Formal Interpretation No. 2

BUREAU OF COMPETITION

September 26, 1978

Mr. Laurence T. Sorkin
Cahill, Gordon & Reindel
Eighty Pine Street
New York, New York 10005 Re: Formal interpretation of § 802.70 of the Hart-Scott-Rodino Antitrust Improvements Act of 1976

Dear Mr. Sorkin:

First National City Bank ("Citicorp") has requested an interpretation of § 802.70 of the premerger notification rules as it relates to Citicorp's proposed acquisition of Carte Blanche Corporation ("Carte Blanche"). In accordance with the provisions of § 803.30 of the rules, Commission staff has elected to render, with the concurrence of the Assistant Attorney General in charge of the Antitrust Division of the Department of Justice, a formal response to this request.

Section 802.70(b) of the rules exempts from the reporting and waiting period requirements of the Act and rules acquisitions "subject to an order of the Federal Trade Commission or of any Federal court requiring prior approval of such acquisition by the Federal Trade Commission, such court, or the Department of Justice, and such approval has been obtained." A 1968 consent decree specifically prohibited the reacquisition of Carte Blanche by Citicorp. The court retained jurisdiction, however, to enable the parties to apply for further orders or modifications of the decree. Citicorp obtained the approval of the Department of Justice to petition for vacation of the consent decree and the court vacated the decree on September 7, 1978. Under these facts the proposed acquisition is within the bounds of § 802.70 and thus is exempt from the requirements of the Act and rules.

This formal interpretation is rendered without prejudice to the right of rescission of either the Commission or the Assistant Attorney General. In the event of such rescission, Citicorp will be notified in writing.

Very truly yours,

[signature]

Malcolm R. Pfunder
Associate Director for Premerger Notification

[CAHILL GORDON & REINDEL LETTERHEAD]

August 25, 1978

Re: United States v. First National City Bank, et. al., 65 Civ. 3963 (S.D.N.Y.)

Dear Mr. Pfunder:

This letter will confirm our contemporaneous oral request for an informal interpretation of Section 802.70 of the Commission's rules implementing Title II of the Hart-Scott-Rodino Act. This request is made pursuant to Section 803.30 of the rules. Section 802.70 exempts an acquisition from the requirements of the act if the acquiring person is subject to a federal court order requiring prior approval of that acquisition by the court or the Department of Justice and such approval has been obtained. Citicorp believes that its proposed acquisition of Carte Blanche Corporation, which will follow vacation of the 1968 consent decree which prohibited it, comes within this exemption.

On August 23, William M. Sayre of this office telephoned you, and due to your unavailability, spoke with Ms. Wilkof of your office. He described to her the proposed acquisition, the steps taken by Citicorp in seeking to vacate the consent decree, and the investigation which was undertaken by the Department of Justice before deciding not to oppose vacation of the decree. He indicated that we were not at that time seeking an informal interpretation, but merely wanted a preliminary reaction to our suggestion that Section 802.70 exempts Citicorp from the requirements of the act. He informed her that before actually seeking an informal interpretation of this Section we would prepare a letter containing the relevant information, which we would then submit to your office; Ms. Wilkof indicated to him that she considered this "an excellent way to proceed". This is the letter which we so promised.

In December, 1965, Citicorp's predecessor (First National City Bank) acquired Carte Blanche Corporation, the operator of the Carte Blanche credit card. The Department of Justice brought suit under Section 7 of the Clayton Act on December 30, 1965, in the United States District Court for the Southern District of New York, 65 Civ. 3963 (Case No. 1882 in the Department of Justice). Subsequently, First National City Bank agreed to sell Carte Blanche to Avco Corporation, and on May 10, 1968 a consent decree was entered by the Court terminating the litigation. The consent decree is reported at 1968 Trade Cases ¶ 72,411 and a copy is attached hereto. This consent decree stated that: "Defendants . . . are hereby enjoined from reacquiring the stock of Carte Blanche, or by any other means acquiring control over the business of Carte Blanche." The decree also provided that:

"Jurisdiction is retained by this Court for the purpose of enabling any of the parties to this Final Judgment to apply to this Court at any time for such further orders and directions as may be necessary or appropriate for the construction or effectuation of this Final Judgment, for the modification or termination of any of the provisions hereof, for the enforcement of compliance herewith and for the punishment of violations thereof."

On August 18, 1977, Citicorp requested that the Department of Justice consent to modification of the consent decree to permit Citicorp to reacquire Carte Blanche. Citicorp submitted memoranda containing detailed information about the parties' activities, market shares and future plans necessary to permit the Department to analyze all antitrust aspects of the proposed acquisition. In particular, Citicorp pointed out that since the decree was entered Carte Blanche's share of the market for travel and entertainment cards. had declined from about 15 percent to about ½ of 1 percent, and that as a result of the development of the two national bank carafe (Visa and Master Charge) Carte Blanche's share of the "general purpose credit card market" (identified by the Department in its 1965 complaint) had shrunk from 15 percent to about ½ of 1 percent.

The Department investigated the proposed acquisition for more than seven months. During the course of its investigation, the Department requested, and received, additional information and extensive documentary material from Citicorp, Carte Blanche and Avco, and interviewed officers of these companies. In addition, we understand that the Department interviewed other persons and obtained information from sources other than the parties to the proposed reacquisition. On March 31, 1978, John H. Shenefield, Assistant Attorney General for the Antitrust Division, notified Citicorp that the Department would not oppose a petition by Citicorp to vacate the consent decree, and that if Citicorp filed such petition, it would not oppose the proposed reacquisition of Carte Blanche by Citicorp.

On April 28, 1978, Citicorp filed a notice of motion in the District Court for the Southern District of New York seeking to vacate the consent decree, and filed supporting affidavits and a memorandum at that time. On May 3, 1978, the Department of Justice filed a memorandum setting forth the reasons why it had determined not to oppose Citicorp's motion. In its memorandum, the Department stated that" [I] f the decree were to be vacated, the most probable and immediate effects are likely to be procompetitive." It further stated that the proposed acquisition "does not meet the criteria set forth in the Department's Merger Guidelines for challenging a merger," and concluded that "[i]f the decree were not in effect today, it is unlikely that the Department of Justice would challenge the proposed acquisition under the antitrust laws."

Before acting on Citicorp's motion to vacate the decree, the court entered an order requiring Citicorp to publish notice of its motion and to invite the filing of comments with the Court during a 30-day period. As a result of this invitation, comments adverse to Citicorp's motion were filed by American Express Company (the dominant issuer of travel and entertainment ("T&E") cards) and a Mr. Anthony R. Martin-Trigona (who sought unsuccessfully to intervene pro se). The Department of Justice on July 14, 1978, filed a memorandum in response to the comments filed by American Express. The Department stated in its memorandum that:

"The most important consideration for the Department in deciding not to object to vacation of this decree was the likelihood that the acquisition would provide important and immediate competition by a revitalized Carte Blanche against Amex and possibly the two bank card systems as well. Nothing in the Amex comments has changed our opinion in this regard. Whether one views the acquisition as a foothold entry by Citicorp into a T&E submarket or as a merger between Citicorp and Carte Blanche in the broader national general purpose credit card market makes no difference. No matter which way one looks at it, vacation of the decree is likely to promote competition among credit cards."

Citicorp's motion to vacate the consent decree came before Judge Cannella for a hearing on August 1, 19?8. At that hearing, Citicorp urged vacation of the decree on the ground that the acquisition would be procompetitive, and responded to assertions by American Express that the acquisition could lessen competition. The Department reaffirmed to the Court that it did not oppose Citicorp's motion. Citicorp's motion is now sub judice.

No premerger notification report would have to be filed under the old premerger rules if the acquisition were consummated prior to September 5, because the acquisition would be made by a bank not subject to the jurisdiction of the Federal Trade Commission.

It now appears that favorable action by Judge Cannella and the Comptroller of the Currency may not occur in time to permit consummation of the proposed acquisition by September 5. If consummation occurs after that date, premerger-notification under the new rules would be required unless the transaction is exempted. We are now asking your informal interpretation as to whether the transaction is exempted, in order that the reacquisition may proceed at once if Judge Cannella vacates the decree and the Comptroller approves the transaction on or after September 5.

It is Citicorp's view that the consent decree "require[s] prior approval" of any reacquisition of Carte Blanche by Citicorp, since the acquisition could not be made without favorable action by the decree Court. If the consent decree is vacated by the Court, the purpose and intent underlying the Section 802.70 exemption will have been satisfied. In addition, the proposed transaction has been thoroughly studied by the Department, which is a party to the consent decree, and the Department has advised the Court that vacation of the decree and the resulting acquisition would be procompetitive. Citicorp therefore requests that you or an appropriate member of your staff give us an informal interpretation that the exemption applies to C1ticorp's acquisition of Carte Blanche.

If you have any questions or require additional information, please feel free to contact William M. Sayre, William T. Lifland or the undersigned. The individual at the Department of Justice who is familiar with this matter is Gregory B. Hovendon, Assistant Chief of the Judgment Enforcement Section.

Thank you for your prompt attention to this matter.

Very truly yours,

[signature]

Laurence T. Sorkin
Malcolm R. Pfunder, Esq.
Associate Director for Premerger Notification,
Bureau of Competition
Room 303
Federal Trade Commission
Washington, D.C. 20580 cc: Sandra G. Wilkof, Esq. 
Gregory B. Hovendon, Esq.
William E. Swope, Esq.

[¶72,411] United States v. First National City Bank, FNCB Services Corp., Hilton Credit Corp., Hilton Hotels Corp., and Carte Blanche Corp.

In the United States District Court for the Southern District of New York. 65 Civ. 3963. Entered May 10, 1968.

Case No. 1882 in the Antitrust Division of the Department of Justice.

Final Judgement

Ryan, D.J.: Plaintiff, United States of America, having filed its complaint herein on December 30, 1965, and each of the defendants having appeared and filed answers denying the substantive allegations thereof; and plaintiff and defendants, by their respective attorneys, having each consented to the making and entry of this Final Judgement, without trial or adjudication of any issue of fact or law herein, and without this Final Judgement constituting any evidence or an admission by any party hereto with respect to any such issue, and the Court having considered the matter and being duly advised,

Now, Therefore, before the taking of any testimony and without trial or adjudication of any issue of fact or law herein and upon the consent of the parties hereto, it is hereby

Ordered, Adjudged And Decreed as follows:

I.

[Jurisdiction]

This Court has jurisdiction of the subject matter of this action and of the parties hereto. The amended complaint herein states a claim upon which relief can be granted against defendants under Section 7 of the Act of Congress of October 15, 1914 (15 U.S.C. § 18), commonly known as the Clayton Act, as amended.

II.

[Definitions]


As used in this Final Judgement:

(A) "FNCB" means defendant First National City Bank, a banking association organized under the laws of the United States;

(B) "FNCB Services" means defendant FNCB Services Corporation, a New York corporation;

(C) "Carte Blanche" means Carte Blanche Corporation, a Delaware corporation;

(D) "Person" means an individual, partnership, firm, corporation, association, trustee or other business or legal entity.

III.

[Applicability]

The provisions of this Final Judgement applicable to any defendant shall also apply to each of its directors, officers, agents and employees acting for such defendant, its affiliates or subsidiaries, successors and assigns, and to all other Persons in active concert or participation with any such defendant who shall have received actual notice of this Final Judgement by personal service or otherwise.

IV.

[Bar to Reacquisition]

Defendants FNCB and FNCB Services are hereby enjoined from reacquiring the stock of Carte Blanche, or by any other means acquiring control over the business of Carte Blanche.

V.

[Inspection and Compliance]

For the purpose of securing compliance with this Final Judgement, and for no other purpose, duly authorized representative of the Department of Justice shall, upon written request of the Attorney General or the Assistant Attorney General in charge of the Antitrust Division, and on reasonable notice to any defendant made to its principal office, be permitted, subject to any legally recognized privilege:

(A) access during the office hours of such defendant to all books, ledgers, accounts, correspondence, memoranda and other records and documents in the possession, custody or control of such defendant related to any matters contained in this Final Judgement; and

(B) subject to the reasonable convenience of such defendant, but without restraint or interference from it, to interview officers, directors, agents or employees of such defendant, who may have counsel present, regarding any such matters.

Upon written request of the Attorney General or the Assistant Attorney General in charge of the Antitrust Division, any defendant shall submit such reports in writing, with respect to the matters contained in this Final Judgement, as may from time to time be requested; provided, however, that no information obtained by the means provided in this Section V shall be divulged by any representative of the Department of Justice to any person other than a duly authorized representative of the Executive Branch of the United States of America, except in the course of legal proceedings to which the United States of America is a party for the purpose of securing compliance with this Final Judgement, or as otherwise required by law.

VI.

[Jurisdiction Retained]

Jurisdiction is retained by this Court for the purpose of enabling any of the parties to this Final Judgement to apply to this Court at any time for such further orders and directions as may be necessary or appropriate for the construction or effectuation of this Final Judgement, for the modification or termination of any of the provisions thereof, for the enforcement of compliance herewith and for the punishment of violations thereof.