The Federal Trade Commission has negotiated a settlement with Automatic Data Processing, Inc. (ADP) under which the firm will pay a $2.97 million civil penalty for failing to include key competitive documents in a “premerger” filing it made with the federal government in connection with its April 1995 acquisition of AutoInfo, Inc. assets. The FTC learned about the documents, which included a marketing plan that explained how the acquisition would enable ADP to “monopolize the [automobile] salvage [yard information services] industry in an expeditious and timely manner,” only after the deal was consummated. According to the govern ment complaint accompanying the settlement announced today, complaints from automobile salvage yards led the FTC to reopen its investigation. ADP ultimately submitted the missing documents in response to a subpoena the FTC issued in the reopened investigation and when it resubmitted its premerger filing in January 1996. The civil penalty settlement secured by the FTC is the third largest ever obtained for an HSR Act violation and the largest ever involving the failure to submit documents.
“The kinds of competitive analyses ADP failed to provide us in this premerger filing can be critical to determining whether a transaction will allow a firm to raise prices or reduce quality and innovation,” said William J. Baer, Director of the FTC’s Bureau of Competition. “Failure to submit such documents is tantamount to not filing at all. Thus, whether the failure is part of a conscious attempt to hide information that might point to the need for more investigation, or the result of inadequate company search methods, the FTC makes clear today that it will take these violations very seriously.”
ADP is a multinational firm based in Roseland, New Jersey, that provides computerized transaction processing, data communication, and information services. Some of those services include creating software for managing inventory data from salvage yards, a system for identi fying interchangeable used auto parts, communications systems for salvage yards and software used in estimating automobile casualty losses. AutoInfo’s major business prior to the acquisition by ADP was providing similar communication and computer services to the automotive salvage industry. The company is based in Fairlawn, New Jersey.
Federal law -- the Hart-Scott-Rodino Antitrust Improvements Act (the HSR Act) -- requires firms planning large mergers or acquisitions to file a premerger notification form regarding the transaction with the FTC and the Justice Department, and then to wait a specified period before going ahead with the deal. During that waiting period, one of the two agencies analyzes the transaction for potential competitive problems. That agency can seek more infor mation if necessary, and ultimately can move to block or modify the transaction so as to ensure it does not harm competition. The premerger filing form requires the firms to submit, among other things, certain types of competitive documents including studies, analyses and reports prepared by or for the parties’ officers and directors regarding the effect of the transaction on market share, competition, competitors, markets, and the potential for sales growth or expansion into new products or new geographic areas.
The government complaint in this case alleges that ADP did not submit any documents that were responsive to this requirement -- Item 4(c) -- in its premerger filing, made on Dec. 7, 1994. The initial 30-day waiting period on that filing then expired without either the FTC or the Justice Department taking any action to challenge the transaction. The deal was completed in April 1995, the complaint states.
After the deal was publicly announced, the FTC received complaints from automobile salvage yards and others, expressing concern that the acquisition would harm competition for computer information and communications services in the automotive recycled parts and automobile insurance industries in the United States. The FTC subsequently reopened its investigation, and issued a subpoena for documents from ADP in order to investigate the deal’s competitive effects. In response to the subpoena, the government complaint states, ADP submitted several documents that should have been included in the premerger filing.
The failure to submit these documents prior to consummating the transaction violated the HSR rules. Moreover, ADP “made little effort to locate those documents” and “did not search or have searched the files of ADP’s officers or directors,” the government complaint states, adding that ADP’s chief financial officer, “who certified the accuracy and completeness” of the form, “did not review the completed Notification and Report form, . . . did not read the instructions . . . and had no understanding of the statute or rules referred to in the certification.”
If ADP had submitted the required documents, the government alleged that it likely would have issued a “second request” for additional information, would have further investigated the proposed transaction, and could have sought a court order to prevent consummation.
The complaint alleges that ADP was in violation of the HSR Act from April 1, 1995, at least until it refiled its premerger form on Jan. 23, 1996, at which time it submitted additional documents in response to Item 4(c). The HSR Act provides for a maximum civil penalty of $10,000 per day for violations.
The proposed consent decree to settle the allegations in this case would require ADP to pay a civil penalty of $2.97 million to the U.S. Treasury -- this penalty amount equals the maximum $10,000 per day from April 1, 1995, to Jan. 23, 1996. This consent decree requires the court’s approval to become binding. It does not address any anticompetitive concerns that might have arisen from the merger itself.
The Federal Trade Commission vote to authorize filing of the complaint and consent was 5-0. They were filed by FTC attorneys serving as special attorneys to the U.S. Department of Justice this morning in U.S. District Court for the District of Columbia.
NOTE: A consent decree is for settlement purposes only and does not constitute an admission by the defendant of a law violation. Consent decrees have the force of law when signed by the judge.
Copies of the complaint and consent decree are available from the FTC’s Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580: 202-326-2222; TTY for the hearing impaired 1-866-653-4261. To find out the latest news as it happens, call the FTC’s NewsPhone at 202-326-2710. FTC news releases and other documents also are available on the Internet at the FTC’s World Wide Web Site at http://www.ftc.gov
Bureau of Competition
William J. Baer
(FTC File No. 951 0113)