Mergers and Acquisitions

Pages113-181
113
CHAPTER IV
MERGERS AND ACQUISITIONS
The Federal Trade Commission’s (FTC or Commission) authority to
challenge mergers or to bring enforcement actions seeking divestiture
comes from Section 7 of the Clayton Act and Section 5 of the FTC Act.
Section 7 prohibits acquisitions of stock or assets where the result of
such an acquisition “may be substantially to lessen competition, or to
tend to create a monopoly.”
1
Section 5 of the FTC Act broadly prohibits
“unfair methods of competition in or affecting commerce.”
2
The FTC usually challenges a merger on the grounds that it violates
both Section 7 of the Clayton Act and Section 5 of the FTC Act. The vast
majority of mergers or acquisitions reviewed by the FTC are subject to
the reporting requirements in the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (H-S-R Act).
3
As discussed below, the H-S-R
Act requires certain waiting peri ods to expire before the parties involved
in the transaction may consummate the deal so that the government may
examine the implications of those mergers that pose competitive
concerns. In addition, however, the FTC may review transactions outside
of the H-S-R process where, for example, the H-S-R filing thresholds are
not met or the transaction has already been consummated (even if the
consummated transaction was filed pursuant to the H-S-R Act and
reviewed prior to consummation).
A. Section 7A of the Clayton Act: H-S-R Reportable Transactions
Section 7A of the Clayton Act, commonly known as the H-S-R Act,
and the implementing regulations promulgated by the FTC set forth the
rules for reportable transactions (i.e., those for which a premerger
notification must be filed with the FTC and the Antitrust Division of the
United States Department of Justice (Antitrust Division)). The purpose of
the H-S-R Act is to provide the agencies with the opportunity to
investigate likely competitive effects of proposed mergers and
1
. 15 U.S.C. § 18.
2
. 15 U.S.C. § 45. Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1-2,
may also be used to challenge mergers. Section 1 broadly prohibits
agreements in restrai nt of trad e. Section 2 prohibits monopo lization,
attempts to monopolize, and co nspiracies to monopolize interstate o r
foreign commerce.
3
. 15 U.S.C. § 18a.
114 FTC Practice and Procedure Manual
acquisitions before they are consummated and to seek an injunction to
block transactions that may tend to substantially lessen competition. The
FTC, through its Premerger Notification Office (PNO), is the agency
principally responsible for enforcing the H-S-R reporting process.
1.
H-S-R Reporting Rules
The H-S-R reporting rules are detailed and complex. The following
information provides an overview of the rules.
4
An acquisition
5
or
merger is reportable, and a mandatory post-filing waiting period
(typically thirty days) must be observed before the transaction may close,
if certain jurisdictional thresholds are met and no exemptions apply. The
thresholds that must be met i n order for the H-S-R reporting rules to
apply to the transaction are the (1) “in commerce” test, (2) “size of
transaction” test, and (3) “size of person” test.
a. Thresholds
(1) In Commerce
The in commerce test requires that either the acquiring or the
acquired person be engaged in interstate or foreign commerce or in an
activity that affects interstate or foreign commerce.
6
4
. A comprehensive review of t he H-S-R rules and interpretations is beyond
the scope of this manual. For more detailed information, see ABA
Section of Antitrust Law, THE MERGER REVIEW PROCESS: A STEP-BY-
STEP GUIDE TO U.S. AND FOREIGN MERGER REVIEW (4th ed. 2 012)
[hereinafter MERGER REVIEW PROCESS]; FTC, PRE-MERGER/HART-
SCOTT-RODINO ACT NOTIFICATION SOURCE BOOK (1999).
5
. Note that an exclusive license may be considered an acquisition for
purposes of the H-S-R Act. Further, the FTC has recentl y amended the H-
S-R Rules to cover licenses in the pharmaceutical sector that convey “all
commercially significa nt righ ts” even if they are not “exclusive” as that
term has been interpreted by the PNO. See FTC Final Rule, Premerger
Notification; Repo rting and Waiting Period Requirements, 78 Fed. Reg.
68,705 (Nov. 15, 2013) (to be codified at 16 C.F.R. § 801), available at
http://www.ftc.gov/sites/default/files/documents/federal_register_notices/
2013/11/131115premergerfrn.pdf.
6
. Even where the “in commerce” test may be met, the H-S-R rules contain
exemptions for acquisitions of forei gn assets or foreign entities that do
not also involve U.S. assets valued in excess of the minimum size-of-
Mergers and Acquisitions 115
(2) Size of Transaction
The size-of-transaction threshold is met if the acquiring person will
hold voting securities or assets of the acquired person valued in the
aggregate at more than a specified dollar value, which the FTC revises
annually based on the change in gross national product. As of February
24, 2014, the size-of-transaction threshold is $75.9 million. With regard
to acquisitions of voting securities or non-corporate interests, the size of
the transaction is determined based on the value of the total (aggregate)
voting securities or non-corporate interests of the acquired person that
the acquiring person will hold, rather than just the incremental value of
the additional voting securities or non-corporate interests if the acquiring
person already owns a part of the acquired person. The value of assets is
the greater of fair market value or acquisition price, and valuation
includes the assumption of liabilities.
7
With regard to voting securities, if
the securities are publicly traded, the value is the greater of the market
price or the acquisition price.
(3) Size of Person
Acquisitions of voting securities or assets valued in excess of $200
million, as adjusted, are reportable without regard to the size-of-person
test. Transactions valued up to $200 million, as adjusted, must meet the
size-of-person test in order to be reportableone of the parties must
have at least $100 million, as adjusted, in total worldwide assets or
annual net sales and the other party must have at least $10 million, as
adjusted, in total worldwide assets or annual net sales.
8
The holdings of
transaction threshold or sales made in or into t he U.S. in excess of the
minimum size-of-transaction threshold. See 16 C.F.R. §§ 802.50, 802.51.
7
. A separate aggregation rule app lies to acquisitions of assets. See 16
C.F.R. § 801.13(b). In general, multiple acquisitions of assets from the
same seller within a 180-da y period are aggregated for purposes of
determining whether the size-of-transaction threshold is met, assumi ng
the initial acquisition did not require an H-S-R filing.
8
. Where an acquired person is not engaged in manufacturing, only its total
assets (unless its sales are $100 million, as adjusted, or more) are
considered in determining whether the size -of-person test is satisfied. See
FTC Premerger Notification Office, To File or Not to File: When You
Must File a Premerger Notifica tion Report Form, at 12 (Sept. 2008),
available at http://www.ftc.gov/sites/default/files/attachments/premerger-
introductory-guides/guide2.pdf.

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