Merger Investigations

• Pages: 91-147

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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 under 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

1. The Antitrust Division Manual provides considerable insight into the

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

DEP’T OF JUSTICE,ANTITRUST DIV.MANUAL III-23-47 (Dec. 2008)

[hereinafter ANTITRUST DIV.MANUAL], available at http://www.justice.

gov/atr/public/divisionmanual/atrdivman.pdf. For more discussion on

merger review, see ABA SECTION OF ANTITRUST LAW, MERGERS AND

ACQUISITIONS (3d ed. 2008) and ABA SECTION OF ANTITRUST LAW,

PREMERGER NOTIFICATION PRACTICE MANUAL 111 (4th ed. 2007).

2. 15 U.S.C. § 18a.

3. For a discussion of non-reportable transactions, see infra Chapter V.L.

4. See 16 C.F.R. §§ 801-803.

92 DOJ Civil Antitrust Practice and Procedure Manual

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

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

5. See 15 U.S.C. § 18a(b).

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

infra Chapter V.B.

7. See ANTITRUST DIV.MANUAL,supra note 1, at III-30.

8. See FED.TRADE COMM’N,WHAT IS THE PREMERGER NOTIFICATION

PROGRAM?ANOVERVIEW 1 (Mar. 2009) [hereinafter FTC PREMERGER

OVERVIEW], available at http://www.ftc.gov/bc/hsr/introguides/guide1.

pdf.

9. See ABA SECTION OF ANTITRUST LAW,PREMERGER NOTIFICATION

PRACTICE MANUAL 111 (4th ed. 2007) [hereinafter PREMERGER

NOTIFICATION PRACTICE MANUAL]; Grant of Exclusive License is

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

available at http://www.ftc.gov/bc/hsr/informal/opinions/9206001.htm.

The act does not apply to the acquisition of non-exclusive licenses, as to

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

retains rights itself.

Merger Investigations 93

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

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

10. See Customer Relationships Producing Revenue Considered Asset, FTC

Informal Op. 0603020 (2006), available at http://www.ftc.gov/bc/hsr/

informal/opinions/0603020.htm.

11. See PREMERGER NOTIFICATION PRACTICE MANUAL,supra note 9, at 114.

12. See id. at 91. Partnership interests are neither assets nor voting securities.

Id. However, amendments to the Rules in April 2005 introduced the

concept of “noncorporate interests,” which includes interests in general

partnerships, limited liability companies, business trusts, and limited

liability partnerships. Id. An acquisition of a noncorporate 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 control of the noncorporate entity. Id.

13. See id. at 37. The FTC has indicated that it would only challenge a lease

if it is an obvious disguise for the transfer of an asset. See Grant of

Easement not a Transfer of Assets, FTC Informal Op. 0005016 (2000),

available at http://www.ftc.gov/bc/hsr/informal/opinions/0005016.htm.

An example could be a perpetual exclusive irrevocable lease agreement

with an upfront payment equivalent to the value of the leased asset.

14. See Cash and Cash Equivalents not Assets, FTC Informal Op. 9911005

(1999), available at http://www.ftc.gov/bc/hsr/informal/opinions/

9911005.htm.

15. See 16 C.F.R. § 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 part 802 of the HSR Rules, 16 §

C.F.R. 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;