Question
December 1, 2010
Via Email
Marian Bruno
Michael Verne
Kathryn E.
Bureau of Competition
FEDERAL TRADE COMMISSION
600 Pennsylvania Avenue, NW
Washington, DC 20530
Dear Ms. Bruno, Mr. Verne, and Ms,Walsh:
We are writing for clarificationregarding treatment of certain documents prepared for counsel's antitrustanalysis of a proposed transaction.
I. Factual Scenario
Thesituation arises in the following hypothetical scenario. Acquiring entity hasreached an agreement in principle to purchase a business, The transaction isreportable, and may present some competitive issues warranting discussion withthe Commission Staff in connection with the anticipated HSR filing. Theacquiring entity retains antitrust counsel to begin the process of (i)preparing a presentation to the Commission Staff and (ii) collectinginformation that counsel anticipates may be the subject of a voluntary requestfor additional information. In doing so, counsel requests that client providepre-existing documents and oilier information (including written narratives) tocounsel for the sole purpose of assisting counsel in preparing to engage witllilie Commission Staff. This infol1nation discusses competitors and post-acquisition market shares.
Becausethe transaction has not been made public yet, and few individuals within thecompany know about it, certain executives (including officers) compile therequested information and forward it to counsel. This information is not usedby any officer or director for any business purpose.
II. Analysis
It is ourunderstanding that these documents do not fall within Item 4(c), because theywere not prepared by or for an officer or director (acting in that capacity)for any business purpose, but instead were prepared for the purpose ofparticipating in anticipated regulatory proceedings. As such, neither thepre-existing documents nor the written narratives need to be disclosed orlogged.
It is ourview that such documents do not fall within Formal Interpretation No.8, FormalInterpretation No.8 concerned opinions of counsel provided to a company'sofficers or directors for the express business purpose of deciding whether toenter into the proposed transaction. This is consistent with the Statement ofBasis and Purposes relating to the initial adoption of Item 4( c), noting thatdocuments are "highly relevant" because they "form the basis ofa parties decision to proceed with the acquisition;" and that documentsprepared "for other purposes" are "excluded" from the scopeof Item 4(c). See Federal Register, Vol. 43, No. 147 at 33526,1978.
Thisdistinction is also reflected in Informal Interpretation No. 0509004. At issuein that opinion were certain documents reflecting antitrust legal analysisprepared by the buyer's counsel and, with one exception, provided to theSeller's officers or directors. The "purpose of each of these documentswas to convince the Seller that the transaction was reasonably capable ofconsummation," and therefore, to convince the Seller to proceed with thetransaction. Thus, the documents were prepared by and for officers anddirectors of both companies for the business purpose of decidingwhether to engage in the transaction.
This isdistinct from the situation here, where the documents were prepared at therequest of counsel for the purpose of assisting counsel in interacting with theFTC Staff on this matter. The distinction between documents prepared forpurposes of analyzing a transaction for business purposes and those preparedfor purposes of complying with a regulatory proceeding is well recognized bythe Commission's Pre-merger Notification Office. For example, in InformalInterpretation No. 0404006, the Staff agreed that documents prepared inconnection with a certificate of need proceeding that contained market data (ofthe subject matter identified in Item 4( c)) did not qualify as a 4(c)document, apparently because it was not prepared for a business purpose.Similarly, in Informal Interpretation No. 0706019, the Staff concluded that"documents that discuss only the likelihood and timing of HSRapproval" do not qualify as 4(c) documents, even if they were "foundin the files of officers and/or directors."
Webelieve that any other interpretation would read the "for thepurpose" language out of the statute, making any documents relating to theidentified subject matter responsive, regardless of its purpose. Such anapproach would be contrary to a number of informal interpretations. InformalInterpretation No. 0509001, for example, makes it clear that if a documentprepared by the seller was given to the buyer's officers and directors"after the transaction document has been executed and thus was not used toanalyze or evaluate the transaction (i. e., the decision to go aheadwith the transaction was clearly not based at all on such documents)," thedocument is not a 4( c) document for the acquiring person.
Otherinformal staff opinions appear make it clear that a document only becomes a 4(c) document if the reason it was prepared was to further not just somebusiness formation, but a business formation typically carried out by anofficer or director. In that regard, Informal Interpretation No. 0804009 andInformal Interpretation No. 0503019 make it clear that when an officer ordirector is merely facilitating the flow of information, such as where he actsin his or her capacity as a member of the due diligence team or where he or sheco-chairs an integration planning team, such documents are not being preparedfor the purpose of an officer or director's evaluation of the enumeratedtopics.
As noted,here, the documents requested by counsel are not being prepared by or for anofficer or director for purposes of analyzing whether to go ahead with thetransaction or for any business purposes. Rather, the documents were seen byofficer or directors only in their capacity as members of the team seeking toassist with the regulatory approval process, and not to fulfill anyquintessential officer or director function.
Accordingly, in our view, the documentsat issue do not appear to be Item 4(c) documents within the meaning of theapplicable rules, SBP, or infom1al interpretations. Please let us know if youconcur with this conclusion.