Merger Investigations

• Pages: 101-154

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CHAPTER V

MERGER INVESTIGATIONS

A. Overview of the Premerger Notification Statute and Rules

Merger review at the Antitrust Division takes place under two

distinct procedural frameworks.1 Most transactions the Division

investigates are subject to the formal notification and waiting period

requirements of the Hart-Scott-Rodino Antitrust Improvements Act

(HSR Act).2 Transactions that do not meet the size thresholds of the HSR

Act are nonetheless subject to the substantive provisions of the Clayton

and Sherman Acts, and are investigated using the Division’s standard

investigative tools, often after the transactions have been consummated.

Although this chapter focuses on mergers subject to the HSR Act, a party

engaging in a non-reportable transaction should be mindful of the

potential that its transaction may be investigated and challenged, perhaps

long after consummation.3

The HSR Act and the rules4 promulgated pursuant to it require that

parties proposing a merger or acquisition that meets certain size

thresholds to notify the Federal Trade Commission (FTC) and the

Department of Justice (DOJ) of their proposed transaction and then

comply with prescribed waiting periods before consummating the

transaction. In general terms, this premerger notification regime allows

for two stages of substantive review by the federal enforcement agencies:

(1) an opportunity during the initial waiting period—30 days for most

transactions, 15 days for cash tender offers and sales in bankruptcy—to

assess whether the transaction raises issues warranting a more thorough

1. The Antitrust Division Manual provides co nsiderable insight into the

Division’s processes and procedures relating to merger review. See U.S.

DEP’T OF JUSTIC E, ANTITRUST DIV. MANUAL III-21-III-44 (5th ed. rev.

Aug. 2017) [hereinafter Antitrust Div. Manual],

https://www.justice.gov/atr/division-ma nual.

2. 15 U.S.C. §18a.

3. For a discussion of non-reportable transactions, see part A.2 of this

chapter.

4. See 16 C.F.R. §§ 801-803.

102 DOJ Civil Antitrust Practice and Procedure Manual

investigation;5 and (2) an opportunity for the reviewing agency to seek

additional information from the parties via a so-called “second request,”

which in turn extends the waiting period until 30 days after the parties

substantially comply with that request.6 The time required for the parties

to respond to the second request also affords the reviewing agency an

opportunity to obtain information from third parties, analyze the

available evidence, and reach a decision as to whether the transaction is

likely to harm competition.7 Each of these phases of merger review is

discussed below.

1. Determining Whether a Transaction is Reportable

The HSR Act and HSR rules require that certain proposed

acquisitions of voting securities, assets, and noncorporate interests be

reported to the DOJ and FTC before consummation.8 The HSR Act’s

reporting requirements apply to a wide array of transactions—including

most forms of mergers and acquisitions of the stock or assets of another

entity. The agencies define “assets” and “voting securities” broadly.

Assets include exclusive licenses,9 revenue-producing customer

relationships,10 and the debt of a company.11 Partnership interes ts held as

5. See 15 U.S.C. §18a(b).

6. See id. § 18a(e)(2), (g)(2)(B). For further discussion on this point, see part

B of this chapter.

7. See Antitrust Div. Manual, supra note 1, at III.D.2.

8. See FED. TRADE COMM’N, WHAT IS THE PREMERGER NOT IFICATION

PROGRAM? AN OVERVIEW 1 (Mar. 2009) [hereinafter FTC Premerger

Overview], https://www.ftc.gov/sites/default/files/attachments/pr emerger-

introductory-guides/guide1.pdf.

9. See ABA SECTION OF ANTITRUST LAW, PREMERGER NOTIFICATION

PRACTICE MANUAL 55 (5th ed. 2015) [hereinafter Premerger Notification

Practice Manual]; V. Cohen, Grant of Exclusive License is Transfer of

Asset Under HSR, FTC Informal Op. 9206001 (June 1992),

http://www.ftc.gov/bc/hsr/informal/opinions/9206001.htm. The act does

not apply to the acquisition of non-exclusive licenses, as to whic h the

grantor retains the right to grant further licenses to others or retains right s

itself.

10. See Michael Verne, Customer Relationships Producing Revenue

Considered Asset, FTC Informal Op. 0603020 (Mar. 23, 2006),

http://www.ftc.gov/bc/hsr/informal/opinions/0603020.htm.

11. See Premerger Notification Practice Manual, supra note 9, at 93-94.

Merger Investigations 103

assets may also be reportable.12 Leases generally are not considered as

assets, unless the lease is a de facto transfer of the underlying asset.13

Cash and cash equivalents, such as investment and settlement accounts

held by a bank, also are not treated as assets.14

Voting securities are those which entitle the holder to vote the stock

in favor of directors of the issuing entity.15 Filings generall y have to be

made for options and warrants only at the time of their exercise, not at

the time of their acquisition.16

Certain classes of transactions are exempted from this broad scope

by statute or regulation.17 For example, the HSR Act’s reporting

requirements do not apply to acquisitions of goods or real property in the

ordinary cour se of business, 18 acquisitions of less than 10 percent of an

entity’s voting securities solely for investment purposes,19 stock acquired

as part of a stock split,20 or acquisition by gift, intestate succession, or

12. See id. at 85. Partnership interests are neither assets nor voting securitie s.

Id. However, amendme nts to the Rules in April 2005 introd uced the

concept of “non-corporate interests,” which includes interests in general

partnerships, limited liability companies, busine ss trusts, and limited

liability partnerships. Id. An acquisition of a noncor porate interest is

reportable only if the acquisition results in the acquired person taking

“control” of the unincorporated entity. Therefore, acquisition of the

interest in a partnership may be reportable if the acquisition causes the

acquirer to gain contr ol of the non-corporate entity. Id.

13. See id. at 51. The FTC has indicated that it would only challenge a lease

if it is an obvious disguise for the transfer of an asset. See Michael Verne,

Grant of Easement not a Transfer of Assets, FTC Informal Op. 0005016

(May 31, 2000), https://www.ftc.gov/enforcement/premerger-

notification-program/informal-interpretations/0005016.

14. See 16 C.F.R. §801.21.

15. See id. § 801.1(f)(1)(i).

16. 16 C.F.R. §802.31 exempts the acquisition (but not the exercise) of

options and warrants from the notification provisions of the HSR Act.

17. The full list of exempted transactions can be found in Section 7A(c) of

the Clayton Act, 15 U.S.C. §18a(c) and 16 C.F.R. Part 802. Some

transactions are not reportable under the HSR Act, but are subject to other

reporting obligations. For example, railroad mergers are within the

exclusive jurisdiction of the Surface Transportation Board (“STB”);

nonetheless, applications for STB approval must be served on both the

Attorney General and the FTC. See 49 U.S.C. §11325(a).

18. See 16 C.F.R. § 802.1.

19. See id. § 802.9.

20. See id. § 802.10.