While Compiling the Second Request Response

• Pages: 277-339

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CHAPTER VII

WHILE COMPILING

THE SECOND REQUEST RESPONSE

The Request for Additional Information and Documentary Materials

(second request) is the principal means employed by the federal antitrust

enforcement agencies to compel the transaction parties to produce

documents and information during the Hart-Scott-Rodino (HSR) merger

review process. Second requests are equally significant to merging

parties; their issuance triggers extension of the HSR waiting period until

thirty days (or ten days in a tender offer or acquisition in bankruptcy)

after both parties (or the acquiring person in the case of a tender offer or

open market purchase) appropriately certify “substantial compliance”

with the second request.

This chapter reviews the process of responding to second requests,

including negotiating limitations to their scope, potential alternatives to

full compliance, such as “quick look” review and rolling productions,

preparation of the second request response, and avoiding, resolving or

litigating compliance disputes. It also describes what the investigative

staff does during this period and what the parties should do to develop

and support their substantive positions during this time.

A. Negotiating the Scope of the Second Request

A second request is, in effect, an extensive set of interrogatories

combined with a detailed document subpoena. Typically, the second

request requires the merging parties to document sales, market share,

production, capacity, marketing practices, bids on contracts, competitors,

research and development, and advertising expenditures during the

previous three to four years. In addition, the request explores the

potential for entry into the market, the time and cost required to construct

the company’s production lines, and the most likely entrants. It also

explores the reasons for the transaction, including any efficiencies

anticipated to result and the financial condition of the parties. Accurate

and well crafted interrogatory answers are very important, because they

may well be government exhibits in any later preliminary injunction

proceeding. The second request also requires production of

organizational charts, strategic plans, marketing documents, pricing

documents, and competitive analyses. In addition, the second request

seeks any studies, plans, memos, or other documents relating to the

278 The Merger Review Process

acquisition or relating to competition between the merging parties,

including documents prepared by consultants.

In March 1995, the Federal Trade Commission (FTC or

Commission) and U.S. Department of Justice (DOJ or Antitrust

Division) jointly adopted a model second request.710 The model second

request eliminated a number of specifications previously included,

limited the documents and information demanded by the remaining

specifications, and eliminated some of the more burdensome production

requirements. Nevertheless, agency staff often broaden the request by

adding additional specifications to the model to address issues they see

as relevant to the investigation. The model has been amended several

times since 1995, and the most recent version, with commentary, can be

found on the FTC’s Web site.711

The second request includes in its definitions, or in an appendix, the

products or services covered. This is a provisional list of products for

which the investigating agency believes the proposed merger may

threaten competition. The most important variable affecting the scope of

the second request generally will be the number of products or services

listed because each interrogatory and many of the document requests

must be answered separately for each product. In some transactions, the

number of products or product classes in second requests has increased

due to an effort to define product markets narrowly by end use. In some

cases, a second request has included ten or more products or product

classes. The second most important variable is the geographic scope of

the search required.

As discussed in Chapter V, a second request is sometimes issued

before the staff has had the opportunity to narrow its inquiry to the

products, geographic areas, and issues that will be dispositive of the

investigation. In addition, staff often views the second request as its only

opportunity to request information from the merging parties. As a

consequence, second requests are often broad in scope and full

compliance with every specification would be time consuming,

burdensome, and costly.

710. FEDERAL TRADE COMMISSION & U.S. DEP’T OF JUSTICE,HART-SCOTT-

RODINO PREMERGER PROGRAM IMPROVEMENTS (Mar. 23, 1995),

reprinted in 6 Trade Reg. Rep. (CCH) ¶¶ 42,522, 42,524 (1995) (Hart-

Scott-Rodino Premerger Program Improvements).

711. See http://www.ftc.gov/bc/hsr/introguides/guide3.pdf.

While Compiling the Second Request Response 279

In April 2000, the agencies implemented new policies to streamline

the second request process.712 One such policy change required senior

management to conduct a thorough review of all second requests before

they are issued in order to provide additional scrutiny of the scope of the

request.713 Subsequent changes were initiated by both agencies in

2006.714 Nevertheless, second requests generally remain broad and may

encompass not only documents and information necessary to reach a

decision whether to challenge the transaction, but also all documents and

information that might be needed at trial. Responding to a second request

is often burdensome, usually involving production of a very substantial

number of documents (including documents located overseas and their

translations, and electronic stored information, such as e-mail) and

assembly of extensive data in response to interrogatories. The response

may entail heavy costs in terms of executive time, lawyer fees,

translations, photocopying, and other document production expenses. It

is important to prepare the client for the burden of a second request if one

is likely to issue. Compliance with a second request within the context of

a time-critical transaction is often difficult, requiring careful planning,

substantial resources, and close coordination with company personnel.

712. See Press Release, Fed. Trade Comm’n, FTC Announces Changes to

“Second Request” Procedures During Premerger Review (Apr. 5, 2000)

(FTC 2000 Merger Reforms), available at http://www.ftc.gov/opa/2000/

04/hsrinits.htm; Press Release, U.S. Dep’t of Justice, Antitrust Division

Announces Merger Review Process Improvements (Apr. 6, 2000) (DOJ

2000 Merger Reforms), available at http://www.usdoj.gov/atr/public/

press_releases/2000/4511.htm. The agencies have followed these efforts

with additional reforms aimed at streamlining the process further. See

Fed. Trade Comm’n, Statement of Federal Trade Commission’s Bureau

of Competition On Guidelines for Merger Investigations (Dec. 11, 2002)

(FTC 2002 Merger Reforms), available at http://www.ftc.gov/os/2002/

12/bcguidelines021211.htm; U.S. Dep’t of Justice, Merger Review

Process Initiative, Oct. 12, 2001 (DOJ 2001 Merger Reforms), available

at http://www.usdoj.gov/atr/public/9300.htm.

713. DOJ 2001 Merger Reforms,supra note 712.

714. U.S. DEP’T OF JUSTICE, MERGER REVIEW PROCESS INITIATIVE (Dec. 14,

2006) (DOJ 2006 Merger Reforms), available at http://www.justice.gov/

atr/public/220237.htm; FED.TRADE COMM’N,REFORMS TO THE MERGER

REVIEW PROCESS (Feb. 16, 2006) (FTC 2006 Merger Reforms), available

at http://www.ftc.gov/OS/2006/02/mergerreviewprocess.pdf.