Premerger Notification; Reporting and Waiting Period Requirements

FEDERAL TRADE COMMISSION

16 CFR Part 802

Premerger Notification; Reporting and Waiting Period Requirements

AGENCY: Federal Trade Commission.

ACTION: Final rule with request for comments.

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SUMMARY: This final rule amends the premerger notification rules that

require the parties to certain mergers or acquisitions to file reports

with the Federal Trade Commission and the Assistant Attorney General in

charge of the Antitrust Division of the Department of Justice, and to

wait a specified period of time before consummating such transactions.

The reporting and waiting period requirements are intended to enable

these enforcement agencies to determine whether a proposed merger or

acquisition may violate the antitrust laws if consummated and, when

appropriate, to seek a preliminary injunction in federal court to

prevent consummation. During the nineteen years the rules have been in

effect, the Federal Trade Commission, with the concurrence of the

Assistant Attorney General for Antitrust, has amended the premerger

notification rules several times to improve the program's effectiveness

and to lessen the burden of complying with the rules. This final rule

amends Rule 802.70, which exempts from the reporting requirements

acquisitions of stock or assets required to be divested by an order of

the Federal Trade Commission or of any Federal court in an action

brought by the Commission or the Department of Justice. As amended the

Rule will exempt as well divestitures pursuant to consent agreements

that have been accepted by the Commission for public comment or have

been filed with a court by the Commission or the Department of Justice

and are subject to public comment, but are not yet final orders. These

transactions are adequately reviewed for potential antitrust concerns

during the approval process under the consent agreement, in which the

antitrust agencies determine that the divestiture to that party does

not raise antitrust concerns. The Commission has thus made this change

to Section 802.70 because such acquisitions are unlikely to raise

antitrust concerns.

The Commission has made this final rule without notice and comment

because notice and comment would be unnecessary and the delay in

implementing the rule would be contrary to the public interest. Section

802.70 already exempts from the reporting requirements transactions

that satisfy divestiture requirements under Commission or Court orders

in cases brought by the Commission or the Department of Justice. The

amendment merely extends the exemption to transactions entered into

before the relevant order has been made final. Whatever delay and cost

result from the HSR reporting requirements are contrary to the public

interest where the antitrust agencies already have notice of the

transaction and have completed their review.

Notice and comment in this matter are unnecessary because the

Commission has already exempted acquisitions pursuant to a final

divestiture order, and there is no relevant difference between the two

situations. The agencies in each case already have all the notice and

information they would otherwise obtain under HSR. No other person has

access to or interest in the information provided under HSR, and

therefore no other person has an interest in ensuring a filing in these

circumstances.

DATES: This final rule is effective on June 25, 1998. The Commission

will, however, accept comments on the revised rule that are received on

or before July 27, 1998, and may reevaluate the rule in light of those

comments.

ADDRESSES: Written comments should be submitted to both (1) the

Secretary, Federal Trade Commission, Room 159, Washington, D.C. 20580,

and (2) the Assistant Attorney General, Antitrust Division, Department

of Justice, Room 3214, Washington DC 20530.

FOR FURTHER INFORMATION CONTACT: Roberta S. Baruch, Deputy Assistant

Director, Bureau of Competition, Room S-2115, Federal Trade Commission,

Washington, DC 20580. Telephone: (202) 326-2687.

SUPPLEMENTARY INFORMATION:

Regulatory Flexibility Act

The Regulatory Flexibility Act, 5 U.S.C. 601-12, requires that the

agency conduct an analysis of the anticipated economic impact of the

proposed amendment on small businesses.

The purpose of a regulatory flexibility analysis is to ensure that

the agency considers impact on small entities and examines alternatives

that could achieve the regulatory purpose while minimizing burdens on

small entities. Section 605 provides, however, that such an analysis is

not required if the agency head certifies that the regulatory action

will not have a significant economic impact on a substantial number of

small entities. Because of the size of the transactions necessary to

invoke a Hart-Scott-Rodino filing, the premerger notification rules

rarely, if ever, affect small businesses. Furthermore, the amendment

will merely exempt companies from Hart-Scott-Rodino reporting

requirements for certain transactions. Accordingly, pursuant to the

Regulatory Flexibility Act provisions of the Administrative Procedure

Act, 5 U.S.C. 605(b), the Federal Trade Commission has certified that

this rule will not have a significant economic impact on a substantial

number of small entities. Section 603 of the Administrative Procedure

Act, 5 U.S.C. 603, requiring a final regulatory flexibility analysis of

these rules; is therefore, inapplicable.

Paperwork Reduction Act

The premerger notification rules and report form contain

information collection requirements that have been reviewed and

approved by the Office of Management and Budget under OMB Control

Number 3084-0005. The Paperwork Reduction Act, 44 U.S.C. 3501 et seq.,

requires agencies to submit requirements for ``collections of

information'' to OMB and obtain

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clearance prior to instituting them. Such collections of information

include reporting, recordkeeping, or disclosure requirements contained

in regulations. The proposed amendment does not impose any such

requirements beyond those that have already been approved by OMB. The

amendment will exempt reporting requirements for transactions that have

been made pursuant to consent agreements that have been accepted by the

Commission for public comment or that have been filed with a court by

the Commission or the Department of Justice for public comment, but

that are not yet final orders. This revision will eliminate an

unnecessary burden in connection with these acquisitions and will

generally provide some reduction of the Paperwork Reduction Act burden

currently associated with the Rule.

Background

Section 7A of the Clayton Act, 15 U.S.C. 18a, as added by Secs. 201

and 202 of the Hart-Scott-Rodino Antitrust Improvements Act of 1976

(``the act'' or ``HSR''), requires persons contemplating certain

acquisitions of assets or voting securities to give advance notice to

the Federal Trade Commission (hereafter referred to as ``the

Commission'') and the Assistant Attorney General in charge of the

Antitrust Division of the Department of Justice (hereafter referred to

as ``the Assistant Attorney General''), and to wait certain designated

periods before the consummation of such acquisitions. The transactions

to which the advance notice requirement is applicable and the length of

the waiting period required are set out respectively in subsections (a)

and (b) of Sec. 7A. This amendment to the Clayton Act did not change

the standards used in determining the legality of mergers and

acquisitions under the antitrust laws.

The legislative history suggests several purposes underlying the

act. Congress wanted to assure that large acquisitions were subjected

to meaningful scrutiny under the antitrust laws prior to consummation.

To this end, Congress expressly intended to eliminate the large

``midnight merger,'' which is negotiated in secret and announced just

before, or sometimes only after, the closing takes place. Congress also

provided an opportunity for the Commission or the Assistant Attorney

General (who are sometimes hereafter referred to collectively as the

``antitrust agencies'' or the ``enforcement agencies'') to seek a court

order enjoining the completion of those transactions that the agencies

deem to present significant antitrust problems. Finally, Congress

sought to facilitate an effective remedy when a challenge by one of the

enforcement agencies proved successful.

Thus, the act requires that the antitrust agencies receive prior

notification of certain acquisitions; provides certain tools to

facilitate a prompt, thorough investigation of the competitive

implications of those acquisitions; and assures the enforcement

agencies an opportunity to seek a preliminary injunction before the

parties to an acquisition are legally free to consummate it, reducing

the problem of unscrambling the assets after the transaction has taken

place.

Subsection 7A(d)(1) of the act, 15 U.S.C. 18a(d)(1), directs the

Commission, with the concurrence of the Assistant Attorney General, in

accordance with the Administrative Procedure Act, 5 U.S.C. 553, to

require that the notification be in such form and contain such

information and documentary material as may be necessary and

appropriate to determine whether the proposed transaction may, if

consummated, violate the antitrust laws. Subsection 7A(d)(2) of the

act, 15 U.S.C. 18a(d)(2), grants the Commission, with the concurrence

of the Assistant Attorney General, in accordance with 5 U.S.C. 553, the

authority to: (a) define the terms used in the act; (b) exempt

additional classes of persons or transactions which are not likely to

violate the antitrust laws from the act's notification and waiting

period requirements; and (c) prescribe such other rules as may be

necessary and appropriate to carry out the purposes of Sec. 7A.

The rules are divided into three parts, which appear at 16 CFR

Parts 801, 802, and 803. Part 801 defines a number of the terms used in

the act and rules, and explains which acquisitions are subject to the

reporting and waiting period requirements. Part 802 contains a number

of exemptions from these requirements. Part 803 explains the procedures

for complying with the act. The Notification and Report Form, which is

completed by persons required to file notification, is an appendix to

Part 803 of the rules. Changes of a substantive nature have been made

in the premerger notification rules or Form on nine occasions since

they were first promulgated.

The Commission recognizes that the premerger notification

obligations can create delay and impose the cost of the filing fee even

for acquisitions that do not raise competitive concerns, and that this

delay and cost can impose burdens on buyers and sellers. The delay that

occurs is the necessary consequence of preventing consummation while

the antitrust agencies assess the likelihood that proposed transactions

will violate the antitrust laws. The special treatment of cash tender

offers in section 7A(b)(1)(b) of the Act illustrates congressional

concern to avoid unnecessary disruption of the operation of the market

for corporate control. See 122 Cong. Rec. H. 10,293 (daily ed. Sept.

16, 1976). In addition, the Commission has tried to minimize any

unnecessary disruptive effect of premerger review by the design of its

procedures and the speed with which it reviews proposed transactions

and in a majority of transactions grants early termination of the

waiting period. Moreover, whenever the Commission can determine that a

class of transactions is unlikely to violate the antitrust laws, it has

sought, with the concurrence of the Assistant Attorney General for

Antitrust, to exempt such transactions from all notification

obligations and the delay and cost inherent in premerger review.

Statement of Basis and Purpose for the Commission's Revised Premerger

Notification Rules

The Commission, with the concurrence of the Assistant Attorney

General, promulgates this amendment pursuant to 15 U.S.C. 18a(d).

Section 802.70 of the Rules exempts from the reporting requirements

acquisitions of assets or voting securities from an entity required to

divest such assets by order of the Federal Trade Commission or of any

Federal Court in an action brought by the Federal Trade Commission or

the Department of Justice. The agencies have recognized that there is

no need for filing under HSR in these circumstances. Under existing

procedures the agencies already review divestitures required by final

orders. This review gives the agencies the full opportunity to weigh

the competitive impact of the proposed transaction prior to

consummation and to prevent the transaction if appropriate, the same

goal that HSR was designed to accomplish.

Both the Commission's Rules of Practice and the Antitrust

Procedures and Penalties Act require a proposed settlement to be

published in the Federal Register for a 60-day public comment period.

Proposed orders thus do not become final until at least 60 days

following their acceptance by the parties and the antitrust agencies,

and therefore the exemption created by section 802.70 of the Rules does

not apply to any divestiture that might be made during the period

between acceptance of a settlement and issuance of a final order, even

if such divestiture were to an acquirer and according to a

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contract that is specified in the proposed settlement.

Recently, the Commission has been shortening the time period in

which divestiture is to take place and has more frequently included

specific approved acquirers and reference specific divestiture

agreements in proposed orders when the Commission accepts proposed

orders for public comment. This trend has increased the likelihood that

the divestiture transaction will occur before there is a final order

requiring divestiture. In these circumstances, Rule 802.70 as written,

because it applies only to final orders, does not provide an exemption.

Nevertheless, the same reasons to exclude from the HSR filing

requirements divestitures after the order is entered also apply in

cases where the proposed order identifies the acquirer and the

divestiture contract. The agencies have already had an opportunity

comparable to that which HSR provides to weigh the competitive impact

of proposed transaction and to approve or disapprove the transaction.

There is therefore no need for a separate HSR filing.

The Federal Trade Commission believes that an acquisition of assets

or voting securities pursuant to the terms of a proposed order of

divestiture is unlikely to violate the antitrust laws and that

exempting such acquisitions is necessary and appropriate to carry out

the purposes of the act. Accordingly, the Commission has amended

Sec. 802.70 of its premerger notification rules to exempt such

acquisitions from premerger reporting requirements.

The following section outlines briefly the rationale for this

rulemaking. Subsequent sections discuss certain key issues concerning

the Commission's authority to promulgate Sec. 802.70, and the nature of

the new rule.

Statement of the Underlying Problem

The purpose of section 7A of the Clayton Act is clear: to give the

antitrust agencies an opportunity to determine whether a proposed

acquisition might violate the antitrust laws and an opportunity to

challenge any such transaction prior to consummation. At the same time,

the program is not without cost, including the cost of filling out the

form, filing fees, delaying transactions and otherwise. For

transactions that do not rise significant issues under the antitrust

laws these costs can be particularly burdensome. The Commission has

continually reviewed the premerger notification program in an effort to

increase its efficiency and decrease the burden on filing parties. This

rulemaking proceeding is part of this effort.

Analysis of Proposed Revised Rule 802.70

Revised rule 802.70 exempts completely from HSR premerger

notification requirements acquisitions pursuant to a divestiture order

once the order is accepted by the Commission for public comment or is

filed with the Federal court for public comment. It does so because the

Commission believes that such transactions, having received a full

review and been accepted by the Commission or the Antitrust Division,

are not likely to violate the antitrust laws and because exempting such

acquisitions is necessary and appropriate to carry out the purposes of

the act.

In deciding to revise rule 802.70, the Commission relied upon its

own extensive merger enforcement experience, as well as that of the

Antitrust Division of the Department of Justice.

Congress expressly has authorized the Commission, with the

concurrence of the Assistant Attorney General, to ``exempt from

requirements of [the act], classes of * * * transactions which are not

likely to violate the antitrust laws.'' Section 7A(d)(2)(B) of the Act.

The finding required by the statute can be demonstrated in different

ways. The Commission can exempt a class of transactions because that

class of transactions is inherently unlikely to be anticompetitive.

Acquisitions pursuant to divestiture orders are inherently unlikely to

be anticompetitive. Such transactions are already subject to the

approval of the agencies and such approval would not be granted if the

transaction would be anticompetitive. This is true whether or not the

divestiture order is final. Accordingly, there is no need for a

separate HSR filing.

List of Subjects in 16 CFR Part 802

Antitrust.

Final Rule

The Commission amends Title 16b Chapter I, Subpart H, The Code of

Federal Regulations as follows:

PART 802--EXEMPTION RULES

1. Authority. The authority citation for Part 802 continues to read

as follows:

Authority: Sec. 7A(d) of the Clayton Act, 15 U.S.C. 18a(d), as

added by sec. 201 of the Hart-Scott-Rodino Antitrust Improvements

Act of 1976, Pub. L. No. 94-435, 90 Stat. 1390.

2. Section 802.70 is revised to read as follows:

Sec. 802.70 Acquisitions subject to order.

An acquisition shall be exempt from the requirements of the act if

the voting securities or assets are to be acquired from an entity

pursuant to and in accordance with:

(a) An order of the Federal Trade Commission or of any Federal

court in an action brought by the Federal Trade Commission or the

Department of Justice;

(b) An Agreement Containing Consent Order that has been accepted by

the Commission for public comment, pursuant to the Commission's Rules

of Practice; or

(c) A proposal for a consent judgment that has been submitted to a

Federal court by the Federal Trade Commission or the Department of

Justice and that is subject to public comment.

Donald S. Clark,

Secretary.

[FR Doc. 98-16954 Filed 6-24-98; 8:45 am]

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