Reflections on 20 Years of Merger Enforcement under the Hart-Scott-Rodino Act

Before The Conference Board, Washington, D.C., October 29, 1996 and before The 35th Annual Corporate Counsel Institute, Northwestern University School of Law, Corporate Law Center, San Francisco, CA, October 31, 1996

Date:
By: 
William J. Baer, Former Director

One month ago, on September 30, we celebrated the 20th anniversary of the enactment of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 ("HSR Act" or "HSR").(2) "Celebrate" may not be the word of choice for everyone, but friend or foe, the statute has affected all of us profoundly. At the time of its enactment, it was described as one of the most far-reaching changes in antitrust enforcement since the passage of the Clayton Act in 1914.(3) That prophesy has rung true. Premerger notification under HSR has dramatically changed the way the antitrust agencies conduct merger enforcement, and both consumers and the business community have benefited.

HSR has become essential for antitrust to keep pace with our dynamic economy. There has been tremendous growth in merger activity since the statute was enacted. In fiscal year 1996, a total of 3,087 reportable transactions were filed with the Commission and the Department of Justice ("the antitrust agencies"). In fiscal year 1979, the first full year of reporting under the premerger rules,(4) only 861 transactions were filed.(5)

Today I would like to review the impact of the statute's premerger notification provisions, how they have been applied, and what might lie ahead for the future. In so doing, I think it would be helpful to apply the three-part framework that I have used in assessing the Commission's antitrust enforcement program as a whole. In a speech earlier this year,(6) I suggested that antitrust enforcement -- like any federal program -- to prove its worth, needs to demonstrate to the public and the Congress that it can satisfactorily answer three basic questions:

  • Does federal antitrust enforcement make a real difference to consumers, taxpayers and the general public -- including the business community?
  • Can antitrust enforcement occur without undue burden on businesses?
  • Is antitrust enforcement sufficiently forward-looking and flexible to deal with changing marketplace realities?

The same questions should apply to the premerger notification program under the HSR Act.

Antitrust enforcers told Congress at the time that premerger notification would advance the legitimate interests of the business community as well as facilitate more effective enforcement and protect consumers.(7) Has that been borne out?

Before addressing these questions, I should note that the HSR Act addressed matters beyond premerger notification. Title I corrected serious gaps in the investigative tools available to the Department of Justice. Previous to HSR, the Department's authority to issue CIDs under the Antitrust Civil Process Act of 1962 was limited to persons suspected of violating the antitrust laws, and the Department could seek only the production of documents. The 1962 Act did not reach third parties such as customers, suppliers or competitors -- persons that are routinely contacted during the course of antitrust investigations today, and are often sources of critical information. The Department also could not take depositions or issue interrogatories under its CID authority. Title I of HSR fixed these problems and gave the Department the additional tools needed to be a modern antitrust enforcer.

Title III, also known as the Parens Patriae Act,(8) established the right of the states to recover monetary damages on behalf of their citizens for violation of the Sherman Act. It was grounded on the belief that "the economic burden of many antitrust violations is borne in large measure by the consumer."(9) The legislation was driven by concerns over the requirements for bringing a private class action suit under Section 4 of the Clayton Act and Rule 23 of the Federal Rules of Civil Procedure, and the judicial limitations on the common law right of a state to bring a parens patriae action.(10) HSR strengthened the states' standing to bring such suits on behalf of their citizens. The states' parens patriae authority has become an important complement to federal antitrust enforcement. For example, the states' recent parens patriae lawsuits against Reebok(11) and Nintendo(12) were companion cases to Commission enforcement actions.(13)

My focus today is on Title II, the premerger notification provisions.

I. STATUTORY PREMISES

It helps to begin with the reasons Congress enacted HSR in the first place. The poster child in the legislative debate was the tortured litigation history of United States v. El Paso Natural Gas Co.(14) The case, brought under Section 7 of the Clayton Act, involved the government's post-acquisition challenge of El Paso's purchase of a potential competitor, Pacific Northwest Pipeline Corp. ("PNW"). PNW already had a supply line running from New Mexico to the Pacific Northwest, and it wanted to sell excess supplies to customers in California, where El Paso was the sole supplier. El Paso promptly bought PNW, and the Department of Justice challenged the acquisition. After seven years of litigation, the Supreme Court ruled for the government and ordered divestiture "without delay."(15) The unintended irony in that phase had become apparent to Congress when it enacted HSR. Divestiture in the El Paso case took an additional ten years, meaning that it took a total of 17 years before the government could cure an anticompetitive acquisition. The case went to the Supreme Court so many times some folks lost count.(16) It was estimated that El Paso derived profits of $10 million for every year it retained the illegally acquired company.(17) All of this took place in an effort to enforce Section 7 of the Clayton Act, a statute whose purpose was to stop anticompetitive acts in their incipiency.(18)

The divestiture in El Paso was ultimately successful, according to a lawyer who handled the matter for the government,(19) but at enormous cost. That lawyer stated in the Senate hearings:

[C]onsider the extraordinary expenditure of time, as well as resources, which have been devoted to this [divestiture] effort. While there is no tally of the total cost that was made in seeing this case through to complete divestiture, it is safe to say that it ran into many millions, employed hundreds of lawyers, accountants and others, consumed great quantities of the scarce resources of our courts, and left a non-competitive market structure in the gas industry in the west for a decade after that market structure had been declared unlawful by our highest court. Another incalculable, but very significant cost was the substantial loss of the time and talents of key El Paso executives from the important jobs of running a major utility and developing new sources of energy supplies in a time of growing energy shortages because of the inordinate demands made upon them in the defense of this antitrust proceeding. Surely, we can come up with a better way to enforce the important public policy of 7 of the Clayton Act.(20)

Difficulty in Detecting Mergers Before They Occurred

El Paso was symptomatic of a merger review process that just was not working. One major problem was the "midnight merger" that took place before the agencies found out about it.(21) Citing such cases as El Paso, Congress found that there were strong incentives for speedily and surreptitiously consummating suspect mergers and then protracting the ensuing litigation, such as the prospect of profits from the acquisition and the "strong probability that the government will ultimately win only a partial or 'token' divestiture order."(22) Congress found that even where full divestiture is successfully achieved, "the 'victory' is likely to be so costly that it is pyrrhic. . . . [T]he costs -- to the firms, the courts, and the marketplace -- were immense."(23) The Commission recognized the problem and, in 1969, sought to implement its own premerger notification program,(24) but it proved inadequate.(25)

A major problem with the FTC's old merger reporting program was that the Commission lacked authority to require a waiting period before the merger could be consummated.(26) As a result, even if we found out about a proposed transaction, it was difficult to gather information about it in a timely manner, much less prepare a case for an injunction action. There was nothing to prevent the firms from going ahead and consummating the transaction before we completed our review. Obviously, the merging parties did not have an incentive to provide information in a hurry, nor did they have an incentive to delay the acquisition so that we could put our case together. Private parties' incentives usually ran in the other direction. Consequently, we usually had inadequate time to prepare a case for preliminary relief. The experience at the Justice Department was similar.(27) Thus, before HSR, relatively few mergers were challenged at the premerger stage.

The numbers are revealing. One study found that in the sixteen-year period from 1956 to 1971, the government filed 167 merger challenges, but moved for a preliminary injunction in only 50 of them.(28) The data suggest that close to 70% of the problematic mergers were not detected in time to seek preliminary relief.(29) In these cases the parties could close the deal, integrate the assets, reap the profits -- some illegitimate and some not -- and pursue a protracted strategy of delay. There were strong incentives in favor of the midnight deal, and thus the odds were stacked against the antitrust enforcers. Even though the government eventually won about 90% of its merger cases in that general time period,(30) we don't know how many cases were not brought because of concern that the eggs could not be unscrambled. But we do know that in many of the government's merger cases its ability to proceed expeditiously and to obtain effective relief was handicapped by the inability to obtain preliminary relief.(31)

Excessive Duration of Post-Merger Litigation in the Absence of Preliminary Relief

The El Paso case shows that post-merger litigation can take a long time, and the post-merger divestiture process can delay relief for an additional long period. The problem the antitrust agencies had prior to HSR was that, in the absence of effective preliminary relief -- such as a preliminary injunction or a strong hold-separate order -- the incentives of the merged company were to foster delay. Congress found that the average post-acquisition merger case took five to six years to resolve, during which time "the acquiring firm retain[ed] the illegal profits and other fruits of the acquisition, and its anticompetitive effects pervade[d] the marketplace, injuring competitors and consumers alike."(32) Actually, the numbers may have been worse. Professor Elzinga found a comparable length of time from acquisition to divestiture (five and a half years), but his sample included both settled cases and litigated cases.(33) Depending on when cases were settled, the average results may be misleading for cases that were litigated -- they probably took considerably longer than five or six years to resolve. Consumers clearly were not well served by the old system.

Ineffective Post-Acquisition Relief

A third major problem prior to HSR was that a remedy to fix a competitive problem was not only a long time in coming, it was too often ineffective. Once a merger takes place and the firms' operations are integrated, it can be very difficult or impossible to unscramble the eggs and reconstruct a viable, divestable group of assets. As stated in the House Report,

During the course of the post-merger litigation, the acquired firm's assets, technology, marketing systems, and trademarks are replaced, transferred, sold off, or combined with those of the acquiring firm. Similarly, its personnel and management are shifted, retrained, or simply discharged.

In these ways, the acquiring and acquired firms are, in effect, irreversibly "scrambled" together. The independent identity of the acquired firm disappears. "Unscrambling" the merger, and restoring the acquired firm to its former status as an independent competitor is difficult at best, and frequently impossible.(34)

Professor Elzinga concluded that 90% of the cases in his study resulted in relief that was either "unsuccessful" or "deficient."(35)Moreover, of the four cases that he found to have resulted in "successful" or "sufficient" relief, three of the mergers were stopped before consummation, and one was a stock acquisition.(36) Consequently, absent preliminary relief, even if the government won its case in the end and obtained some form of divestiture or other relief, it might be a pyrrhic victory.(37)

Underlying all this was a concern that the 1950 Celler-Kefauver amendments to Section 7 of the Clayton Act had not achieved their intended purpose of controlling the increasing concentration of American industry, not because of the law's substantive standards, but because the enforcement mechanism was inadequate to the task.(38)

Congress addressed these procedural problems in the HSR Act. It provided for premerger notification to the Commission and the Department of Justice. It provided for the submission of a basic amount of information that enables us to make a preliminary assessment of the transaction and determine whether further review is necessary. It gave antitrust enforcers a discovery tool to obtain additional information if necessary -- the so-called "second request." And it provided for mandatory waiting periods before the transaction may be consummated, so that we would have time to analyze the transaction and, if appropriate, seek a preliminary injunction. Similar changes had been sought from the time of the 1950 Celler-Kefauver amendments to the Clayton Act,(39) they had been recommended five times by President Eisenhower,(40) and when they were finally enacted, they had substantial bipartisan support in both houses of Congress.

II. SUCCESS OF THE HSR PROGRAM

Objectives Realized

Today, almost all mergers reviewed or challenged by the Federal Trade Commission and the Antitrust Division are reported under HSR. But questions remain. Has the program been successful in making enforcement more effective? Did HSR achieve what Congress intended, and have consumers and the business community benefited? The answer to each of those questions is a clear "yes." There can be no doubt that HSR had a dramatic effect on the way merger enforcement is conducted. HSR gave the antitrust agencies the tools they need to enforce Section 7 as Congress intended -- to stop potential problems in their incipiency. It provided adequate notice of proposed mergers and a powerful discovery tool. And, for the most part, it gave us enough time.(41) The vast majority of the mergers the agencies investigate are now reported and examined at the premerger stage. And the vast majority of merger challenges are initiated at the premerger stage. Consumers benefit because anticompetitive transactions are challenged sooner rather than later. And the merging parties and taxpayers benefit because investigations are conducted more efficiently.

To illustrate the difference HSR has made, look at a natural gas potential competition case that we handled late last year and compare the results with El Paso. The case involved Questar Corporation's proposed acquisition of a 50% stake in Kern River Gas Transmission Co.(42) Questar was the exclusive transporter of natural gas to Salt Lake City, and Kern River was the only possibile competitive alternative for Salt Lake City customers. Thanks to HSR, we were able to investigate the transaction before closing and uncover evidence that potential competition from Questar was already having a pricing impact in the Salt Lake market and that, over time, erosion of Questar's monopoly position would drive prices even lower. Indeed, elimination of competition from Kern River was a prime reason for the deal. This damning evidence persuaded the Commission to authorize a preliminary injunction action. The parties quickly chose to abandon the transaction rather than defend it.

The contrast with the pre-HSR situation is pretty stark. All of this took place in a matter of months, not years. Did consumers benefit? I think the answer is self-evident. Not only did we preserve the benefits of potential competition, but we did it quickly and efficiently -- without the years of interim harm consumers suffered in El Paso.(43)

The efficiency of HSR investigations did not happen by chance. Congress built in a strong incentive for the merging parties to comply expeditiously with the government's information requests. It did that by tying the extended HSR waiting period to the parties' substantial compliance with second requests. Unless and until the parties to the deal supply us with the information we need to do our job, the waiting period cannot begin and the transaction cannot close. As a result, we get cooperation from the parties that we rarely see in a post-acquisition investigation.

HSR forces discipline on third-party discovery as well. It must be completed within HSR time frames if it is to be useful. The fast-track process established by HSR also has other positive benefits. The information we collect from both the merging parties and third parties will be up to date, and we can analyze the acquisition under contemporaneous real world conditions. We avoid the problems of stale evidence that we might encounter in a protracted post-acquisition investigation. Thus, HSR contributes to a much more efficient government investigation.

HSR also has enabled the agencies to protect their remedy options. As I indicated earlier, one of the key concerns expressed during Congress' consideration of HSR was that post-merger divestiture remedies often were inadequate.(44) HSR gives us the potential to prevent the eggs from being broken. We are able to prevent situations like El Paso. If the Commission has reason to believe a transaction is likely anticompetitive, there are several options, but absent extraordinary circumstances, consummation of a problematic merger is not one of them. If the acquiring firm chooses to settle, we have a full opportunity to structure prompt and effective relief. If the firms abandon the transaction, that is as good as a permanent injunction. And if the merging parties choose to litigate a preliminary injunction action and lose, they can abandon the transaction rather than proceed to a full trial on the merits. Under any of these scenarios, the public interest is protected. Alternatively, the parties can proceed to a full trial on the merits, but generally under an injunction preventing them from scrambling assets. While that option is costly, it remains a viable alternative, and one that benefits the public in the form of decisions by the Commission and the appeals courts advancing the body of substantive law under Section 7.(45)

In sum, in terms of the objectives Congress had in mind in enacting HSR -- effective premerger review, a meaningful opportunity to challenge mergers at the pre-consummation stage, reducing the need for lengthy post-acquisition litigation, and reducing lengthy post-acquisition divestiture periods -- the statute has been highly successful. We have come a long way since the El Paso case. But, returning to my original question, have consumers and the business community benefited?

Tangible Benefits for Consumers

There is no doubt that consumers are better off with premerger notification. One, relief is obtained much sooner. In some cases, anticompetitive transactions are abandoned. In cases that are settled, the consent order requires prompt implementation of relief. Second, remedies can be much more effective. Pre-consummation settlements enable us to structure remedies up front and protect the assets pending divestiture. Preliminary injunctions similarly prevent interim harm and preserve assets pending final resolution. Let me give you some examples.

Questar/Kern River. I've already mentioned the Questar/Kern River natural gas case. The evidence showed that the potential entrant was already having a positive effect on the market, and that would have been lost had the acquisition gone through. For example, the evidence indicated that Questar had lowered prices to some large local customers to dissuade them from switching to Kern River. The merger would have removed the need for such competitive responses. Because of HSR, we were prepared to challenge the transaction, and the parties decided to abandon the deal rather than defend it. The result: fast, complete relief, in months -- not 17 years. Unlike the El Paso case, the acquiring company here did not have an opportunity to foreclose competition. Once the deal was abandoned, Kern River resumed actively soliciting customers.(46) Commission action enabled consumers to continue to benefit from the downward pricing influence exerted by the potential entrant.

Hoechst/Marion Merrell Dow. Late last year, the Commission blocked aspects of this deal and, in the process, saved consumers as much as $30 million or more annually on prescription drugs. The case involved Hoechst AG's acquisition of Marion Merrell Dow Inc. ("MMD"), creating the third largest pharmaceutical firm in the world.(47) The merger raised serious competition issues with respect to four kinds of prescription drugs, in markets with annual sales of over $1.25 billion. Among those who could have been harmed by the transaction were millions of consumers who suffer from hypertension, angina, arteriosclerosis and tuberculosis. Before the transaction was permitted to close, the Commission obtained a consent agreement that required prompt divestitures in each of the four markets. In the $1 billion market for once-a-day diltiazem, which is used by millions of patients who suffer from high blood pressure and angina, the divestiture resulted in new product entry within a year, at significantly lower prices.

What would have happened without HSR? Probably a lengthy post-acquisition investigation, perhaps followed by lengthy litigation and, eventually, a remedy some years down the road. With four highly technical product markets, it is unlikely that we would have been able to mount an effective pre-merger challenge, even if the Commission had known about the transaction. And without effective pre-consummation relief, it is very possible that some potential new products, that the Commission required Hoechst to divest, would instead have been placed on the back burner by Hoechst or, worse yet, allowed to whither on the vine. HSR thus preserved the potential for competitive alternatives to existing products at a much earlier date.

First Data/First Financial. Commission action in this case saved consumers an estimated $15 million to $30 million per year in money wire transfer fees. The case involved First Data Corporation's acquisition of First Financial Management Corporation.(48) These firms owned the only two consumer money wire transfer services in operation in the United States. First Data owned MoneyGram, and First Financial owned Western Union, which was a monopolist until MoneyGram entered its domain. The merger would have resulted in a monopoly once again and raised prices for millions of consumers who need these services.(49) Consumer money wire transfers are often used in emergency situations, as when a person loses a purse or wallet or when a college student or traveler runs out of money. Consumer money wire transfers are quick and efficient. They are also often used by consumers who do not have bank accounts -- which comprises 20-25% of U.S. households. The market is big, involving 13 million transactions per year and $275 million in fees.

Before permitting this merger to proceed, the Commission obtained a consent agreement that required First Data to divest Money Gram, and to maintain it as an independent competitive entity pending divestiture. That order had immediate benefits. After the settlement, MoneyGram advertised a promotional price that undercut Western Union's prices by as much as 70%. In the longer run, our action to save MoneyGram as an independent competitor will prevent Western Union from resuming the 5-8% annual price increases that it had imposed prior to MoneyGram's entry into the market.

Hoechst/Marion Merrell Dow and First Data alone could result in consumer benefits of up to $60 million in annual savings. The Commission's total antitrust budget at the time of those acquisitions was less than $50 million. If not for HSR, we may still be litigating those cases. Consumers clearly benefitted, and taxpayers benefitted as well.

Time Warner/Turner Broadcasting. Just last month, the Commission took action against a massive and complex merger that would make Time Warner the world's largest media and entertainment firm.(50) The case involved two of the media industry's cable TV programming giants, Time Warner and Warner Broadcasting, who between them controlled several "marquee" cable TV channels such as HBO, CNN and TNT, and it also involved the nation's two largest cable system operators, Time Warner Entertainment and Tele-Communications, Inc. The transaction presented both horizontal market power concerns and strong vertical foreclosure concerns.

The investigation took almost one year, but it resulted in a significant settlement. Litigation could have taken several years and consumed enormous resources on all sides. And, had the deal closed first, our ability to get any meaningful relief would have been slight. HSR gave us the chance to sort things out beforehand. After intense negotiations, the companies agreed to a consent order that, according to the New York Times, contained relief provisions that are unprecedented.(51) The order did not satisfy all interested parties (some wanted more, some, including two Commissioners, were against any order), but we are confident that the Commission's action protected the pocketbooks of consumers and preserved entry opportunities for both video programming companies and potential rivals of the Time Warner and TCI cable systems, such as direct broadcast satellite, wireless cable and telephone company video distribution.

Rite Aid/Revco. In April of this year, the Commission blocked the merger of two of the nation's largest retail drug store chains, Rite Aid and Revco.(52) The merger would have made Rite Aid the dominant pharmacy chain in numerous eastern and midwestern metropolitan areas. Because Rite Aid would have had significantly more pharmacy locations than its closest competition, it would have greater leverage in dealing with companies that administer pharmacy benefit plans through participating pharmacies. Rite Aid could raise prices to PBMs, which in turn would have resulted in increased prices for consumers. The companies abandoned the merger after the Commission authorized a suit for a preliminary injunction. While some form of post-acquisition relief might have been available without HSR, no deal at all was a better outcome and also saved consumers from the interim harm that would have occurred pending an administrative proceeding or court trial on the merits.

There are many other examples of cases in which HSR enabled the Commission to take prompt and effective action against a problematic merger. It is not always easy to calculate the dollar amount of consumer benefit, but it is there. The need to protect confidential information often prevents a more detailed discussion, but the examples I have cited show that the consumer savings can be substantial. In many cases the effects translate directly to the consumer's bottom line. Other enforcement actions have a more indirect public benefit. Defense industry mergers(53) and mergers involving intermediate products are examples.(54) In short, a hard look at the Commission's merger enforcement actions shows that there indeed is substantial value added. Almost all of that is made possible by HSR.

Advantage to the Business Community

Although it may not be obvious, there are ways in which the business community benefits as well from premerger review. To begin with, HSR levels the playing field for all transactions. Whether a transaction will face premerger review and a possible injunction is no longer determined by the luck of the draw.

Second, HSR gives the parties more certainty as to the timing of outcomes. HSR imposes a tight schedule for the agencies' premerger review, and, unless second requests are issued, the waiting period is no more than 30 days. Indeed, well over half of the transactions receive early termination of the waiting period, usually within an average of 15 days from the start of the period.(55) To a large extent, HSR gives the parties control over that timing. They can expedite the initial review by voluntarily providing additional information, and thereby increase the likelihood of early termination of the waiting period where we are convinced that second requests are not necessary. If second requests are issued, the parties have significant control over timing because their compliance with the second requests triggers the 20 day deadline for Commission or Antitrust Division action. Companies are able to expedite the review process by assembling in advance the admittedly significant volume of information we need to do our job.(56) Further, as a general rule, the parties know that when the HSR waiting period is over, they will either face enforcement challenge, or they will not.(57)

Third, the existence of an established, uniform process facilitates business planning. For example, firms desiring to close a transaction by year end for tax reasons are, in most cases, able to do so because of the predictability of HSR timing. Fourth, HSR reduces the business and market uncertainties that a post-closing challenge would otherwise pose. For example, because firms will usually know before closing whether the transaction will be challenged, they can weigh their options and plan their lives accordingly.(58) Similarly, faster resolution of challenged acquisitions reduces uncertainty for third parties who deal with the merging parties.

Finally, HSR sets up a process that over time has facilitated negotiated outcomes. In a sense, HSR provides a dispute resolution mechanism that, more often than not, gets us to a negotiated resolution. There are several reasons for the increased use of negotiated consent orders. One, HSR has enabled the Commission to be better prepared for pre-consummation challenge, so some companies may be more inclined to settle because of the leveling of the odds, compared to the pre-HSR days. Second, both sides have come to realize that negotiated resolutions are an efficient outcome. Each party understands the other side's concerns, and we have essentially the same information, so it makes sense to try to negotiate a satisfactory resolution instead of pouring substantial resources into litigation. A third important factor is the realization that it may not always be necessary to enjoin the entire transaction to cure a competitive problem with a part of the merger -- so long as the parties are prepared to restructure the deal to address completely the agency's antitrust concern. This approach has the advantage of preserving any efficiencies that may result from the remainder of the merger.(59)

III. PREMERGER NOTIFICATION WITHOUT UNDUE BURDEN

The second measure of performance that I mentioned earlier is whether the premerger notification program achieves its goals without imposing undue burdens on businesses. I think the premerger program scores well. There is no question that the premerger rules are complicated, and that they require the submission of a considerable amount of information. They also cover a significant number of transactions. But the appropriate question is whether the premerger requirements are reasonably necessary in light of our merger enforcement responsibilities and the consumer benefit that is produced. I think they are.

In assessing the burdens imposed by the program, it is important to keep in mind the objectives that Congress set out for us to accomplish: more effective pre-merger review and enforcement. It chose to do that by giving us sufficient advance notice of transactions, an opportunity to obtain pertinent information, and sufficient time to analyze a transaction and challenge it if appropriate. The statutory requirements were structured to achieve these objectives with minimum burden on businesses, and Congress left to the Commission and the Department of Justice the task of using their expertise to promulgate rules to fill in the details. The agencies have a large and difficult task in enforcing Section 7, and I think the premerger rules reach a reasonable accommodation between burden concerns and the statutory objectives.

To provide some background, let me review some of the concerns that were expressed by the private bar and members of Congress when HSR was enacted. One early objection was that HSR resulted in an unnecessary volume of rules. One commenter opined that "regulation writers descended upon the scene like a swarm of locusts."(60) A related concern was that the rules covered too many inconsequential acquisitions.(61) Another concern was that the information requirements would impose unnecessary burden and delay.(62) Commenters also noted the potential for abuse of governmental authority, particularly in determining what constitutes "substantial compliance" with a second request for information.(63) Another concern was that the premerger rules would interfere with the functioning of the capital markets and the efficient allocation of resources.(64)

With the benefit of the agencies' 20 years of experience with HSR, we can make some judgments about how serious those concerns turned out to be. First, the implementing rules admittedly are not simple. But there are good reasons for them. The rules need to be broad enough to cover the tremendous variety and complexity of the business transactions and affiliations that could raise serious concerns, yet exclude where possible the kinds of transactions that the agencies are not concerned with. That requires a lot of detail and precision. We also have to avoid potential loopholes, so that firms cannot avoid filing simply by changing a deal's structure. That adds additional complexity. In addition, because merger analysis is exceedingly fact-intensive, it is difficult to rule out transactions before seeing them. That is why a large number of transactions have to be reviewed, even though we ultimately conclude that many of them do not raise competitive concerns.

Nonetheless, we recognize that the rules are complicated, and that there are costs associated with them. We also recognize, however, that the agencies have a responsibility and an obligation to reduce burdens wherever we can. That is an ongoing endeavor, and we have made progress on a number of fronts.

For example, we have made great efforts to make the rules understandable to businesses, and to assist businesses in understanding them. The FTC has done that through written guides, informal advice by telephone, informal written staff interpretations of the rules, and through formal interpretations. We have devoted significant resources to staffing our premerger office, which provides services that are unusually user-friendly for a law enforcement agency. One of the most valuable services performed by our premerger office is that of providing prompt advice as to the reportability of proposed transactions. If a merging party has a question as to the reportability of a transaction, a quick call to the premerger office will produce an answer. If the staff concludes that the proposed transaction will not be reportable, the merging party can rely on that opinion so long as it has made full disclosure of the relevant facts. In fiscal year 1996, we received something on the order of 20,000 phone calls relating to some aspect of reportability. We also respond to a wide variety of other inquiries, so the total volume of phone calls last year was about 40,000.

I appreciate the value of that office both from my current perspective and from my prior days as a practitioner who was frequently saved from malpractice by the dedicated and knowledgeable staff of that office. Just last month, I received a letter from the legal department of a company that has dealt with our Premerger Office since its inception. The attorney wrote: "After these many years, . . . . it is time for me to extend a commendation for the timely and practical assistance offered by this office. . . . With all the criticism of Government, this isone office of the Government that provides a needed service in a practical and timely manner." It is a tribute to their professionalism that an office of the federal government that administers such a complex set of rules and, moreover, requires users to pay a significant fee in order to comply with them, should receive such high praise.

The agencies have also tried to make the premerger program as minimally burdensome as possible. This has been an ongoing process, but let me focus principally on the progress the Commission and the Department of Justice have made in the last two years alone.(65)

Expedited Inter-Agency Clearance

    One significant issue the Commission and the Department of Justice have faced over the years concerns the amount of time it takes for the two agencies to decide which one will review a transaction. That process is called "clearance," and given the short period allowed for HSR investigations, a timely decision as to which agency will investigate is critical. Most transactions are cleared quickly to one agency or the other. But where both agencies have a basis for investigating a transaction, it takes some time to determine which agency is best suited to the task. In recent years, there was growing concern that we were taking too long. We acknowledged the problem and took action. In recent months, the agencies have made major progress in speeding up the process. Previously it took an average of more than 17 days out of the initial 30 day waiting period to resolve clearance on merger matters. That clearly was not acceptable. It imposed unnecessary delay on the parties, and it reduced the time available for staff to conduct the initial review of the transaction. Under new procedures implemented in April, 1995, we have shortened the average time period by almost 40 percent, to about 10 calendar days -- which works out to about 8 business days. The faster resolution of clearance has given us more time for investigation during the initial waiting period, resulting in more focused investigations and better-informed second request decisions.

    The expedited clearance procedures have benefitted merging parties in two ways. In some cases we can complete our initial review and grant early termination of the waiting period at an earlier date than was previously possible. Second, earlier clearance allows us to resolve potential competitive concerns without resorting to the second request process nearly as often. Consequently, premerger review is more efficient. The Bureau has actually increased the percentage of transactions it has investigated during the initial 30 day waiting period; but simultaneously we decreased by 40 percent the number of transactions requiring a second request. In other words, we are making good use of these extra days to investigate, and issuing fewer second requests as a result.

    Reduced Second Request Burdens

    In addition to reducing the relative frequency of issuing second requests, we have reduced burdens on parties that receive them. Second request burdens admittedly have been a frequent concern of the private bar and businesses. The Bureau of Competition has made various efforts through the years to keep burdens to reasonable levels, including using a "quick look" approach, model second requests, and at one time, the appointment of a second request "czar" who reviewed second requests before they went to the Chairman's Office with a recommendation for issuance. In the last two years, the agencies have made further efforts to reduce burden. This was achieved largely through the development of an annotated, uniform model second request in conjunction with the Department of Justice. The goal was to achieve greater consistency between the two agencies, and to decrease burdens on reporting companies.

    There has been wide praise for the new, joint model. Since its adoption, we have seen a 40 percent reduction in document production burden in second requests. In conjunction with the new model, we have continued to use, whenever possible, a "quick look" policy that encourages document production in stages, focusing initially on issues that may be determinative in concluding that the transaction likely does not raise competitive problems. If we can reach that conclusion based on a quick look, full document production is not necessary. A related benefit of a reduced document production burden is that parties can respond to second requests more quickly. We have seen a 30 percent reduction in the time between issuance of the second request and substantial compliance.

    Another concern voiced at the time -- and still heard today -- was that HSR would give the agencies undue leverage over transactions. Some argue that the second request process is unfair, because we have the right to hold up a deal until we are satisfied that parties have substantially complied with the information requests. Others claim that the power to hold up transactions allows us to extract unwarranted settlement terms as a price of getting other parts of the deal through in timely fashion. While I don't deny there is some leverage, I think those concerns are largely overstated. The question is not whether Congress intended us to have substantial authority and control over the premerger review and enforcement process -- it clearly did -- but whether we use that authority fairly. Congress realized that by tying the waiting period to the parties' compliance with information requests, it was giving the agencies substantial authority to delay transactions that present significant competitive concerns. It also recognized business concerns about such delays. But the balance it struck in HSR was to empower the agencies to stop deals that are problematic, or to require their restructuring. Obviously, however, that power must be used fairly and within statutory limits.

    Congress placed a significant limitation on the agencies' ability to hold up transactions by adopting a standard of "substantial compliance" with information requests. That is, a merging party need not provide absolutely everything that an agency asks for -- it is only required to comply "substantially."(66) Congress did not define what that means, but two major architects of HSR, Senator Hart and Representative Rodino, stated that it incorporates a reasonableness standard.(67) There have been, and there will continue to be some disagreements about what constitutes substantial compliance with the second request in a particular case. That is inevitable, because the application of the "substantial compliance" standard always requires some subjective judgment. But there are processes available to resolve such disputes. One of the new practices that we implemented within the last two years is a procedure that merging parties can use for appealing substantial compliance problems if the staff cannot resolve them. At the Commission, the reviewing official is the Bureau Director. It is a responsibility that I take seriously, but since the procedure was put into place two years ago, it has yet to be exercised. That says something about the nature and extent of the problem. So does the fact that only one time in the 20-year history of HSR has a federal court been asked to decide a second request substantial compliance issue, and the Commission prevailed.(68)

    As for the concern about using HSR to force settlements, I think that is a red herring. If a firm chooses to make a settlement offer, that is one of the legitimate and logical responses facilitated by the process, as I previously discussed.(69) It is not because the firm is forced to do so because of unreasonable second request burdens or delays. As I just noted, there are administrative and judicial recourses if a firm believes that a second request is unreasonable. Moreover, I would invite those who voice those concerns to take a look at our negotiated settlements. They are focused on real problems in well-defined markets, and they strive to achieve meaningful relief. We don't accept those deals unless we have sufficient evidence to give the Commission reason to believe a transaction violates Section 7. The notion that we use the second request process to extract paper settlements and drive up our number of merger challenges does not withstand close scrutiny.

    Similarly, I think the concerns about interfering with the capital markets were overstated. About one year after HSR was implemented, one experienced member of the bar stated that HSR had "not had a profound effect on the outcome of struggles for corporate control."(70) There are legitimate concerns about unnecessarily affecting the game, as by causing unnecessary delay or imposing unnecessary burdens, but we have been careful to prevent that from happening. To the extent a transaction is delayed because we have legitimate antitrust concerns that need to be resolved, that is a consequence of the public interest in effective antitrust enforcement. I think the public interest trumps private interests in winning the battle for corporate control.

    Expanded HSR Exemptions

    The matter of exempting transactions from HSR requirements has been a difficult issue, because of the concern that transactions with real competitive significance need to be reported and examined prior to closing. Therefore, we have proceeded cautiously. There have been two major expansions of HSR exemptions since the premerger rules were implemented.(71) First, in 1979, the Commission, with the concurrence of the Department of Justice, revised Section 802.20 of the rules to exempt a large number of very small transactions.(72) A review of the first year's experience under the premerger rules indicated that those transactions had very little likelihood of raising concerns.(73) The revised rule decreased the required filings by about 20%.(74)

    In addition, last March, after much study, drafting and redrafting, the Commission, with the concurrence of the Department of Justice, formally adopted five amendments to the premerger rules that broaden the classes of transactions that are exempt from HSR requirements.(75) In crafting these amendments we listened to, and worked closely with, the private sector. One purpose of these amendments is to clarify, define and broaden the kinds of acquisitions exempt from HSR requirements as transfers of goods or realty in the "ordinary course of business." That exemption has been a focus of frequent questions. Other rules exempt the acquisition of certain categories of real property assets, the acquisition of oil and natural gas reserves valued at $500 million or less and the acquisition of coal reserves valued at $200 million or less, and the acquisition of securities whose underlying value is represented solely by those kinds of exempt assets. Those acquisitions are unlikely to violate the antitrust laws, and so the reporting requirement is an unnecessary burden. Another rule exempts acquisitions by certain investors of rental real property. Those transactions likewise are not likely to violate the antitrust laws.

    The anticipated result was that about 7-10 percent of then-current filings would no longer be necessary, resulting in a substantial saving of time and money for business. There were some who were skeptical that the amendments would ever happen, since the additional exemptions would cost the FTC and the Antitrust Division lost revenues from HSR filing fees. The outcome speaks for itself.

    Despite such efforts to reduce the number of filings, there remains a strain of criticism that HSR still requires the reporting of too many transactions. Various rationales are offered for those criticisms. They cite to the belief by some in Congress at time of enactment that only a few hundred deals would have to be reported.(76) Some note that only a small percentage of transactions result in enforcement action. Some cite burdens on small businesses. Various critics have suggested broader exemptions or higher thresholds. We understand the concerns, but those viewpoints ignore some critical realities.

    First, experience teaches that we cannot predict in advance what deals will be problematic. Merger analysis is too fact-specific and case-specific. So broad exemptions with a few exceptions don't work. We cannot specify what those exceptions should be.

    Second, raising thresholds is superficially appealing until you consider real world implications. The practical effect of an exemption for transactions smaller than $50 million is that many mergers that otherwise would give us concern would go undetected. Is that really what we want? Even if a transaction lies at the lower end of the spectrum of currently reportable transactions, it may be very large in relation to the size of the relevant market. A change in thresholds would indiscriminately cut across all industries, regardless of the sizes of the relevant markets. The inevitable result would be that we would miss some important transactions with potential for real consumer injury. For example, in FY 1995 a $50 million threshold would have missed the problematic acquisition of another hospital by Columbia/HCA,(77) a questionable acquisition by Service Corporation International, already one of the largest funeral home chains,(78)and a merger to monopoly by Automatic Data Processing, Inc. in a market for automobile salvage yard information systems.(79) These are only a few of the transactions below $50 million that raised significant concerns.

    Alternatively, by increasing thresholds, would we be saying that the likelihood of anticompetitive outcomes is so small in deals below $50 million that the burden should shift to the antitrust agencies to unscramble the eggs after closing? The implications for enforcement agencies are large if that is the policy we are to follow. And the costs, in terms of dollars, time and uncertainty for the business community if we return to ex post litigation for those deals, are large as well. The bottom line is that I am not sure there is a sound public policy for letting more deals go through without premerger review. That doesn't mean that we should stop trying to reduce the number of reportable filings, but we need to be careful about broad scale changes.

    IV. KEEPING PACE WITH THE TIMES

    Ongoing Review of the Premerger Process

    The third performance measure I outlined at the outset is whether the premerger program has demonstrated an ability to adjust to the needs of today and tomorrow. As we look back at the program over the years, we can see that it has evolved and matured. We have reduced unnecessary delay, we have reduced the relative frequency of issuing second requests, we have reduced unnecessary second request burdens, and we have broadened exemptions to cover transactions that we now have a sound basis for excluding. Gone are the days when there were substantial differences between the second requests issued by the Commission and the Department of Justice. And gone are the days when second requests were more voluminous, sometimes significantly more voluminous, than today. That does not mean that compliance will always be easy or fast, but you can be assured of consistency of application.

    As I have noted before, review of the premerger rules has been an ongoing process, and it will continue to be. We recognize that it is not sufficient to justify the premerger program simply on the basis of the statutory mandate to review mergers before they occur. The agencies will continue to strive to make the process more efficient, and less burdensome.

    Simplification of the Notification and Report Form

    Next on our agenda are proposed changes to the Notification and Report Form. We have three objectives in mind. First, we will seek to reduce burdens wherever possible. Certain proposed changes would eliminate parties' submission of information now considered non-essential to the antitrust review of a reportable transaction. Second, we will revise the form to make it focus more directly on product overlaps. The reporting requirement for certain information will be narrowed, but we will also require more up-do-date information. Third, the changes would clarify the kinds of information called for under Item 4(c) of the HSR form, which requires the filing person to submit all studies or analyses prepared by or for any officer or director for the purpose of analyzing or evaluating the acquisition with respect to various issues relating to competitive effects. Item 4(c) is a very important part of the reporting obligation, for obvious reasons. While we think the requirements of Item 4(c) already are clear, it is apparent that some merging parties do not view the requirements the same way we do, and there are varying interpretations of the parameters of Item 4(c) among members of the private bar. The proposed changes will seek to eliminate any possible misunderstanding.

    Making Merger Remedies Better and Faster

    Another aspect of making merger enforcement more efficient and more effective is to make merger remedies better, and to implement them faster. After all, that is what the premerger provisions of HSR were all about. HSR put us in a position to make improvements, but we have to take it from there. We have come a long way from such cases as El Paso and Papercraft that Congress cited as examples of the need for reform. For example, in Papercraft the acquiring company delayed divestiture in part because it was unable to find a "suitable buyer" -- meaning that it could not locate a buyer for a price that the seller liked. In that case, the initial asking price was seven and a half times the acquisition price! That can no longer happen under Commission orders. I think we can do better still, and we are studying ways of doing that.

    In 1995, the Commission's Bureau of Competition and Bureau of Economics began a pilot study of recent Commission orders in merger cases. Although the study covered just a small sample of orders, it reinforced some conceptions we had going into the study, and we gained some useful insights. Some of the orders worked better than others, which was not surprising, but more importantly, we gained a better understanding of why some kinds of relief provisions work, and why other kinds may encounter problems.

    We are planning to follow up with a larger study of Commission orders, but we don't have to wait for the results of that study to make improvements. We already know enough to begin the process. A few months ago, the Bureau of Competition, with the concurrence of the Bureau of Economics, formulated a seven-step plan to improve the divestiture process. Some elements of the plan are new; some call for a renewed emphasis on certain things we have tried in the past. As a package, they will result in faster and more effective relief in merger cases. I'll summarize the basic elements:

    A preference for identifying the buyer up front

    Divestitures are likely to occur faster and more successfully if the respondent is able to identify and propose a buyer to the Commission at the time of provisional acceptance of a consent decree. That not only eliminates the search time, but also the risk that a buyer will not be found. It also limits the amount of time the respondent will have control of the assets to be divested. The approach of requiring a buyer up front is particularly valuable when the Bureau and the parties disagree on the size or scope of the divestiture package. A knowledgeable buyer identified up front can alleviate concerns about the sufficiency of a divestiture package. The Commission has used this approach in a number of recent cases,(80) and we intend to use it more.

    Defining the appropriate divestiture package

    Our approach in recent years, and properly so, has been to tailor relief narrowly to specific antitrust problems. Thus, for example, if a merger presents an overlap in some product lines but not others, the tendency has been to focus on divestiture of the product lines that have substantial overlap, rather than the entire business. However, our merger retrospective study suggests that narrow product lines may in some cases not be saleable. Accordingly, we are renewing our efforts to make sure the divestitures we recommend to the Commission have sufficient assets in them to provide a reasonable likelihood of a successful divestiture.

    Broader use of crown jewel provisions

    The rationale for a crown jewel provision is obvious. It increases the incentive for the respondent to accomplish the divestiture within the time required by the Commission's order, and it provides a bigger, and presumably more attractive, package for the trustee in the event the respondent is unsuccessful. For example, the Commission's recent consent order in Ahold provided that if respondents did not divest the specified supermarkets, "the trustee may on his or her own initiative, or at the direction of the Commission, divest any additional or substitute supermarkets of the Respondents located in the respective overlap areas and effect such arrangements as are necessary to satisfy the requirements of this Order."(81) Obviously, such provisions are difficult to negotiate, but we will insist on them where appropriate. They may be particularly valuable when there are some uncertainties about the salability or viability of the divestiture package, or where the respondent may be able to frustrate the viability of a divestiture -- for example, by not transferring all the necessary technology or know-how. Parties to future orders could take some comfort in the fact that no crown jewel provision in a Commission order has ever been triggered. That probably attests to the incentive value of such provisions. It also suggests that if a respondent is adamantly opposed to such a provision, there may be serious questions about the viability of the proposed settlement.

    Shorter time for divestiture

    Within the last two years, the Commission has reduced the average time required for divestitures from approximately 15 months to around 10 months.(82) It should be reduced even more. We are convinced that competition suffers when it takes an average of 10 months to divest an asset package. Our recent experience with up-front divestitures -- and there have been a number of them -- suggests that the typical business can find a suitable purchaser (i.e., one that meets the requirements of the order) in a much shorter period of time.(83) Moreover, a lengthy period often results in a diminution in the competitive value of the assets to be divested, despite all we try to do to maintain their viability.

    Our goal is that most divestitures should be achieved up front -- at the same time the deal closes -- and in any event, no later than six months from the date a consent agreement is signed by the respondent. After that period, the Commission would have the option of continuing to allow the respondent to find a buyer or to appoint a trustee to do the job. In retail cases -- such as supermarkets and drug stores -- where the value of the assets can diminish very quickly, our goal is to accomplish divestiture in no more than four months. Note that these time frames include the time required to obtain Commission approval of the proposed purchaser and transaction. Our emphasis on expedited divestitures will mean that respondents will not only have to act quickly, but they will also have to make an honest effort to propose a deal that fully meets the requirements of the order. In our view, if the parties contend that a divestiture is sufficient to resolve competitive concerns, they should bear the burden of convincing the Commission up front that there is a buyer or buyers who will restore the competitive presence that otherwise would be lost.

    Strong hold-separate agreements

    Obviously, it is important to maintain the viability and competitive value of the divestiture package pending divestiture. The way we do that is through a hold-separate agreement. That is not new, but we are putting renewed emphasis on the importance of hold-separate agreements that are comprehensive enough to protect all the assets to be divested, and that include all the crown jewels potentially subject to divestiture by a trustee. In appropriate cases, we will strengthen the protection by using an interim trustee to make sure the assets are maintained and competitively employed during the divestiture process. The Commission successfully used an interim trustee for this purpose in First Data(84) and Reckitt &Colman.(85) In some of the orders in the pharmaceutical industry, such as Glaxo(86) and Hoechst/MMD,(87) the Commission used a trustee with substantive expertise in the industry to monitor not only the respondent's compliance with divestiture requirements but also the purchaser's efforts to gain FDA approval to manufacture the relevant product for sale in the United States.

    Post-divestiture follow up

    The Bureau's Compliance Division will make follow-up contacts with buyers of divested assets, customers and suppliers to monitor the success of the divestiture. This will enable us to do two things. We can try to straighten out any problems that may have arisen between the respondent and the buyer of the package, if we don't already know about them. It also will add to our knowledge about what divestitures are working and which ones are not, and why.

    HSR Enforcement

    As another element of our program to maintain and improve HSR as an effective enforcement tool, we have stepped up enforcement against violations of the Act. The success of the premerger notification program depends critically upon compliance. Since there can be strong incentives to avoid reporting certain transactions, it is important to prevent those incentives from dominating the behavior of merging parties. Congress wisely provided for significant civil penalties for non-compliance -- $10,000 for each day a firm is in violation, which can amount to millions in penalties before it is over.(88)

    Unfortunately, there have been some recent problems with non-compliance, some inadvertent, some intentional. We have taken vigorous action where it was warranted. In this past year, we have collected record fines in excess of $7.5 million for violations of the Act. This is not necessarily evidence of increased wrongdoing; rather, it shows our greater commitment to enforcement. Let me describe three recent cases.

    In Sara Lee,(89) we believed the acquiring firm had deliberately understated the value of U.S. assets it was acquiring (Kiwi Brands) in order to avoid reporting a highly problematic transaction. We found out about the acquisition after the fact, and investigated both the merger and the failure to file. In 1994, Sara Lee agreed to a divestiture order to resolve a probable violation of Section 7. We didn't stop there. In February, 1996, Sara Lee agreed to pay a record $3.1 million civil penalty to settle charges that it violated the HSR Act.

    In Automatic Data Processing Inc.,(90) the issue was whether the company had complied with Item 4(c) of the reporting form. In 1995, ADP submitted an HSR filing without any 4(c) documents. After the transaction closed, we received complaints from the public that the acquisition had caused competitive harm, and discovery in our ensuing investigation revealed documents that clearly should have been filed under 4(c). In our federal court complaint against ADP, we alleged that the HSR filing had been materially deficient, and that ADP simply failed to take the 4(c) requirement seriously. ADP agreed to settle those charges -- for $2.97 million. This represented $10,000 per day for each day ADP had failed to provide the 4(c) documents -- up to the time the company submitted the documents and recertified its premerger notification. Our investigation also uncovered evidence substantiating the concerns that ADP's acquisition was anticompetitive.(91)

    Unfortunately, ADP may not be an isolated incident. There appear to be a significant number of HSR filings that do not contain the kinds of 4(c) documents that one would ordinarily expect from companies engaged in complex transactions in which the firms may be in engaged in the same or related businesses. They do not engage in those kinds of transactions in a vacuum. Sometimes, 4(c) documents show up only in response to a second request. That is not good enough. If firms do not file those documents in response to Item 4(c) of the initial notification, and second requests are not issued, we may never discover those documents unless third parties come to us with concerns about the merger, as was the case in ADP. Accordingly, it is a high priority for us to ensure that filing persons comply fully with Item 4(c).

    In Foodmaker, Inc.,(92) a subsidiary of the defendant, Chi-Chi's, Inc., simply ignored the HSR filing requirement and proceeded with the acquisition of its largest franchise operator, Consul, Inc. The parent company was responsible for the HSR filing and approved the acquisition without making the filing. The firm was in violation for well over one year, but the $1.45 million civil penalty was the maximum the firm could pay without defaulting on outstanding loan commitments.

    Yet another kind of problem appears in a matter that is currently under investigation. It appears that the parties, perhaps with the help of others, may have conspired to violate the Act. They may have made a cynical judgment that the prospect of a fine did not outweigh the benefits of violating the Act, and they closed the transaction early. It would be unfortunate if a $11,000 per day civil penalty became merely a cost of doing business. We keep a close look-out for such transactions, and take aggressive action when we find them.

    In summary, HSR was a giant leap forward in making merger enforcement more efficient and more effective. There are still things that can be improved, both in the front end -- the premerger notification and review phase -- and the back end -- the remedy phase -- but we have made major progress for American consumers and businesses.

    1. The views expressed are those of the Bureau Director and do not necessarily reflect the views of the Federal Trade Commission or any Commissioner. I appreciate the significant assistance my colleague Ernest Nagata provided in the preparation of these remarks.

    2. Pub. L. No. 94-435, 90 Stat. 1383 (1976). The premerger notification provisions are located in Section 7A of the Clayton Act, 15 U.S.C. 18a.

    3. See, e.g., Irving Scher, Emerging Issues Under the Antitrust Improvements Act of 1976, 77 Col. L. Rev. 679 (1977) (citing the legislative history and various commenters).

    4. The rules implementing HSR, 16 C.F.R. 800 et seq., went into effect on September 5, 1978.

    5. The 1979 volume is about what the Commission told Congress in 1976 it expected but higher than the congressional estimates. The House and Senate committee reports on their respective bills indicated that only about 100-150 transactions would have to be reported each year, based on the level of merger activity at the time. See H.R. Rep. No. 1373, 94th Cong., 2d Sess. 11 (1976) ("House Report"); S. Rep. No. 803, 94th Cong. 2d Sess. 66 (1976) ("Senate Report"). The FTC staff estimated that around 650-750 transactions would be covered by the proposed statute. The Antitrust Improvements Act of 1975: Hearings Before the Subcom. on Antitrust and Monopoly of the Senate Judiciary Comm. on S.1284, 94th Cong., 1st Sess. 420 (1975) (hereinafter cited as "Senate Hearings") (testimony of Lewis A. Engman, Chairman of the Federal Trade Commission).

    6. William J. Baer, The Dollars and Sense of Antitrust Enforcement, Remarks before the Antitrust Section of the New York Bar Association, January 25, 1996. The text of the speech is available on the Internet at / under Speeches.

    7. See Senate Report at 64-65 (citing the testimony of Assistant Attorney General Thomas E. Kauper).

    8. Section 4C of the Clayton Act, 15 U.S.C. 15c.

    9. H.R. Rep. No. 499, 94th Cong., 1st Sess. 3 (1975); accord, Senate Report at 39.

    10. See, e.g., Scher, supra note 1 at 701 et seq.; Earl W. Kintner, The Legislative History of the Federal Antitrust Laws and Related Statutes, Part II, The Hart-Scott-Rodino Antitrust Improvements Act of 1976, 7-16 (1985).

    11. New York v. Reebok Int'l Ltd., 903 F. Supp. 532 (S.D.N.Y. 1995) (approving settlement of $9.5 million in case alleging that Reebok entered into agreements to fix the minimum resale price of Reebok and Rockport brand shoes), aff'd, 96 F.3d 44 (2d Cir. 1996) (alternative disposition: appeal dismissed for lack of standing).

    12. New York v. Nintendo of America, Inc., 775 F. Supp. 676 (S.D.N.Y. 1991) (approving settlement valued at almost $30 million in case alleging that Nintendo entered into agreements to fix the minimum resale price of Nintendo video games).

    13. Reebok Int'l Ltd., Dkt. C-3592 (consent order, Aug. 25, 1995); Nintendo of America Inc., Dkt. C-3350 (consent order, Nov. 26, 1991).

    14. 376 U.S. 651 (1964).

    15. Id. at 662.

    16. The House and Senate Reports indicate that there were six trips to the Supreme Court; two former Department of Justice attorneys who worked on the case testified that the case went to the Supreme Court eight times. Compare House Report at 10 and Senate Report at 70 with Senate Hearings at 420 (statement of David K. Watkiss); Senate Hearings at 430 (statement of John H. Dougherty).

    17. Senate Report at 70.

    18. House Report at 7. See also Brown Shoe Co. v. United States, 370 U.S. 294, 315 (1962) (reviewing the legislative history of the 1950 amendments to Section 7). Many more examples of delayed merger relief are cited in the legislative history. See, e.g., House Report at 8-10. The FTC's 1969 case against The Papercraft Corporation was one. There the Commission issued a complaint in 1969 challenging Papercraft's acquisition of CPS Industries in December, 1967. In June, 1971, the Commission ordered divestiture within six months. The Papercraft Corp., 78 F.T.C. 1352 (1971). Divestiture did not occur for an additional four years, following Papercraft's appeal of the Commission's order, see Papercraft Corp. v. FTC, 422 F.2d 927 (7th Cir. 1973) (affirming the Commission's order in substantial part), the Commission's issuance of an amended order on June 6, 1973, the filing of a civil penalty action against Papercraft in August, 1974, for violation of the Commission's order, and the court's decision in May, 1975, assessing civil penalties and ordering Papercraft to submit a divestiture plan to the Commission within 60 days. See United States v. Papercraft Corp., 393 F. Supp. 415 (E.D. Pa. 1975), rev'd, 540 F.2d 131 (3d Cir. 1976) (reversing as to basis for civil penalty calculation).

    19. Senate Hearings at 428 (statement of David K. Watkiss).

    20. Senate Hearings at 428 (prepared statement of David K. Watkiss).

    21. House Report at 10; Senate Report at 64-65 (citing Assistant Attorney General Kauper's testimony that premerger notification "will prevent the consummation of so-called 'midnight' mergers designed to subvert the Department's authority to seek preliminary relief").

    22. House Report at 10. Accord Senate Report at 64-65.

    23. House Report at 10.

    24. FTC, Corporate Mergers or Acquisitions, Notification and Special Reports, reprinted in 39 Fed. Reg. 35,717 (1974).

    25. See Kintner, supra note 9 at 7.

    26. Senate Hearings at 61 (prepared statement of Lewis A. Engman, Chairman, Federal Trade Commission). See also Charles W. Smith and Robert A. Lipstein, Premerger Notification: Coverage, Corporate Planning and Compliance, 47 Antitrust L.J. 1181, 1183 (1978).

    27. See Senate Report at 64-65 (citing testimony of Assistant Attorney General Kauper).

    28. Grant S. Lewis, Preliminary Injunctions in Government Section 7 Litigation, 17 Antitrust Bull. 1, 2 (1972).

    29. In some cases a preliminary injunction was not sought because the parties to the acquisition voluntarily postponed the transaction. Id. at 2 n.8.

    30. See Senate Report at 61-62.

    31. See Senate Report at 64-65, 70-72 (citing testimony of Assistant Attorney General Kauper).

    32. House Report at 9; accord, Senate Report at 61.

    33. Kenneth G. Elzinga, The Antimerger Law: Pyrrhic Victories?," 12 J. Law & Econ. 43, 46-52 (1969). Professor Elzinga studied a sample of 39 cases filed between 1950 and 1960 and resolved by the end of 1964.

    34. House Report at 8; accord Senate Report at 61. Scrambling of the assets was one of the major problems in the El Paso case. As stated by one of the government attorneys:

    Far more than anything else, consummation of the merger, in a rush for the sake of a $9 million tax advantage, created the complexity and protraction of the subsequent appeals and trials. Without merger the case could have been settled by sale of the Pacific Northwest stock when the Supreme Court ordered divestiture in 1964. Instead, the assets and affairs of the two companies became commingled, the inevitable result of a single management even though the properties were geographically separate.

    Senate Hearings at 438 (prepared statement of John H. Dougherty).

    35. See Elzinga, supra note 32, at 51-52.

    36. Id. at 52.

    37. Id. at 34.

    38. Senate Report at 63-64.

    39. 122 Cong. Rec. 25051 (1976) (remarks of Representative Rodino).

    40. Senate Report at 65 n.28.

    41. Congress was not overly generous with the waiting periods for transactions that involve a cash tender offer, but we understand the reasons for that and we have been able to live with the statutory periods. For the vast majority of transactions -- those that do not involve a cash tender offer -- the waiting period is 30 days, and it may be extended by 20 days if second requests are issued. In the case of cash tender offers, those waiting periods are truncated to 15 days and 10 days, respectively. If the Commission needs more time, we can generally reach a satisfactory accommodation.

    42. FTC v. Questar Corp., No. 2:95CV 1137S (D.Utah 1995) (transaction abandoned); Questar/Kern River, FTC File No. 961 0001 (preliminary injunction action authorized, Dec. 27, 1995).

    43. See discussion infra at 16.

    44. See, e.g., Senate Report at 64-65.

    45. The option of litigating the issues in the administrative process has not often been exercised in recent years, perhaps because merger trials have gained a reputation for taking more time than they should. That is unfortunate, because it means that almost all merger law today is reflected in consent decrees rather than a fully articulated decision based on a complete trial record. We are taking steps to make the administrative process more user friendly. The Commission recently implemented a number of procedural reforms that are designed to move administrative trials at the Commission more rapidly, and there is a special "fast-track" process available for cases in which a court has entered a preliminary injunction. In brief, if the Commission designates a case as one in which the fast track process is available, and the respondent elects to use it, the procedure usually will result in a final order and opinion within 13 months after the latest of certain "triggering" events (i.e., issuance of the administrative complaint, entry of a preliminary injunction by a federal court, or the date on which respondents elect the "fast-track" procedures). See FTC Rules of Practice 3.11A; 61 Fed. Reg. 50639 (Sept. 26, 1996). That is considerably faster than recent merger cases, so the new rules give parties a real option to defend a merger through a full trial rather than settle or abandon the transaction.

    46. The pendency of the acquisition had chilled negotiations between Kern River and prospective customers.

    47. Hoechst AG, Dkt. C-3629 (consent order, Dec. 5, 1995).

    48. First Data Corp., Dkt. C-3635 (consent order, Jan.16, 1996).

    49. Consumer money wire transfers are two-party transfers of money between persons in different geographic locations. The sending party goes to an agent, such as a check casher, grocery store or convenience store, with the money to be transferred, completes a transaction form, and pays a transaction fee. The transaction information is fed into a computer network, and the money is available within minutes to the recipient at the other end, who simply must provide the correct identifying information to collect the funds. The service is fast, secure and convenient.

    50. Time Warner Inc., File No. 961-0004, 61 Fed. Reg. 50301 (Sept. 25, 1996) (consent order accepted for public comment) (Commissioners Azcuenaga and Starek dissenting).

    51. The New York Times, Sept. 19, 1996, at A-26.

    52. Rite Aid Corp./Revco D.S., Inc., FTC File No. 961-0020 (April 17, 1996) (preliminary injunction action authorized; transaction abandoned). My description of this case is based on the Commission's news release; I did not participate in this matter.

    53. For example, in FTC v. Alliant Techsystems Inc., 808 F. Supp. 9 (D.D.C. 1992), the district court found that Alliant's acquisition of Olin Corporation's ordinance division would cost the U.S. Army $25 million to $115 million more for 120mm tank ammunition. The court issued a preliminary injunction, and the parties abandoned the transaction.

    54. Although the consumer benefit is indirect, the stakes can be enormous. For example, Commission action in connection with Montedison S.p.A., Dkt. C-3580 (consent order, May 25, 1995) potentially resulted in consumer benefit on the order of $106 million annually. The case involved a $6 billion joint venture between Montedison S.p.A., the world's leading producer of polypropylene, and the Royal Dutch Petroleum Company and several of its affiliates, including the Shell Oil Company. The Commission charged that the joint venture would substantially lessen competition in the $4 billion domestic market for polypropylene, as well as a $250 million export market. Polypropylene is a leading plastic used in a wide variety of consumer goods including playground equipment, storage containers and toys. To settle the matter, the parties agreed to divest all of Shell's U.S. polypropylene assets to a Commission-approved buyer in order to preserve competition. If the Commission action prevented even a 1-cent per pound increase in the price of polypropylene (it sells for 30-40 cents per pound), the consumer benefit is around $106 million based on annual sales in excess of 10.6 billion pounds. Earlier cases in the plastics industry produced similar benefits. In a case against the Occidental Petroleum Company, the potential consumer benefit is on the order of $118 million based on PVC sales in excess of 11.8 billion pounds per year. Similarly, a case against the B.F. Goodrich Company potentially saved consumers from a $118 million price increase on VCM, which is an intermediate product used in making PVC.

    55. For example, in FY 1996, 92.7 percent of the transactions requested early termination and 71.1 percent of the requests were granted.

    56. Our recent adoption of a standard model second request for use by both agencies facilitates this process, because the merging parties are better able to anticipate and prepare for a second request. Regardless of which agency conducts the investigation, the second request will be essentially the same. See discussion infra at 29.

    57. In a limited number of cases the investigation may extend beyond the HSR waiting period, either because the merging parties have voluntarily postponed the transaction or because the Commission has determined that particular circumstances warrant continued review of the transaction. See, e.g., Statement of the Commission, Eli Lilly and Co., Dkt. C-3594 (consent order, July 31, 1995) (merger will continue to be monitored for anticompetitive effects). Also, a decision not to take enforcement action during the HSR waiting period does not preclude the agencies from subsequently investigating the transaction and taking whatever action is appropriate. 15 U.S.C. 18a(I)(1).

    58. In addition, if the matter goes to a full trial on the merits after a court orders preliminary relief, there is an incentive to expedite the litigation, which accrues to the respondent's benefit as well. As previously noted, recent procedural reforms implemented by the Commission will further expedite administrative litigation. See discussion supra at note 44.

    59. But it also entails some risk. An injunction preserves the status quo ante in the markets where we have concerns. A consent decree is somewhat more risky because it typically calls for ex post divestiture. The difficulty the Commission has encountered in finding buyers for some asset packages has led the Bureau of Competition to place more emphasis on up-front divestitures to buyers identified before the deal is allowed to close. See William J. Baer, Report From the Bureau of Competition: Looking Back and Going Forward, Remarks before the 44th Annual Antitrust Spring Meeting, Federal Trade Commission Committee, American Bar Association, Washington, D.C., March 28, 1996, at text accompanying footnotes 14-15. The text of the speech is available on the Internet at / under Speeches.

    60. Richard W. Pogue, Effects on Other Merger Transactions: Does the Government Abuse Its Newly Granted Power?, 48 Antitrust L.J. 1471 (1979).

    61. E.g., Pogue at 1474.

    62. E.g., Pogue at 1478-83.

    63. E.g., id.; Charles W. Smith and Robert A. Lipstein, supra note 25 at 1198-1203.

    64. See, e.g., Senate Report, Pt. 2 (Minority Views) at 211-13.

    65. A number of these reforms were initiated in March 1995 by then-FTC Chairman Janet Steiger and Assistant Attorney General Anne Bingaman. See U.S. Department of Justice and Federal Trade Commission, Hart-Scott Rodino Premerger Program Improvements (Mar. 23, 1995).

    66. E.g., Section 7A(g)(2), 15 U.S.C. 18a(g)(2) ("If any person . . . fails substantially to comply with . . . any request for the submission of additional information" the district court may order compliance and extend the waiting period).

    67. Remarks of Senator Hart, 122 Cong. Rec. 29341 (1976) ("What constitutes 'substantial compliance' is to be determined by the court, and is to be measured in both qualitative and quantitative terms as well as whether the court finds that the compliance effort was reasonable and appropriate under the prevailing circumstances"); remarks of Representative Rodino, 122 Cong. Rec. 30877 (1976) ("requests for additional information must be reasonable").

    68. In FTC v. McCormick & Co., 1988-1 Trade Cas. (CCH) 67,976 (D.D.C. 1988), the company declared itself to be in substantial compliance and announced its intention to proceed with the transaction at the end of the 20-day waiting period unless it was enjoined. The Commission believed the company was not in substantial compliance and sought a temporary restraining order and an injunction pending compliance with HSR requirements. Without discussion, the court found that the company was not in substantial compliance and entered the injunction. In a related action by McCormick, the company sought a declaration that the Commission's second request was unduly burdensome and therefore unlawful. The case was rendered moot by the court's decision in the Commission's injunction action. See McCormick & Co. v. FTC, No. JFM-88-1184 (D. Md. Apr. 22, 1988). In another case, the Commission moved for a preliminary injunction to enforce the HSR 20-day waiting period but the matter was settled. FTC v. Dana Corp., No. CA 381-003 H (N.D. Tex., filed Jan. 2, 1981). In that case, there was disagreement over when Dana came into substantial compliance. The company produced additional documents after receiving a deficiency notice, but declared itself to have been in substantial compliance with its earlier submission. The matter was settled when Dana agreed not to consummate the transaction until a certain date.

    69. See discussion supra at 23 - 24.

    70. Stephen R. Volk, The Practical Effects of Hart-Scott-Rodino Premerger Notification on Tactics in Tender Offers and Related Transactions, 48 Antitrust L.J. 1459 (1979) (italics added in text).

    71. There have been other amendments, in 1983 and 1987, to clarify and refine the premerger rules. My focus here is on the two major amendments that dealt with exemptions.

    72. 44 Fed. Reg. 66,781 (Nov. 21, 1979).

    73. See Malcolm R. Pfunder, Premerger Notification After One Year: An FTC Staff Perspective, 48 Antitrust L.J. 1487, 1490-91 (1979).

    74. Id.

    75. 61 Fed. Reg. 13666 (Mar.18, 1996).

    76. See discussion at note 4, supra.

    77. Columbia/HCA Healthcare Corp., Dkt. C-3627 (consent order, Nov. 24, 1995) (proposed acquisition of John Randolph Medical Center).

    78. Service Corp. Int'l, Dkt. C-3579 (consent order, May 15, 1995) (proposed acquisition of Uniservice Corp.).

    79. Automatic Data Processing, Inc., Dkt. 9282 (1996) (acquisition of AutoInfo, Inc.). ADP did not comply fully with HSR requirements, resulting in a major civil penalty settlement and a delay in enforcement action. See discussion infra at 45.

    80. E.g., Fresenius AG, File 961-0053 (consent agreement accepted for public comment, Aug. 1, 1996); Koninklijke Ahold NV, Dkt. C- 3687 (consent order, Sept. 30, 1995).; The Scotts Company, Dkt. C-3586 (consent order, Sept. 8, 1995); Illinois Tool Works Inc., Dkt. C-3651 (consent order, June 27, 1995); Montedison S.p.A, Dkt. C-3580 (consent order, May 25, 1995); Boston Scientific Corp., Dkt. C-3573 (consent order, Apr. 28, 1995); Kiwi Brands, Dkt. C-3563 (consent order, Aug. 24, 1994).

    81. Id., Part III.

    82. Measured from the effective date of the order to divestiture approval by the Commission, for the periods October 1994 to September 1995, and October 1995 to September 1996.

    83. See cases cited in note 79, supra.

    84. First Data Corp., Dkt. C-3635 (consent order, Jan.16, 1996).

    85. Reckitt & Colman plc., Dkt. C-3571 (consent order, May 11, 1995). In both First Data and Reckitt & Colman the interim trustee was called an "independent auditor/manager" to differentiate that person from a divestiture trustee.

    86. Glaxo plc., Dkt. C-3586 (consent order, June 14, 1995).

    87. Hoechst AG, Dkt. C-3629 (consent order, Dec. 5, 1995). See also American Home Products Corp., Dkt. C-3557 (consent order, Mar. 9, 1995).

    88. As of November 20, 1996, the maximum penalty per day of violation is $11,000, after a 10% inflation adjustment pursuant to the Debt Collection Improvement Act of 1996. See 61 Fed. Reg. 54548 (Oct. 21, 1996).

    89. United States v. Sara Lee Corporation, No. 1:96 CV00196 (D.D.C., Feb. 9, 1996) (consent judgment).

    90. United States v. Automatic Data Processing, Inc., Civ. No. 96-0606 (D.D.C., Apr. 10, 1996) (consent judgment).

    91. Shortly after the preparation of these remarks, the Commission issued an administrative complaint against ADP under Section 7 of the Clayton Act and Section 5 of the FTC Act, including charges that ADP attempted to monopolize, and did in fact monopolize, a market for automobile salvage yard information systems. Automatic Data Processing, Inc., Dkt. No. 9262.

    92. United States v. Foodmaker, Inc., Civ. No. 1:96CV01879 (D.D.C. Aug. 26, 1996) (consent judgment).