Commentary on the Horizontal Merger Guidelines in 2005. See Deborah

Platt Majoras, Looking Forward: Merger and Other Policy Initiatives at

the FTC, at pp. 5-6, Remarks Before the ABA Antitrust Section Fall

Forum (Nov. 18, 2004), available at http://www.ftc.gov/speeches/

majoras/041118abafallforum.pdf.

5. NAAG’s guidelines were issued in 1987 and 1993, and are reprinted in 4

Trade Reg. Rep. (CCH) ¶¶ 13,405, 13,406 (1993). See Appendix 6

(NAAG Voluntary Premerger Disclosure Compact). See also ABA

Section of Antitrust Law, State Antitrust Practice and Statutes (3d ed.

2004).

6. A copy of these Guidelines is provided in Appendix 5.

7. See generally Antitrust Law Developments (Fifth), supra note 3, at pp.

317-27. The enforcement agency guidelines, see supra note 4, are very

useful to an understanding of the market definition issues under Section

7.