Chapter V. After Responding to the Second Request

• Pages: 223-257

The Merger Review Process 223

CHAPTER V

AFTER RESPONDING

TO THE SECOND REQUEST

A series of important tactical, logistical and substantive issues arise

once the parties submit a certification of substantial compliance with the

second request to the reviewing agency.1 The parties have the ability to

make important choices regarding whether it makes tactical or

substantive sense to place the agency under time constraints triggered by

substantial compliance imposed by the 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 Act

imposes a 30-day waiting period before the merging parties may

consummate their transaction (in the case of a cash tender offer or an

acquisition in bankruptcy, the waiting period is ten days),2 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:

• When should the parties certify substantial compliance?

• What position is the staff in? Will the staff be pressured to

decide upon a recommendation before they have had

adequate time to review relevant information? Will such

pressure help or hurt clearance/settlement probabilities?

1. The only exception to this rule is in cash tender offers. In a cash tender

offer, 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).

2. If the proposed sale of assets or voting securities is pursuant to a plan for

reorganization under Chapter 11 of the Bankruptcy Code, 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.), then a

shorter initial waiting period of 15 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).

224 After Responding to the second request

• If litigation is anticipated as a real probability, how does

certifying substantial compliance impact the parties own

case preparation?

• Is it better for the parties to a consensual transaction to certify

substantial compliance simultaneously?

• Should 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?

• If a challenge in some form is likely, have the parties determined

what their positions will be concerning possible settlement (e.g.,

consent decree) scenarios?

The staff is well versed in the timing and other issues that follow a

party’s certification of substantial compliance. Accordingly, it is

common for the staff to request scheduling agreements that include,

amongst other things, extensions of time or commitments not to close

prior to one or both parties declaring substantial compliance. 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.3 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

“discussion mode” into “litigation preparation” mode. The amount of

time and tenor given to settlement discussions may be impacted.

Accordingly, the parties should approach the certification of substantial

compliance in the context of related timing issues.

A. The Agency’s Continuing Investigation

Upon delivery of the certificates of substantial compliance with the

second request, the threshold inquiry for the reviewing agency is the

adequacy of compliance. The subtext to an agency’s review of whether

3. However, where other antitrust or regulatory approvals are needed, the

agency may be able to rely on the fact that the parties are unable to close

until these are obtained. In this case, certifying compliance may not

impose any time pressure on the agency.

The Merger Review Process 225

the parties are in substantial compliance can be informed by issues of

timing. If the staff feel time pressure as a result of the certification of

substantial compliance, then in certain circumstances, they may take a

more aggressive position on adequacy of compliance than they otherwise

might. It is, however, the staff’s burden to prepare and send out a notice

of any deficiencies in compliance, or to agree that the submission is

complete.

For rolling productions, there is often an ongoing dialogue between

the staff and parties regarding the adequacy and completeness of

information as it is provided. The format and completeness of

interrogatory responses and related data may have already been

supplemented on several occasions before the parties certify compliance.

As with the initial negotiations on the scope of the second request itself,

as this ongoing dialogue and supplementation occurs, it is critical that a

comprehensive paper trail be maintained of all agreements reached

between the staff and parties. Failure to reduce agreements to writing

may result in vulnerabilities in certifying substantial compliance.

Whether the production is rolling or all at once, the process by which

the staff review the adequacy of compliance is similar: the staff reviews

interrogatory answers, data (usually in electronic format) and documents.

All interrogatory answers are checked for consistency of data and to see

that all answers are provided or an acceptable explanation is given as to

why any information is not provided. Documents and files will be cross-

checked against organizational charts and copyees shown on significant

documents to ensure every person’s files that logically could be expected

to contain responsive materials have been searched. Particular attention

is often paid to whether the production of email is complete — including

whether emails have been produced for each individual in the agreed

search group, and whether back-up or archival searches have occurred in

compliance with any agreements reached. Critical documents such as

annual planning and strategic documents will be checked to ensure all

specified years are present. Privilege logs will be reviewed to ensure no

nonprivileged files are being withheld. Staff is expected in all cases to

closely review claims of privilege, but may place a greater emphasis on

the log as a source of potential deficiencies in production in certain

circumstances such as where the staff feels squeezed in terms of timing.

The staff may question a number of entries on the log and seek additional

information supporting claims of privilege.

Once the staff completes this review, the staff has at least two

options: (1) to send a letter setting forth deficiencies in the production;

or (2) to notify the parties that the submission is complete. At the FTC

this will be done by the FTC Premerger Office. In the latter case, the

agencies will communicate with the parties advising them that the