. FEDERAL TRADE COMMISSION

,

.

. FEDERAL TRADE COMMISSION

WASHINGTON. 0. C. 20S80

.·

Honorable Warren G. Magnuson

President Pro Tempore

United States Senate

127 Russell Senate Off ice Building

Washington, D.C. 20510

Honorable Thomas P. O'Neill, Jr.

Speaker of the House of Representatives

2231 Rayburn House Off ice Building

Washington, D.C. 20515

SUBJECT: ~ird Annuel ..Bepotl> to Congress pursuant

to Section 201 of the Hart-Scott-Rodino

Antitrust Improvements Act of 1976.

Gentlemen:

Section 201 of the Hart-Scott-Rodino Antitrust Improvements

Act of 1976, Pub. L. 94-435, amended the Clayton Act by adding a

new Section 7A, 15 u.s.c. S lBa (hereinafter referred to as •the

ActM). Subsection (j) of the Act provides as follows:

Beginning not later than January l, 1978, the

Federal Trade Commission, with the concurrence

of the Assistant Attorney General, shall

annually report to the Congress on the

operation of this section. Such report shall

include an assessment of the effects of this

section, of the effects, purpose, and need for

any rules promulgated pursuant thereto, and

any recommendations for revisions of this

section.

This is th~ third annual report to the Congress mandated by

subsection .(j) of the Act.

In general, the Act creates a mechanism under which persons

with sales and assets greater than a specified amount who intend

to make a stock or assets acquisition of a specified size or

larger must report their intentions to the Antitrust Division of

the Department of Justice and to the Federal Trade Commission.

Thereafter the parties must wait a prescribed period of time,

usually 30 days, before consummating the transaction.

The waiting period is designed to permit the antitrust

enf orcernent agencies to determine whether action against a

reported acquisition is warranted prior to its consummation. The

Act authorizes the enforcement agencies during the waiting period

..

to issue requests for additional information or documentary

material. Such a request in most cases extends the waiting

period while the requested information or documentary material is

compiled for submission to the requesting agency and for an

addjtional time, usually 20 days, after that agency receives

those materials. In the event that during this waiting period

either enforcement agency seeks a preliminary injunction to

prevent consummation of the reported acquisition, the Act

provides for expedited consideration by a Federal district court.

The legislative history suggests several complementary

purposes underlying the Act. First, Congress clearly intended to

eliminate the large •midnight merger,• which is negotiated in

secret and announced just before, or sometimes only after, the

closing takes place. Second, Congress wanted to assure that

large acquisitions were subjected to meaningful scrutiny under

the antitrust laws. Third, Congress provided an opportunity for

the enforcement agencies to seek a court order enjoining the

completion of those transactions which the agencies deemed to

present significant antitrust problems. Finally, Congress sought

to facilitate an effective remedy where a challenge by one of the

enforcement agencies proved ·successful. Thus the Act requires

that the agencies receive prior notification of significant

acquisitions between sizeable parties, provides certain tools to

facilitate a prompt but thorough investigation, assures an

opportunity to seek a preliminary injunction before the parties

are legally free to complete the transaction, and eliminates the

problem of unscrambling. the assets when one of the agencies

obtains an order enjoining consummation of the acquisition.

Operation of the premerger notification program

The Act authorizes the Com.mission, with the concurrence of

the Assistant Attorney General in charge of the Antitrust

Division of the Justice Department, to promulgate implementing

rules. Prior reports to the Congress have described the steps

taken to implement the program, which became effective on

September 5, 1978. The second annual report to Congress covered

only the first few months of the program's operation (to December

l, 1978) a~d thus did not present any comprehensive overview of

the operation or impact of the program. While a definitive

overview and assessment of the program would still be premature

after only fifteen months experience, it is possible at this time

to provide Congress with considerably more information about the

operation of the program and its impact to date.

The rules implementing the Act 1 define the terms in the

statute, specify the means for determining whether a transaction

is reportable under the Act, detail certain procedures for

compliance with the requirements of the Act, and create certain

l

16 C.F.R. Parts 801-803 (1979).

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exemptions from those requirements. In addition, the rules state (in

an appendix to Part 803) the information to be submitted on the

Notification and Report Form~ which must be completed by both parties

to a reportable acquisition.

·

In general, receipt of completed Notifijation· and Report Forms

from both parties begins the waiting period.

At this time, the

staffs of both enforcement agenci~s review these filings and make

separate initial determinations whether the reported transaction may

raise significant antitrust issues which warrant further

investigation. If neither agency believes that further inquiry is

needed, the waiting period is allowed to expire or the agencies may

entertain requests for tarly termination of the waiting period from

either or both parties.

If either or both agency staffs believe that significant

antitrust issues may be raised by a reported transaction, an

established liaison arrangement is used to determine which of the two

agencies will investigate the matter further. Either agency may

investigate a 9iven transaction, but the Act does not permit both

agencies to request additional information from the same parties with

respect to the same transaction. Thus, if only one of the agencies

believes an investigation is necessary, generally that agency will

proceed. If both agencies desire to investigate an acquisition,

unnecessary duplication of effort by the agencies and burden on

reporting persons are avoided by a decision as to which agency will

proceed.

Once an investigation is authorized, the agency conducting the

investigation may use any tools at its disposal to probe further and

to facilitate its determination whether to challenge the proposed

transaction. Frequently the investigating agency issues to either or

both parties requests for additional information or documentary material

("second requests") under S 7A(e) of the Act and S 803.20 of the rules.

With the information from the initial notification forms, the responses

to second requests and any other information available to it, the

investigating agency then determines whether a challenge to the

transaction is appropriate. lf not, then the extended waiting period is

allowed to expire, or requests for early termination may be considered.

2

A comprehensive Statement of Basis and Purpose, which

explains the operation, purpose, and need for each of the

rules, was published along with the final rules. 43 Ped.

Reg. 33450 (July 31, 1978).

3

Certain types of transactions, specified in S 801.30 of the

rules, have waiting periods which begin when only the

acquiring person files notification.

4

Requests for early termination have been received in lll of

the 814 transactions reported ao far this yeari 61 of the

requests were granted and SO were denied.

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If, however, the reported transaction is tho~ght to present

significant antitrust problems, the investigating agency may seek

a preliminary injunction in Federal district court to stay the

consummation of the transaction pendente lite. If the matter is

thought inappropriate for a preliminary in;unction proceeding,

the agency may decide to challenge the transaction without

seeking an injunction. The Antitrust Division of the Justice

Department challenges an acquisition by filing a complaint in

Federal district court1 the Commission challenges an acquisition

by issuing an administrative complaint which is tried before an

administrative law judge, subject to a right of appeal to the

full Commission and thereafter to a United States court of

appeals.

Acquisitions challenged during 1979

Throughout the first eleven months of calendar year 1979,

the agencies ~ave received filings with respect to 814

transactions.

Upon review of these filings, the Commission and

the Antitrust Division initiated 95 investigations in which

second requests were issued to one or both parties.

After

receipt of the requested information, some of these

investigations were closed without further action: others are

continuing as of this date. The remainder resulted in

enforcement action by the agencies as detail~d below.

The Commission has sought to enjoin three acquisitions under

the premerger notification program so far this year. In a

challenge to the acquisition of Applebaums' Food Markets by

National Tea Company, a preliminary injunction was denied by the

District Court in Minnesota on June 25, 1979, and the denial was

affirmed ~Y the Court of Appeals for the Eighth Circuit on July

16, 1979.

Even though the courts held that an injunction should

not be granted, the Commission's administrative complaint

challenging the now-consummated acquisition is scheduled for

trial in early 1980. In July, the proposed acquisition of

Reliance Electric Co. by Exxon Corp. was challenged by the

5

Sixty-three transactions were reported during the month of

December, 1978, after the second annual report to Congress

had been reported, making the total number of 1978

transactions 355.

6

A total of 179 requests were issued in 95 transactions. Thus

in most, but not all, investigations in which second requests

were issued, both parties received them.

7

FTC v. National Tea Co., 603 F.2d 694 (8th Cir. 1979).

_,_

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Commission in the District Court for the District of Columbia.

The distrAct court issued a temporary restraining order on July

28, 1979.

After further hearings, however, the court.issued an

order permitting the acquisition but requiring that Exxon hold a

portion of the Reliance assets separate 9or the duration of the

Commission's administrative proceedings.

Finally the Commission

sought a preliminary injunction to prev15t the acquisition of

Barnischfeger Corp. by Mannesmann A.G.

Befo're the district

court could rule on that motion, Mannesmann withdrew its offer to

purchase Harnischfeger. Mannesmann publicly announced that it

had canceli~ its proposed acquisition because of the Com.mission's

challenge.

The Antitrust Division has so f~r sought preliminary

injunctions six times durii~ 1979.

In United States v.

Tracinda Investment Corp.,

the Division sought to enjoin an

acquisition of the stock of Columbia Pictures Industries, Inc. by

Tracinda, which, along with its controlling shareholder, already

held 48% of the stock of Metro-Goldwyn-Mayer, Inc. The

8

FTC v. Exxon Corp., 5 Trade Reg. Rep. (CCH)

July 28, 1979).

9

FTC v. Exxon Corp. , 5 Trade Reg. Rep. (CCH)

October 26, 1979).

10

FTC v. Harnischfeger Coq~. , Civ. No. 79-2601 (D.O.C., f ilec

September 28, 1979).

ll

Wall Street Journal, November 5, 1979, at 2, col. 3.

12

The second annual report to Congress listed two cases in

which the Division had sought preliminary relief during

1978. After that report was completed, Occidental Petroleum

Corp. announced that it was withdrawing its cash tender offer

for the shares of Mead Corp., and the court therefore did

not rule on the motion for a preliminary injunction. United

States·v. Occidental Petroleum Corp., Civ. No. C3-78-22S

(S.O. Ohio, filed October 11, 1978). The District Court for

the Northern District of New York denied the Division's

motioh to enjoin the takeover of Carrier Corp. by United

Technologies, Inc., United States v. United Technologies,

Inc., 1978-2 Trade Cases (CCH) '62,393 (N.O.N.Y., December 6,

1978), aff'd, 1978-2 Trade cases (CCH) '62,405 (2d Cir.,

December lS, 1978). The district court, however, imposed a

hold separate order pending the outcome of further

proceedings on the merits. United States v. United

Technologies, Inc., 1979-1 Trade Cases (CCB) t62,512

(N.O.N.Y., February 9, 1979). The matter is still pending

before that court.

13

464 r. Supp. 660 (C.D. Cal. 1979).

-s-

'

'

62,763 (D. D. C. ,

62,972 (D.D.C.,

injunction was denied and the matter vent to trial. After a twoweek trial the court dismissed the suit,1 4 and the Justice

Department has filed an appeal.

r

On March 22, 1979, the Antitrust Division filed an

application for a temporary restraining order to prevent the

acquisition by Emerson Electric Co. of Skil Corp. ~he district

court denied the application for a temporary restraining order, 15

but on March 23, 1979, the court issued an order which required

Emerson Electric Co. to hold separate the operations of Skil

Corp. pending the resolution of the government's case.

Efforts to enjoin the acquisition of American Investment

Company by Household Finance Corporation were initially

unsuccessful. On a record in which all issues except the

relevant product market had been stipulated by the parties, the

District Court for the Northern District of Illinois declined to

issue an !~junction. On appeal, however, the Seventh Circuit

reversed,

and divestiture was ordered. Defendants have

petitioned the United States Supreme Court for the issuance of a

writ of certiorari.

In three other cases, the Antitrust Division sought

preliminary injunctions to prevent consummation of acquisitions

which had been reported under the premerger notification

program. In each case the defendants entered into consent

agreements with the Division before the courts ruled on the

preliminary injunction motions. United States v. Martin Marietta

Corp. (acquisition of the assets of Wedron Silica Company, a

subsidiary of Twentieth Century-Fox Corp.), Civ. No. 79-C-3626

(N.D. Ill., filed August 31, 1979) (divestiture of certain assets

was required); United States v. Beneficial Corp. (acquisition of

Southwestern Investment Company, a subsidiary of Beatrice Foods

Co.), Civ. No. 79-C-3550 (N.D. Ill., filed September 24, 1979)

(divestiture of 23 Southwestern offices was required); United

States v. Beneficial Corp. (acquisition of Capital Finance

Services, Inc., a subsidiary of the Continental Corp.), Civ. No.

79-C-3551 (N.D. Ill., filed August 29, 1979) (divestiture of 112

Capital of~ices was required).

There .have been two other challenges to reportable

acquisitiQns this year: although a preliminary injunction was not

sought in either, both matters are now in litigation. The

14

S Trade Reg. Rep. (CCH) •62,889 (C.D. Cal., September 14,

1979).

lS

Onited States v. Emerson Electric Co., Civ. No. 79-C-1144

(N.O. Ill., March 22, 1979).

16

United States v. Bousehold Finance Corp., 602 F.2d 1255 (7th

Cir. 1979).

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Antitrust Oivision filed a complaint challeni.;ng 'the merger of

Cross Company with Jearney and Trecker Corp.

The Commission

filed a complaint challenging the acquisition by BASF A.G. of the

Pigments Division ~Q Chemetron Corp., a subsidiary of Allegheny

Ludlum Industries.

.

A number of additional acquisitions investigated by the

Commission under the premerger notification program resulted in

agreements under which complaints challenging the transactions

were issued simultaneously with divestiture orders, under the

Commission's consent docket. This procedure was followed with

respect to the acquisition by Crane Co. of Medusa Corp. (Docket

No. C-2959, issued April S, 1979): the acquisition of Gardner

Denver Co. by Cooper Industries, Inc. (Docket No. C-2970, issued

June 18, 1979); Schering Plough Corp.'s acquisition of

Scholl, Inc. (Docket No. C-2986, issued August 10, 1979); the

acquisition by Liquid Air Corp. of the industrial gases assets of

Chemetron Corp., a subsidiary of Allegheny Ludlum Industries

(Docket No. C-2990, issued September S, 1979); and the

acquisition of oaylin, Inc., by W.R. Grace' Co. (File No.

791-0073, consent agreement placed on the public record for

co~~ents on October 30, 1979).

A consent order was also entered in a case challenging the

acquisition of certain assets of Keystone Portland Cement Co. by

Lone Star Industries, Inc. (Docket No. 9122). On January 25,

1979, the Commission issued a complaint and authorized its staff

to seek a preliminary in.junction in Federal district court, but

the acquisition was abandoned when Lone Star learned of the

Commission's action. The order prevents the contemplated

acquisition from being accomplished without prior notice to the

Commission.

The success of the premerger notification program cannot be

judged on formal challenges and consent orders alone, although

these are the most obvious and visible measures of merger law

enforcement efforts by both agencies. Other indicators of the

program's effectiveness are described below.

In the· first eleven months of 1979, a number of transactions

reportable u~eer the program were abandoned after second requests

were issued.

Frequently there is no announcement of the

17

o.s. v. Cross and Trecker Cor~., Civ. No. 973-737 (E.D.

18

In re BASF Wyandotte Corp., Docket No. 9125 (filed April 4,

1979).

19

Fourteen transactions were abandoned during Commission

investigations. The Antitrust Division does not keep

specific data on this aspect of the program.

Mich., filed September 25, 19 9).

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reasons for abandoning a reportable merger. Obviously, one

cannot conclude that the likelihood of an antitrust challenge was

the basis for every decision to cancel: on the other hand, one

cannot totally discount this phenomenon and the implications it

raises concerning the program's effect on merger law enforcement.

It is also possible that the inception of the premerger

notification program itself has deterred companies from entering

into merger agreements which might violate the antitrust laws

because of the parties' awareness that their transactions will be

subjected to more careful scrutiny than in the past. There is,

of course, no way of measuring this impact, but Congress, by

passing the Act, has clearly made it more difficult for large

companies to make an acquisition which violates established

precedent and guidelines without the agencies knowing about it.

It is therefore likely that the Act has resulted in the

alteration of acquisition strategies of some large companies.

Rules changes

During the past year, the Commission staff undertook a

review of the filings received during the first six months that

the premerger notification piogram had been in operation. The

staff compared the size of each reported transaction with the

level of enforcement interest by either agency and discovered

that a significant number of the smaller reportable transactions

did not result in any investigation or challenge. As a result,

the Commission proposed a revision of the so-called •minimum

dollar value exemption,• S 802.20 of the rules. This revision

increased the dollar value reporting thresholds for certain

transactions, thus providing exemption from the requirements of

the Act for many of these smaller transactions.

The Commission's Notice of Proposed Rulemaking was published

for comment in the Federal Register of August 10, 1979 (volume 44

at page 47099). Nine comments were received in response to this

proposal, and a revision of S 802.20 was formally promulgated on

November 13, with the concurrence of the Assistant Attorney

General, and published in the Federal Register of November 21,

1979 (volume 44 at page 66781). The new rule became effective on

November 21, 1979.

Based on the experience of both enforcement agencies, the

Commission estimated that approximately 20\ of the transactions

reportable prior to the change would be exempt under the revised

rule. The revision was designed both to reduce the burden of

f ilin9 requirements for relatively small firms and to aake

additional agency resources available for review of other

transactions. It represented a judgment by the enforcement

agencies that this change could be implemented without impairing

the effectiveness of the premerger notification program, while

substantially reducing paperwork burdens for smaller companies.

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Further information concerning this rule re~ision is

attached to this annual report, including the Federal Register

notices announcing the proposed change and the final rule, copies

of the nine comments received in response to the proposal; and a

copy of the press release issued by the Commission after the

revision had been issued (Exhibits •A" through •L•).

Litigation

The Commission and the Antitrust Division were named as

defendants in a suit related to the premerger ~otification

program and filed in the Federal District Court in Delaware by

Borg-Warner Corporation on June 21, 1979. Borg-Warner had

submitted a Notification and Report Form and later responded to a

second request issued by Commission staff in connection with a

proposed merger with the Firestone Tire ' Rubber Company. The

merger was subsequently abandoned, and Borg-Warner requested the

return of all documents it had submitted. The Commission

declined to return any documents on grounds that the Act does not

require it, and that the documents may be necessary for

subsequent use in an administrative or judicial action or

proceeding. Borg-Warner sought a temporary restraining order,

which was denied on June 22, 1979. The parties submitted briefs

on cross motions for summary judgment, and oral argument was

heard on November 29, 1979. No decision has been issued by the

court to date.

Other effects of the prernerger notification program

The impact of the prernerger notification program on the

antitrust enforcement agencies can be seen in part from the cases

they have brought. Some additional observations may be useful,

however, with respect to the way in which the agencies conduct

their merger enforcement activities.

First, it is clear that one of the goals of the Act has been

met, merely by the creation of the premerger notification

program. Implementation of the Act largely ended the phenomenon

of the •midnight merger,• because only under the most unusual

circumstan=es can a significant acquisition occur in the United

States without prior notification to the enforcement agencies and

compliance ·with a waiting period.

Second, the procedural tools which the Act provides to the

enforcement agencies have had a significant impact on the ability

of the agencies to investigate reportable mergers and

acquisitions efficiently and effectively. The information

provided by the parties on completed Notification and Report

Forms is sufficiently comprehensive to permit a determination, in

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.

.

•.substantial majority of eases, that no significant antitrust

issues are raised by the transaction. That inf otmation also

provides a useful focus and starting point with respect to those

transactions which may raise such issues. In short, the Form has

worked quite well during the first full year of the program's

operation, and major revisions bn the substance of .those

requirements seem unnecessary. 2

The other key procedural tool which has strengthened the

agencies' ability to investigate acquisitions which may violate

the antitrust laws is the second request. Even though only one

second request can be issued to each party the importance of this

device is that the parties receiving such requests generally have

a strong incentive to provide full responses as quickly as

possible. Coupled with the Act's provision for extending the

waiting period while responses to second requests are being

prepared by recipients and for a short time thereafter, the

second request permits the agencies to gather from the parties

most or all of the information needed by the agencies to make

their final determination whether to challenge certain

transactions. The delays frequently encountered at the discovery

stage of other types of litigation cannot benefit the parties to

a reportable acquisition, who must defer consummation of the

transaction until responses to second requests have been

submitted and the waiting period has expired. At the same time,

the government's ability to delay a transaction for a long perioo

is limited by the fact that the waiting period can be extended

only once.

The agencies have generally received a high degree of

cooperation from the recipients of second requests, and areas of

disagreement have been frequently narrowed and to date always

resolvea through negotiation. The second request and eY.tended

waiting period mechanism appear to have strengthened the

investigative powers of the enforcement agencies, while

permitting them to complete their investigations of significant

acquisitions more efficiently and more quickly.

Another important aspect of the Act is that it gives the

agencies an opportunity to seek a preliminary injunction to

prevent consummation of a transaction which the agencies believe

may violate the antitrust laws. It is too early for the agencies

to make definitive judgments concerning the effectiveness of the

Act in this respect. There simply have not been enough cases to

aupport eonf ident generalizations concerning the impact of the

Act on the ability of the agencies to obtain preliminary

injunctions in merger eases. It appears, however, that the

20

It is anticipated that the Notification and Report Porm will

be updated shortly to provide for the submission of 1977

Economic Census data instead of the 1972 data currently

required.

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opportunity to seek an injunction has already be.en useful.

It would be misleading, however, to imply that all, or even

sost, future challenges to mergers and acquisitions by the

ag~ncies will necessarily be by preliminary injunction.

While

the Aet significantly strengthens the agencies' investigative

powers, it does not mean that injunctions will,be sought in all

situations in which the agencies believe that a transaction would

violate the antitrust laws, and it certainly does not guarantee

that the agencies will be more su21essful in obtaining

injunctions when they are sought.

Implicit in the Act is an assumption that at least some

government antitrust challenges to mergers and acquisitions can

be thoroughly investigated in a short time, that the governrnent's

case can be assembled quickly, and that a Federal district judge

can feasibly and responsibly hear and decide such challenges in a

preliminary injunction proceeding. The complexity of the legal

and factual issues, the necessity of obtaining information from

third parties who cannot be served with second requests under the

Act and competing public interest considerations make some cases

inappropriate for resolution in an injunction context. It would

be incorrect, therefore, to assume that the Act will prevent the

consummation of all large mergers or acquisitions which may

violate the antitrust laws. The Act provides significant

benefits to competition by improving the ability of the agencies

to discover, investigate and challenge anticompetitive

transactions, but it is' not a panacea. Its utility should not be

judged solely by reference to the number of injunctions

successfully obtained by the enforcement agencies under its

provisions. Instead, its full impact on the antitrust law

enforcement process should be assessed. After the first full

year of operation, that impact appears to be positive.

It is possible also to offer 1ome observations at this

juncture concerning the impact of the program on persons whose

transactions are reportable under it. First, compliance with the

program has exceeded even the most optimistic expectations of the

agencies. Both agencies have informally monitored announcements

of consumrriat.ed acquisitions to ensure that the parties to

transactions covered by the Act are in compliance. When the

program was first implemented, the agencies assumed that it might

be necessary to bring some actions under S7A(g) (1) of the Act,

which provides for penalties of up to $10,000 per day for

21

That is why the provisions of S 7A(i) are so important.

Congress there provided, first, that neither action nor

inaction by either agency under the Act can bar any other

proceeding or action with respect to the same transaction

under any other provision of law; an~, 1econd, that the Act

does not limit the agencies' authority to obtain information

fro~ any person under any other provision of law.

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violations of the premerger notification requirements.

actions have been filed to date.

No such

One possible explanation for the absence of s 7A(9) (1)

actions is the efforts of both agencies to disseminate

information about the program. Personnel from both agen22es have

given a number of speeches about the program this year,

and

the Commission prepared a •compliance Guide,• that was

distributed in substantial numbers early this year. The

Commission staff receives hundreds of telephone inquiries a

month, and a significant portion of staff time is spent

explaining the operation of the program and assisting persons

with questions and problems that arise under the Act and the

rules. Four formal interpretations of the Act and rules have

been issued by Commission staff with the concurrence of the

Antitrust Division, under S 803.30(c) of the rules, and

~istributed both to the public and to the media which cover

antitrust and corporate matters (Exhibits •N" through •o">. 23

Based on experience to date, it also does not appear that

compliance with the initial notification requirement is

inordinately difficult or ~nreasonably expensive. Filing persons

have not had significant problems providing the information and

documentary materials required by the Notification and Report

Form.

The agencies have received complaints from certain

recipients of second requests who objected to the breadth of

those requests or to specific items contained in the requests.

To a large extent, the breadth of second requests stems from the

dual role of the request under the Act. First, the agencies have

to jnclude in a second request whatever they believe they have to

learn from the recipient in order to make a determination whether

to challenge the transaction. Second, if a decision is made to

challenge the transaction, the second request is one of the

22

For example, on August 14, 1979, Malcolm R. Pfunder,

Assistant Director for Evaluation in the Commission's Bureau

of Compet1tion, delivered a speech on the subject of

premerger notification to the annual meeting of the Antitrust

Section of the American Bar Association in Dallas, Texas.

The speech was entitled •premerger Notification After One

Year -- A Staff Perspective from the Federal Trade

Commisson.• Mr. Pfunder has been responsible for the

administration of the premerger notification program at the

Commission aince April, 1977, and the speech represented his

personal views. A copy of the apeech is attached aa Exhibit

•M.•

23

One formal interpretation was issued in late December of last

year after the second annual report to Congress had been

prepared, and is attached as Exhibit •a.•

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primary means by which evidence is gathered to support the

agency's case in Federal district court. Moreover, because the

agencies must prepare their second requests within a very ahort

time -- ·relying solely on information contained in the initial

notifications, information which is publicly available, and

information previously.in their possession -- second requests are

sometimes inadvertently broader than would be necessary if more

information had been available at the time they were prepared.

The agencies have attempted to mitigate these problems by

adopting an approach toward second request recipients that is

both practical and flexible. The staffs of both agencies have

been highly receptive to negotiations with recipients, both as to

the content of the request and as to the manner of compliance.

It seems particularly significant that neither agency has sought

a court order under S 7A(g) (2) of the Act, which authorizes each

agency to seek from a Federal district court an order requiring

compliance, a further extension of the waiting period, or other

equitable relief. The fact that S 7A(g) (2) actions have not

proved necessary suggests that the agencies have so far

successfully found a reasonable balance between the use of the

Act's investigative tools and reasonable and responsible

accommodation of the interests of the parties to those

transactions.

Another impact on the parties to a reportable transaction

results from the ext2gsion of the waiting period when second

requests are issued.

Extension of the waiting period may or

may not create inconvenience or hardship to the parties,

depending upon whether consummation of the transaction is

delayed, and if so, the consequences resulting from that delay.

The purpose of the delay is to permit the enforcement agencies to

conduct a more thorough investigation and to decide whether to

challenge the transaction prior to consummation. Thus some delay

is necessary to carry out the purposes of the Act.

This delay, however, may be mitigated.

24

The parties can

When a seeond request is issued to the acquiring person in a

cash tender offer, the 15-day waiting period is extended

until 10 days after the response to the second request has

been received. When a aecond request is issued to the

acquiring person in a non-cash tender offer, the 30-day

waiting period is extended until 20 days following receipt of

the response. A aecond request issued to the acquired person

in either type of tender offer has no effect on the waiting

period, regardless of how long it takes for the recipient to

compile its response, although the rules require that the

response be provided within a reasonable time. A second

request issued to either or both parties in a non-tender

of fer transaction extends the 30-day waiting period until 20

days after all recipients have responded.

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request early termination, which would normally·be granted if a

good business reason is provided to support the request and if,

after receiving the second request responses, the investigating

agency aetermines not to challenge the transaction. In many

ca$es the parties, by filing their initial notifications earlier

or by scheduling the consummation of the transaction for a date

later than immediately following the originally anticipated

expiration of the waiting period, can minimize the possibility

that delay may adversely affect them.

There have been a number of situations during the past year

in which recipients of second requests, for whatever reason, have

simply not responded promptly. In a few cases, the parties have

provided no response for a number of months. On the other hand,

a review of all cases in which second requests have been issued

reveals that the time necessary for receipt of all responses

which affected the length of the waiting period was less than

20 days about as often as it was longer than 20 days. Thus

experience to date does not appear to suggest that second

requests are inappropriately lengthy or complex, or that waiting

period extensions have been unduly long or damaging to the

parties to transactions under investigation.

While conclusions based on only one year's experience must

of necessity be somewhat tentative, the agencies have attempted

to exercise the powers conferred on them by the Act in a

responsible manner, while at the same time seeking to carry out

the Congressional mandate to subject all significant acquisitions

to careful antitrust scrutiny. Interference with mergers and

acquisitions that do not raise significant antitrust issues

appears to have been minimized, while transactions questionable

under the antitrust laws have been investigated and prosecuted

more effectively under the Act.

Recommendation for a possible revision of the Act

The agencies do not believe that any major revisions of the

Act are needed at this time. There is one area, however, in

which a relatively minor change might be appropriate. Section

7A(h) pro~ides that any information filed with the agencies under

the Act is eonf idential and may not be made public •except as may

be relevant to any administrative or judicial action or

proceeding.• The agencies have taken the position, in response

both to informal requests and to requests under the Freedom of

·Information Act, that the fact of filing is itself part of the

information protected from disclosure under 5,7A(h). The

agencies do not disclose the fact that parties to a transaction

have filed notification under the Act because this aay reveal

information filed with the agencies under the Act, such as the

sizes of the parties, the size of the transaction, the likely

consummation date, and other information the Act intended to keep

confidential. Bowever, aection 7A(b) (2), vhich authorizes the

agencies to grant early termination of the waiting period,

requires that notice be published in the Federal Register when

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early termination is granted. Section 7A(b) (2), therefore,

appears to be in conflict with 5 7A(h).

This problem vas pointed out in the comments received when

the implementing rules were under consideration. !.!!_ •3 Ped.

Reg. 33514 (July 31, 1978). The Commission at that time

interprete~ the mandatory publication requirement in S 7A(b) (2)

to be •a necessary exception to section 7A(h)• even though it had

the effect of revealing the fact of filing.

The agencies believe, however, that parties to a reportable

transaction should not have to choose between keeping

confidential the fact that their transaction has been reported

under the prernerger notification program and requesting early

termination of the waiting period. In no other respect is

confidential information received under the program required to

be made available to the public. The Commission and the

Assistant Attorney General thus recommend that S 7A(b) (2} be

amended by deleting that portion of the subsection which follows

the word •section,• as indicated below:

The Federal Trade Commission and the

Assistant Attorney General may, in individual

eases, terminate the waiting period specified

in paragraph (1) and allow any person to

proceed with any acquisition subject to this

sectionT e~e eheii ee~ee te ee p~eiiehee ~~

t~e Feeefei Re!i&tef ~etiee that fte,the~

•~te~ee te te*e. •~Y eetie~ wit~i~ •~eh periee

wit~ respeet te •~e~ ee~~ieitie~.

The Assistant Attorney General has indicated his concurrence

with this annual report.

By direction of the Commission.

Carol M. ~homas

Secretary

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