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FEDERAL TRA:>t. co .. v . .i..s.;:f\:G”‘ON o.c The George Bush President of the Senate Unitea States Senate Washington, D.C. 20510 May 31, ‘1984 The Thomas P. O’Neill, Jr. Speaker of the Bouse of Representatives Washington, O.C. 20515 \ SUBJECT: (Seventh to Congress Pursuant to Section 201 of the Bart-Scott-Rodino Antitrust Improvements Act of 1976 Gentlemer:: ) Section 201 of the Bart-Scott-Rodino Antitrust Improvements Act of 1976, Pub. L. 94-435, amenaed the Clayton Act by adding a Section 7A, 15 o.s.c. Sl8a. Subsection (j) of this section 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 sec-tion. Such report shall include an assessment of the effects of this section, of the effects, purp6se, and the need for any rules promulgated p4rsuant thereto, and any recommendations for of this section. This is the seventh annual report to Congress pursuant to this provision.
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.· ln general, Section 7A establishes a mechanism under which persons with sales or assets greater than a specified amount who intend to make a stock or asset acquisition of a specified size or larger must report their intentions to the Federal Trade Commission and the Department of Justice. the must wait a prescribed period of time, usually 30 days, before consummating the transaction. The primary purpose of this statutory scheme, as the legislative history makes clear, is to provide the antitrust enforcement agencies with a meaningful opportunity to review mergers and acquisitions of size before those transactions take place. If either agency believes that a proposed transaction may violate the antitrust laws, Section 7A(f) 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 enhanced by the provisions of Section 7A{e), which either of the agencies to issue a request for adcitional 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 information or material. Final rules governing of the premerger not if ica:.ion proi;:::arr: were proi::o.;lgated by the Comrr.ission, with the concurrence of the Assistant Attorney General, on July 31, 1978. 1J At the a corr.prehensive Statement of.Basis anc Purpose contains a analysis of each of the rules and· an analysis of each item of the Premerger Notification and Report Form. The became. effective on September 5, 1978. This year the with the concurrence of the Assistant Atto=ney General, made several changes in the premerger notification rules. These amendments, which became effective on August 2S, 1983, a:::e discussed Statistical Profile of the Premerger Notification Program The appe_ncices to this report provide a statistical ·cf the of the premerger notification program. Appendix A fqr each year (or part of a year) in which the prograffi has been operation the number of transactions reported, the 1 I _. ‘3 Fed. Reg. 33450 (July 31, 1978). The rules also appear in 16 C.F.R. Parts 801 through 803. For more information concerning the development of the rules and operating procedures of the. premerger notification program, see the second anc third annual reports covering the years 1S76 and 197S·, respectively. -2-
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.· number of filings receivea, the number of trar.sactions in whicb requests for additional information or documen:ary material (hereinafter re.ferrea to as “second regues-:s”) were i!:t-sueo, ana number of transactions in which requests for early termination were received, granted, and deniec., Appendix B provides a comparison of the number of filings received ano the number of transactions reported for 1981 through 1983. , The statistics set out in these appeno1ces indicate that the of transactions reported in 196l decreased l.4% from the reported in 1562 (ll” in 1982 ano 1126 in 1583). The statistics also indicate a decrease for the second year in the number of second requests (from ‘S issued in 1982 to 48 issued in 1983). Although the nurr.ber of second requests issued as a percenta9e of reportable transactions has rer.ained roughly cons:ant over the last two years, this rate declined sharply between 1979 and 1981 (12.6\ in 1979, S.Oi in lSbO, 7.5% in 1981, 4.3% in 1962, anc 4.3% in 1963). As we indicated in the Sixth . Annual Re?ort, this persistent trend may in part reflect a beneficial deterrent effect of the premerger notification Because the enables the enforcement agencies to detect and challenge virtually all sizeable anticompetitive before they are consummated, businesses may be inc:easin;ly avoiding ·that approach the line of ille9ality. crop in the second issue rate since 1981 may also re:lect the impact of the Justice 1962 Merger Guidelines ar.c the Federal Trade Commission’s contemporaneous Concerning Eorizontal Mergers. documents have business decision-makers with a better understanding of the types of transactions that are likely to be challenged as well as the factors the enforcement agencies will consider in making their decisions. this knowledge, bwsiness rr.akers can more easily avoid transactions of questionable lesality. In addition, because of these documents, parties ir.volvec in transactions that appear to raise antitrust issues have been l:;>et’ter able to identify areas of concern and have, on several occasions, voluntarily provided addressing these proSler::s .· Thus, the agencies have been able to resolve some concerns without resorting to second requests. The statistics also show that the number of transactions involving requests for early termination has increased dramatically. Appendix A shows that in 1983, early termination Łas in 643 transactions while it was requesteo in only -3-
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3’1 transactions in 1982. This represents, as a percentage of reportable transactions, a request rate of 57t ‘· a substantial over the 1982 rate of 29.8%. The agencies 9qanted early termination in 599 transactions in 1983. This is a cdntinuation of. the substantial percentage of requests the agencies have been able to grant in 1982 and 93.2\ in 1983). As noted in the Sixth Annual Report, the increases in requests for early termination and the high proportion of those which have granted are probably attributable to the change in agencies’ standard for granting ea:ly termination that was adopted in the formal interpretation issued by the Commission on August 20,. 1982. Recent Relatinc to Nctif ication Rules a:-:c 1. Changes On July 2 9, 19 8 3, the C0Tr.’T’1i ss ion, th the concur re nee of the Assistant Attorney General, promulgated several changes in the prerne:ger notification rules (ftrulesn). 1J These amendments, effective on August 29, 1983, improve the several ways. First, most of the changes are technical in nature, anc should correct inadvertent omissions, sirr.?lify pro\Łisions or :.·_ .. erwise improve the clarity, anc effe=tiveness of the rules. Second, many of the should the repo:ting of the premerger notification For some provisions elirr.inate confusicr. that has ariser. unoer the current rules. Other provisions ex?ana the extent to which parties may inco:po:ate by reference information in a previous filing, 1J raise the size-of-transaction exemption for certain 1J 11 I I 45 Fee. Reg. 34,27 (July 29, 1983) ,·Exhibit A. Nei,.: Subsection 803. 2 {e) allows persons to incorporate by reference in a filing current SEC documents and annual subrnittea with an earlier filing. Further, the ruie allows parties to an acquisition filing for a higher ication threshold within SO days of filing for a lower in connection with the same acquisition, to in=orporate by reference any current document or informa:ior. person supplied in the earlier filing. -4-
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acquisitions .!I or aoa new exemptions to the filing requirements. 21 None of these changes should reouce the enforcement agencies’ ability to scrutinize transactions likely to violate the antitrust laws. rFinally, new rule 803.8 should enhance the agenci4s’ co review transactions involving foreign or operations. The new rule requires a company to,provide with initial filing any English language that already exist of documents and information which it submits-in a foreign language. The rule also requires a party responcing to second request to translate responsive foreign documents to the extent specified in che second request. 2. Paperwork Burden Reducing the report1ng burden of the premerger notification prograrr while maintaining its enforcement value continues co be an important Corn.rr.ission objective. As noted, the rules changes just promulgated should advance this objective in several significant ways. Commission staff are also evaluating further revisions in the rules and reporting form to reduce burden. To assist this process as well as to other publicly available information on merger activity, we have preparec tatles present statistical info:rnation for 1982 Bart-Scott-Rodino filings. This information, is presented in B, is sirr.ilar to the information fo: 1961 filings pre:entec-in the 19£2 request fer . Rules 802.50 and 802.51 exempt acquisitions o: or by foreign persons where the effects of such on Unitec States comrr.erce are relatively small. A major rationale for these exemptions is the same as that for the minimum dollar exemption set out in rule 802.20: transactions having a relatively small nexus with United States col’t.T’ilerce are unlikefy co have a significant domestic anticompetitive ;The amendments to rules 802.50 ana 802.51 simply apply “to the “foreign commerce” exemptions the new minirnurr. value exemptions in rule 802.20 that established by the Comrr.ission on November 21, 1979. 44 Fed. Re;. 667E1 21, 1979). rules 802.6 and 802.8 create exemptions for certain regulated transactions. rule B02.6(b) certain transactions requiring approval by che Civil rule 802.S(b) exerr.pts acquisitions involving insured banks or other financial These amendments were made to accommodate changes in other statutes that since the rules first into effect. -s-
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on burden reauction . ..§./ We hope that this accitional information will stimulate further burden-reducing changes as·well as contribute to scholarly research about mergers. 3. Compliance Prior reports to Congress have noted that the preierger notification program has “been characteri2ed byJa high degree of the agencies and those subject eo the Act.ft l/ The agencies frequently assist parties in determining whether transactions are subject to the notification requirements of the program anc what information is called for by the notification and report !J Furthermore, all indications suggest that compliance with the premerger notification filing reguirernents continues to be excellent. The agencies have not yet brought any actions under Section 7A{g) (1) to recover civil penalties for non-compliance. The agencies a constant.monitoring program to ensure that the parties to transactions covered by the p:o;ram comply its provisions. The agencies review the business newspapers and industry publications for of transactions may be subject to filing Industry sources, such as corr.petitcrs, and interested of the public often provide furthe: information concerning a proposed transaction is announced that appears to be by the statute :-1 rules, and no filing has been· received in a reasor.atle time, 6r. when such a transaction has ar.nouncea as and the agencies have not receivec a prior filing, letters are ser.t to the parties requesting an explanation. In all but.a cases, the res?onses to these have adequately explained the transactions were either or not covered by the premerger notification In a cases, almost always involving or small co:po:ations, failure to file has from oversight than oe:iberate failure to file. · ln all of the cases in violations were identif ieo, the parties have subsequently filed belated fo;ms when they were made a*are of their filing cbli9ation. None of the transactions raised any antitrust ii e ,. _1 47 Fee. Reg. 29182 (July 2, 1982). This notice contained eleven statistical tables showing prernerger filings ano enforcement interest in 1981. Annual Report to Congress, page 6, and Sixth Annual to Congress, page 6. The FTC’s Premerger ·Notification Office, which administers the receives approximately 50 such inquiries daily. -6-
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abandoned the proposal altogether. l.Qj In each·case, the parties either restructureo the transaction to eliminate areas of competitive overlap or oid not consu;n.1,ate, eliminating any need for legal action by the Antitrust Division. 1 . Of the 28 investigations which involved the issuLnce of second requests, two transactions were by the parties after the Division issuec requests for aooitional information. Finally, the Division entered into consent decrees in four merger cases in which complaints had been filed prior to January l,·1963. ll/ The cio not seek any injunctions in merger cases in 1SE3. However, it dio issue one proposed concerning a joint venture and one in a merger case. A proposed corr.plaint and a proposed consent order were filed in connection with a joint venture between General Motors Corporation and Toyota Motor Corporation De?artment of Justice Press Release of June 15, 1983, involvin5 the ca?ital stock acquisition by Mission lnc. of Petrolane, Inc.; De?artment of Justice Press Release of 10, 1963, invclvin; the proposed jcint among Company, City Stuoios, Inc., Viacom International, Inc., Bros., Inc. and lnc. to own and operate Showtime and The Movie Channel; Department of Justice Press Release of March 1, 1963, involving the sale of certain patent, know-how and other rights of Wheelabrator-Frye, Inc. to a joint venture of BR!, Inc., a subsiciary of Dynalectron Corporation, and Air Products and Chemicals, Inc., in connection with the acquisition by The Signal Companies, Inc. of Frye, Inc.; and Department of Justice Press Release of 15, 1983, involving the proposed acquisition by National Amusements, Inc. of four motion picture theaters General Cinema. ” Ur.ited States v. American Maize-Products Company and Bayuk Cigars, Inc., Cv. No. 81-1232-CIV-J-M (Y..D. Fla., Jacksonville Division, filed 22, 198l; consent decree entered October 27, 1983); Unitec States v. G. Heileman Company, Inc. and Pabst Brewing Company, Cv. No. 62-750 (D. Del., filed November 22, 1962; consent decree May 16, 1983); United States v. British Columbia Forest Pro.ducts, Ltd. and The Mead Corporation, Cv. No. 4-76-357 (D. filed December 13,.1982; consent decree e t er e d a r ch 1 4 , l 9 8 3 ) ; and Uni t e d St at es v Ł Ame r i can Branes, lnc., No. a2 Civ. 5020 (S.D.N.Y., filed August 2, 1982; consent decree entereo March 9, 1983). -8-
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to build subcompact cars in Fremont, California.· llf The proposed corr.plaint alleged that the joint venture may substantially lessen competition in the manufacture and sale of small new automobiles in the United States ano Canada because thete are no limitations on the nurr.ber of vehicles· tojbe jointly and no adequate saf eguaros on the types of ihformation to be shared by the companies. The Comrrission’provisionally accepted the ptoposeo consent order. The consent agreement may be finally approved or rejected after the 60-day public comment period. · , Further, a complaint was issued against Schlumberger, Ltd., challenging the acguisition by its subsidiary, Fairchild Camera and Instrument Corporation, of Accutest Corporation, a computer chip test producer. 12..I That case is still pending before an Adrrinistrative Law Judge. In accition, final orders l:.i/ were issued by the C i s s i on i n s i x o the r mer g e r case s . In one investigation involving the issuance of second requests, the parties abandonec the transaction after the Coillrr.ission issued requests for additional information. c: Effects of the Notification a assessment of the of thi pr err. e r ; e : not i f i c a t i on pr o gr ar.. or. the bus i n e s s co r.-.::: n i t y an c5 Jl.I General Motors Corporation anc Toyo:a Motor Corporation, File Ne. 821-0159, consent agreement provisionally accepted Decerr.ber 22, 1963. 13/ Schlurr.5erger, Ltd., Docket 9164 (issued January 28, 19&3). FTC fi·nal orders issued in 1983 include: Jim Walter Corporation, Docket 8986 (issued November 30, 1983); Inoustries, Inc., Docket 9148 (issued November 3, 1983); Coca Cola Company, Docket C-3113 (issued August 3, 1983); Xidex Corporation, Docket 9146 (issued July 1, 1983); Allied Corporation, Docket C-3109 {issued May 17, 1983); and Gulf and western Industries, Inc., Docket 9153 {issued 1963). It should be noted that the cases mentioned in this repo:t, although a matter of record, were not necessarily reportable under the premerger notification Because of the Act’s provisions regarding the conf ider.tiality of the information obtaineo pursuant to the pro5ram, it would be inappropriate to identify cases were initiated under the premerger notification prograrr.. -9-
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antitrust enforcement is not possible in this limiteo report, the follo\o.·ing observations can be mace. First, as indicated in previous reports, one of the notification pro;ram’s primary objectives, the so-called “midni;ht merger,” has been achieved. 1he requirements imposed on persons to file notification and observe a waiting period prior to consummation have largely eliminated this phenomenon. As noted above, the program’s notification requirements very likely ensure that virtually all significant mergers or acquisitions occurring in the United States will be reviewe= by the antitrust agencies prior to the consummation of the transaction. This provides the agencies with the opportunity to challer.ge unlawful transactions prior to consummation, thus avoiding the problem of constructing effective post-acquisition relief. Second, the information which the parties provide under the premerger notification usually is sufficient for the er.forceme;.t agencies to make a prorr.pt determination of the existence of any problems raised by a transaction. ln. some ir.stances the agencies and the parties have been able to use the detailed information to isolate one element of a larger creates the antitrust violation. The parties then have opportunity to cure the problerr. without sacrificing the benefits of the transaction. ln addition, over the years, pa:ties have increasingly supplied information voluntarily to the and \–Antitrust Division. This has in narrower second requests._ the existence of the notification certainly made business more aware of the antitrust consicerations raised by proposed Sirr.ilarly, the greatly increased probability that antitrust violations will be detected prior to consumffiation has likely prevented some illegal mergers that would otherwise have occurred. Prior to the notification program, businesses could, and frequently did, consurnrr.ate transactions of questionable legality before the ar.:itrust had the opportunity to investigate and prevent the transaction. The enforcement agencies were forced to pursue leng:ty litigation while the parties reaped the bene!i:s of their questionable transactions during the ensuing litigatidf. (anc afterwards as well, where effective post-· acquisition relief was not obtained). Since the premerger notification prograrr. requires reporting before consummation, the opportur.ity and, thus, the incentive to benefit from illegal acquisitions has been significantly reouceo. Some evidence that the premerger notification program has hac·a beneficiai deterrent effect might be found in the seccnc statistics previously discussed. The oe=line in the number of second requests issued as a percentage c: re?crtable transactions may indicate that, due to the -10-
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virtual certainty of detection, businesses are increasincly avoioing transactions that raise serious antitrust concerns. Finally, the statistics cited above show that, in the past yea.r, ·tne agencies have sranteo requests for early more readily and greater frequency than in the ear’ly cays of the prernerger notification program. The impact of last year’s formal interpretation concerning early termination of the perioo appears to be positive. It continues to work well for the and is favorably by the business community. Tne hss1stant Attorney General of the Antitrust Division has nis concurrence this annual report. A se?a:ate statement by Pertschuk is attached. Ey direct.ion of the Corr_-r.ission. cc: Strr-?ro -., ‘””.,,.. ,41.,.:,:.._\o.I” ” -11-
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