Mergers and Joint Ventures

• Pages: 15-43

15

CHAPTER II

MERGERS AND JOINT VENTURES

A. “We are contemplating merging with or acquiring another

company  what sort of antitrust approvals will we need?”

A merger or acquisition raises both procedural and substantive

antitrust questions. Each set of questions is discussed separately below.

The procedural question is whether a filing must be made to any

government agency prior to closing the transaction. In the United

States, the mandatory preacquisition notification system is commonly

referred to as Hart-Scott-Rodino, or “HSR,” after the antitrust statute

that, among other things, established premerger filing requirements in the

United States for certain large transactions.1

The HSR process is intended to provide the FTC and the DOJ with

(i) notice of transactions that may raise antitrust concerns, (ii) an “initial

waiting period” during which to consider the competitive aspects of a

proposed transaction and decide whether to take action to block the

proposed transaction, and (iii) the statutory power to require the parties

to provide basic information about a proposed transaction and its

participants (and, at the agencies’ request, to obtain more-extensive

information from the parties or other industry participants to facilitate

1 Hart-Scott-Rodino Antitrust Improvements Act of 1976, Pub. L. No. 94-

435, § 201, 90 Stat. 1390 (codified as amended at 15 U.S.C. § 18a). The

regulations adopted by the FTC to implement HSR appear at 16 C.F.R.

§§ 801−803. The FTC is charged with administering the HSR premerger

notification process, although filings are made to both the FTC and the

DOJ, and both agencies are responsible for substantive reviews of

proposed transactions (although in any particular case only one of the

agencies conducts the investigation).

16 Frequently Asked Antitrust Questions

their review of the proposed transaction). During the initial waiting

period following a transaction’s notification to the FTC and DOJ under

HSR, and any extensions to the initial waiting period, the parties are not

permitted to close the proposed transaction. For most acquisitions (other

than cash tender offers and acquisitions subject to bankruptcy approval)

the initial waiting period is thirty days; for these other categories of

transactions, the waiting period is fifteen days.

If the FTC and the DOJ take no action with respect to the proposed

acquisition within the initial waiting period, the parties are deemed to

have received clearance under HSR and may proceed with the closing of

their deal. However, either the FTC or the DOJ may extend the waiting

period by formally requesting information regarding the proposed

transaction (commonly called a “Second Request”). Second Requests

are often quite comprehensive, involving extensive requests for

documents, written questions, and even interviews or sworn testimony.2

Once the parties have substantially complied with the Second Request,

another thirty-day waiting period (fifteen in the case of cash tender offers

and acquisitions subject to bankruptcy court approval) must be observed

before the parties can close the transaction.

When is a filing under HSR required? HSR generally requires a

filing if two threshold tests are met: (i) the size of person test and (ii) the

size of transaction test.3

The size of the person threshold is passed if the “ultimate parent

entity” (the entity not controlled by any other entity plus all the entities

the ultimate parent entity controls)4 of either the acquiring or acquired

persons has annual net sales or total assets of $100 million or more and

2 The agencies have made available a “model” Second Request that

provides a good indication of the types of information commonly

requested. See Model Second Request, available at www.ftc.gov/bc/

modelguide.htm.

3 A third threshold requirement requires that one of the parties to the

transaction be engaged in interstate commerce. This requirement is met

in nearly every case that is not otherwise exempt.

4 The HSR regulations provide complete definitions of “person,” “ultimate

parent entity,” and “control.” See 16 C.F.R. § 801.1(a)(1), (a)(3), and (b).