FEDERAL TRADE COMMISSION (1981)

FEDERAL TRADE COMMISSION

WASHINGTON. D. C. 20560

Honorable Strom Thurmond

President Pro Tempore

United States Senate

wash~ngton, D.C.

20510

Honorable Thomas P. O'Neill, Jr.

Speaker of the House of Representatives

Washington, D.C.

20515

SUBJECT: <;L(f t~ Annual Reporj:>to Congress pursuant to

Section 201· of ~he Hart-Scott-Rodino Antitrust

Improvements Act of 1976

Gentlemen:

Section 201 of the Hart-Scott-Rodino Antitrust Improvements

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

ne~ Section 7A, 15 U.S.C. § 18a (hereinafter referred to as "the

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

Beginning not later than January 1, 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 the fifth annual report to the Congress mandated by

subection (j) of the Act.

In general, the Act creates a mechanism under which persons

with sales or 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 Federal Trade

Commission and the Department of Justice. Thereafter the parties

must wait a prescribed period of time, usually 30 days, before

consummating the transaction. The primary purpose of the

statutory ~cherne, as the legislative history makes clear, is to

proviae the antitrust enforcement agencies with a meaningful

opportunity to review mergers and acquisitions of substantial

size before those transactions take place. If eit~er agency

believes that a proposed transaction may violate the antitrust

laws, Section 7A(f} of the Act allows the agency to seek an

injunction in Federal district court to prohibit consummation of

the transaction. The ability of the antitrust agencies to make

such a determination is enhancea by the provisions of Section

7A{e) of the Act, which authorizes either of the agencies to

issue a request for additional information or documentary

material to either or both parties to a reported transaction.

Such a request must be issued during the initial waiting period

and, in most cases, has the effect of extending.the period until

20 days after the requesting agency receives all the requested

information or material.

Final rules governing implementation of the premerger

notification program were promulgated by the Commission, with the

concurrence of the Assistant Attorney General, on July 31,

1978.1/ At the same time, a comprehensive Statement of Basis ana

Purpose was published, which contains a section-by-section

analysis of each provision of the rules and an item-by-item

analysis of each item of the Premerger Notification and Report

Form. The program became effective on September 5, 1978.

Statistical Profile of the Premerger Notification Prooram

Attached to this report are two tables which provide a

statistical profile of the premerger notification program based

on slightly more than three years of operation. Appendix A

provides a statistical compilation for each of the four years in

which the program has been in operation (the last four months of

1978 through December 4, 1981) in three categories: number of

transactions reported, number of requests for additional

information or documentary material {hereinafter referred to as

ftsecona. requests"), and the number of requests for early

termination received and granted.

Appendix B provides a month-by-month comparison, based on

the riumber of filings received, of the first 11 months of 1981

with the first 11 months of 1980 and 1979. The month-by-month

statistics i~lustrate the rather substantial increase in the

nurr.ber of transactions reported to the agencies. In total·, the

number of filings received in 1981 was 132% of the number

received in 1980.

l/

43 Fed. Reg. 33450 (July 31, 1978). The rules also appear in

16 C.F.R. Parts 801 through 803. For more background

information concerning the development of the rules and

operating procedures under the premerger notification

program, see the second and third annual reports covering the

·years 1978 and 1979, respectively.

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These statistics inaicate that although the number of

filings has increased substantially this year, ·the number of

second requests issued by the two agencies has remained about the

same as last year; 75 second requests were issuea in 1981, one

more than the 74 requests issuea in 1980. This continues the

dowr1ward trena in secona requests issued as a percentage of

reportable transactions (12.6% in 1979, 9,0% in 1980, and 7.6% in

1981)°. The number of early termination requests was 169 in 1981,

a sharp increase over prior years. This represents a request

rate of 17.1%, an increase from 1980's rate of lJ.8%. This year,

as was the case last year, the agencies were able to grant a

large percentage of these requests (78.1% in 19.BO, and 76.3% in

1981).

Recent Developments Relating to Premeroer Notification Rules and

Proceau res

1.

Formal Interpretations

Since the inception of the premerger notification program,

the staff of the Commission, with the concurrence of the

Assistant Attorney General, has issued a number of formal

interpretations, which have been placed on the public record.2/

In 1981, two formal interpretations were issued._1/ The first"';"

issued June 2, 1981, instructs holders of debentures which were

issued by the Sun Company, Inc. to treat those debentures as

"voting securities" of Becton, Dickinson and Company, since the

debenture currently can be voted for directors of Becton,

Dickinson. The second formal interpretation, issued April 7,

1981, allows parties to incorporate by reference certain SEC

documents which are required to be filed by item 4(a) of. the

pr emerge r notification form. Pa rt ies may inc or por ate by

reference only those SEC documents which were supplied with

earlier premerger notification filings.

The staff of the FTC Premerger Notification Office has

identified several areas which may require additional formal

interpretations. The need for clarification of the rules has

emerged as the result of specific situations posed by actual

filings or by telephone inquiries.

y

See 16 C.F.R. § 803.30. The texts of the formal

interpretations are collected at 4 Trade Reg. Rep.

,

(CCH)

42,475.

1/ Copies of these forma.l interpretations are attached as

Exhibits "A" and "B".

-3-

2.

Proposed Changes in the Rules.

On July 29, 1981, the FTC published prop:>sed changes in the

Premerger Notification Rules._!/ The changes are largely

technical, and are designed to lessen confusion and redu:e

unnecessary filings. They do not materially expand the coverage

of the existing premerger notification rules. Some of the

proposed changes will be briefly described below.

The pres61t rules do not make clear how part'ies are to file

the premerger notification form when two companies join into one

of the existing companies, or where two firms join to create a

new company. The new rule will make clear who {n these

situations is the acquiring and who is the acquired person, the

determination of which affects the parties' responses to certain

items on the form.

At the present time, companies that acquire control of

another company through a cash tender offer need to file (if the

acquisition is of sufficient size) and wait 15 days before

consummating the transaction. If, however, the acquired company

has sufficient minority holdings in other entities, the acquiring

person must file for the acquisition of this stock as well.

These acquisitions are referred to as secondary acquisitions, and

the parties must observe a 30-day waiting period before

consummating these acquisitions. In the past, this has resulted

in the situation where the 15-day waiting perioo applicable to

the cash tender offer expires, but the 30-day waiting period

applicable to the secondary acquisitons remains in effect. The

new rule would coordinate these waiting periods so that the

e~tire transaction would be subject to a single 15-day waiting

perioo.

Due to the passage of the Airline Deregulation Act, 49

U.S.C. § 1378, certain mergers among airlines are now ro longer

exempt from the reporting requirements of the Hart-Scott-Rooino

Act. Since these mergers are subject to review by the Civil

Aeronautics Board, and since the Department of Justice has the

power to intervene in such cases before the CAB, the prop:>sed

rule would apply a limited exemption to regulated air carrier

mergers.

.!/ See 46 Fed. Reg. 38,711 •. Attached as Exhibit C is a copy

O'rthe notice published in the Federal Register.

-4-

On March 5, 1980, the Premerger Notification Rules were

amenaea to exempt certain relatively small acquisitions from the

filing requirements of the Act.2_/ The proposed ru.le would change

the dollar values currently applicable to acquisitions of and by

foreign companies so that they coincide with the dollar value of

the amended minimum dollar exemption currently applicable to U.S.

compa.!1 i es.

At present, parties may comply with the filing requirements

of the Act and with requests for additional information by

supplying documents written in a foreign language. The proposea

rule would require that these documents be supplied in English if

such English versions of the foreign language a·ocument exist at

the time the submission is made.

Currently, the form requires companies to supply all recent

registration statements with their filings. The prop::>sed rule

would require that companies supply only those registration

statements prepared in connection with the transaction being

reported, and then only if they are available at the time of

filing.

3.

Premerger Notification Form

Sin.:e the filing requirements of the Act took effect in

1978, parties to an acquisition have been required to prepare a

premerger notification form. The Premerger Notification Office

of the FTC has now, after three ana a half years of experience

with the forrr., devised a new form which is intended to be easier

for parties to prepare ..§/ The new form does not alter the

substan.:e of the information which parties are requirea to

.

furnish. The changes are primarily improvements in the format

ana clarification of the instructions to the form.

See 16 C.F.R.

§

802.20.

See Exhibit D for a copy of the new Antitrust Improvements

Act Notification ana Report Form.

-s-

Merger Enforcement Activity During 1981 1J

The Antitrust Division did not seek any preliminary

injunctions in merger cases in 1981; however, it did file two

complaints in merger cases.~/ The U.S. v. Waste Management case

is still pending, and Du Pont was settled when Du Pont consented

to an order requiring it to purchase the assets of a joint

venture which had been established by Conoco, Inc. and Monsanto

Company.

In addition to the two filed cases, one proposed merger was

cancelled following public announcement by the Department that it

would oppose the transaction if carried out 9/,· and one proposed

merger was modified to eliminate an area of competitive overlap,

again following a public announcement that the Department would·

opp::>se the transaction as prof))sed.10/ The Department of Justice

also has entered into consent agreements in two cases which had

been filed prior to 1981.11/

The Federal Trade Commission authorized the staff of the FTC

to seek four preliminary injunctions in 1981 • . Three of these

actions were brought in an attempt to block acquisitions. The

Commission also sought a preliminary injunction enforcing the 20day waiting period under the Hart-Scott-Red i no Act ·ill

1.1 The fifth annual report covers the period from January 1,

1981, through December 15, 1981.

United States v. Waste Management, Inc. et al. (S.D.N.Y.,

filed February 25, 1981) and United States v. E.I. Du Pont de

Nemours & Co., Inc. et al (D.D.C., filed August 4, 1981).

Prof))sed acquisition of Jos. Schlitz Brewing Co .. of

Milwaukee, Wisconsin, by the G. Heileman Brewing Co., Inc. of

La Crosse, Wisconsin.

1..QJ Proposed acquisition of the Piping Systems Division of

Celanese Corporation of New York by Nibco Inc., of Elkart,

Indiana.

United States v. Hospital Affiliates International (E.D. La.,

filed on September 25, 1980, consent reached on December 14,

1981) and United States v. Cross ana Trecker Corp. (E.D.

Mich., filed on September 25, 1979, consent reached on July

6, 1981).

11J FTC v. Dana Corporation et al.

1981) .

-6-

(N.D. Texas, filea January 7,

In the case of FTC v. Great Lakes Chemical Corporation,1lJ

the court h'ela against the Commission, denying the preliminary

injunction. The Commission also sought a prelimin?ry injunction

to prohibit LTV Corporation from acquiring Grumman.14/ LTV

cancelled its takeover attempt before the case was heard. The

Commission has also filed for a preliminary injunction which

would block Mobil's attempt to acquire Marathon.1.2J This case is

still· pending.

The Federal Trade Cofil~ission issued four complaints in

merger cases in 1981.16/ These cases are still pending before

Administrative Law Judges. In addition, the Commission issued

consent orders in settlement of six other cases.17/

In addition to the formal challenges and consent orders

discussed above, it is likely that the very existeoce of the

premerger reporting system and the statutory waiting perio:J

requirements has deterred some firms from entering into merger

agreements which might have violated the antitrust laws.

Although this deterrent effect is a desirable ana important

aspect of the program, there is no way of measuring the extent to

which Hart-Scott-Rodino may act in this way as a self-policing

device.

1lJ Filed June 3, 1981,

in the Northern District of Illinois.

14/ Filed October 28 ~ 1981, in the Eastern District of New York.

l.2J Filed December 11, 1981, in the Northern District of Ohio.

FTC complaints in 1981: Weyerhaeuser Co., Docket 9150

( is s u ed Feb r u a r y 9 , 19 8 l ) : G u l f & west e r n I na u st r i es , I nc . ,

Docket 9153 (issued March 27, 1981}: The Echlin Manufacturing

Company, Docket 9157 (issued July 23, 1981): American Medical

International, Inc., Docket 9158 (issued July 30, 1981).

FTC consent orders issued in 1981: Owens-Corning Fiberglas

Corp., Docket C-3061 (March 30, 1981}: Albertsons, Inc.

Docket C-3064 (April 21, 1981): Gcdfrey Company, Docket C3066 (May l~, 1981); American Hospital Supply Corporation,

Docket C-3067 (June 2, 1981)"; The British Petroleum Company

Limited, Docket C-3074 (September 3, 1981); Kennecott

Corporation, Docket C-3075 (September 28, 1981). It should

be roted that the cases mentioned in this report were not

necessarily reportable under the premerger notification

prograrr.. Because of the Act's provisions regarding the

confidentiality of information obtained pursuant to the

progra'T., it would be inappropriate to identify which of these

cases \ol'ere initiated under .the premerger notification

program.

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;

.

Assessment of the Effects of the Premerger Notification Program

The impact of the premerger notification prog~am on the

antitrust enforcement agencies and on the business community

which they monitor can, in pa rt, be meas urea in terms of

statistics such as numbers of reportable transactions, second

requests, or litigated cases. However, to evaluate the meaning

of th·e statistics fully, some additional observations are

ap pr op r i ate •

First, as indicated in past annual reports, the creation of

a program of premerger notification itself has !ulfilled a major

goal of the Act. The requirement that firms observe a waiting

period before completion of a prop::ised transaction has largely

eliminated the phenomenon of the "midnight merger".

Therefore,

the Act's provisions have assured that virtually every

significant acquisition occurring in the United States will be

subject to a meaningful review by the antitrust enforcement

agencies.

Second, it is important to recognize that information

furnished pursuant to the premerger notification program has

streamlined certain antitrust enforcement efforts by allowing the

agencies to proceed in a more focused and well-informed manner.

The procedural tools available to the agencies under the Act

(such as the initial filing and the second requests) provide

sufficient information, in most cases, for the agencies to

evaluate the prop::ised acquisition and determine whether to seek a

preliminary injunction to prevent the transaction. The review

procedure also gives companies subject to the Act an opportunity.

to provide the enforcement agencies with information which

indicates that further investigation is unnecessary.

Furthermore, it should be emphasized that the first three

years of the premerger program have been characterized by a high

degree of cooperation between the enforcement agencies and those

subject to the Act. Complian:::: e with the filing re qui remen ts is

thought to be very good, as evidenc·ed by the fact that thus far

there have been no actions under subsection (g) (1) to recover

civil penalties for non-compliance with the Act. Also, the two

agencies encourage telephone inquiries regarding technical

quest'ions which arise under the Act,ll/ in an effort to provide

parties with assistance in determining whether a filing

obligation exists in a given situation, and in preparing the

notification form when required.

In November 1980, the Bureau of Competition contracted with

Professor Samuel Thompson of the University of Virginia School of

Law to conduct a study of the premerger notification program in

g; FTC' s. Premerger Notificati.on Office estimates that it

presently· receives between 20 and 25 such inquiries daily.

-8-

oraer to assess the impact of the program on filing persons.12J

Professor ThoIT.pson interviewea thirteen individuals, all of whom

were thoroughly familiar with the premerger program and had filed

several premerger forms on b~half of their clients.

As a result of his study, Professor Thompson concluded:

It is p:>ssible to say with a great deal of .confidence

that the Act and the rules have not distorted the

acquisition precess. • •

Clearly the business

considerations still control the acquisition decision.

Further, the costs of compliarx::e with. HSR are clearly

not pr oh i bit i ve or overly burden some .1QJ

The report went on to point out that the Act had brought

about the desirable effect of heightening an awareness of

antitrust considerations present whenever parties contemplate a

merger or acquisition.

In those areas where Professor Thompson pointed to problems

with the program, the staffs of the Federal Trade Commission and

the Department of Justice have either taken steps, or are

currently taking steps, to correct the problems. Generally the

report is positive, and tends to confirm what the staffs had

concluded based on their informal contact with the public.

Finally, it should be noted that neither this report to the

Congress, nor Professor Thompson's Report, addresses the issue of

w.-iether the waiting periods defined by Section 7A(b) (1) of the

Act, and the extensions thereof permitted by Section 7.A{e) (2) of

the Act, provide aaequate ·time for Commiss.ion and Justice

Department consideration of planned mergers or acquisitions.

Also, neither report discusses whether an extended waiting perioo

under Section 7.A{e) (2) of the Act, triggered by the issuarx::e of a

second request under Section 7.A(e) (1) of the Act, may in some

cases accord an unintended and perhaps unfair advantage to one

suitor over another. The Commission and the Department of

Justice are presently considering these issues, but have rot yet

reached even tentative conclusions. Should the Commission or the

Department of Justice determine that Congressional action on

these issues may be warranted, recommendations will be

forthcoming- to the Congress in a future report.

This report was completed in May 1981, and has now been

published by the Commission.· A copy of the report is

attached, see Exhibit E. The report is the product of an

outside consultant and does not necessarily reflect the views

of the Commission, individual Commissioners, or the Bureau of

Competition.

1Q.,! Study at 81.

-9-

The Assistant Attorney General has inaicatea his concurrence

with the annual report.

By direction of the Commission.

-10-

raltM'\RV Of' TPl\N~ •. ~TICNS, l97A - l<JA1

1970

1979

1980

1981

(S(jlt. -f):>c.) (J;m.-f)r>c.) (J;m.-rr.c.)

Transi'\ctions R('f)()rted

Total

(Jan.-Nov. !/)

355

868

fJ21\

909

3036

)6

109

74

75

294

. F"OC

J.3

SB

36

44

OOJ

13 .

51

38

31

~iested

31

118

Early Termination Granted

16

62

Early Termination Denied

15

53

Trnnsactions ~re J\d<lit~onal Informiltion

WilS Rf'qllf">S tf'< 1

Transactions where Early Tennlnation

wns

3/

y

y

y

161

133

169 ~

432

39

129

296

15

16

99

114

!/ WPPk endin<:J Decrnber 4, l 9Rl

Y

Y

y

5/

Each agency withdrew one I'f'qUCSt for i'\cldltiorol infornntion.

Inchxles two trans;ictions fotmd to be non-reportc,hle and one tran~rtction in which· the filinqs were withdrawn •

..

Three tran.qactions were found to be exrnvt/non-rep:>rt-:,ble, three transactions were withdrawn and the request

for early termination was withdrawn in four transactions.

InclUdee eix transactions found to be exnrpt/non-reportable, four trammctions in which the ro:iuest for early

termination was wi thdr(JWJl nnd fourtC<'Jl trilnsncHons with rerJl)("sts outstnmling.

Number of Transactions Reported·on a Month-By-Month Basis:

January - November, 1981 Compared to January - November,

1978 and 1979

•'

1979

1980

1981

January

71

56

73

February

75

64

60

March

75

58

75

April

57

60

64

May

84

55

92

June

76

6~

87

July

88

60

107

August

.75

82

92

September

so

68

89

October

78

91

116

Noverr.!::ier

ES

72

117

814

735

972

Total

List of Attachments

Exhibit A -- Formal Interpretation issuea June 2, 1981

concerning treatment of debenture issuea by Sun

Company, Inc.

Exhibit B -- Formal Interpretation issued April 7, 1981 allowing

incorporation by reference for certain SEC documents

required by Item 4(a) of the form.

Exhibit C -- Copy of Prop:isea changes in the Premerger

Notification Rules published on July 29, 1981.

Exhibit D

New Premerger Notification Form.

Exhibit E

Evaluation of Premerger Notification Program, by

Samuel C. Thompson, Jr., Professor of Law,

University of Virginia