Formal Interpretation No. 14

16 CFR Part 802 Premerger Notification: Reporting and Waiting Period Requirements

AGENCY: Federal Trade Commission

ACTION: Notice of Formal Interpretation

SUMMARY: On November 14, 1988, the Federal Trade Commission, with the concurrence of the Assistant Attorney General in charge of the Antitrust Division of the Department of Justice, issued Formal Interpretation Number 14 pursuant to § 803.30 of the Commission's Premerger Notification Rules, 16 C.F.R. § 803.30. The formal interpretation discusses the effect of the CAB Sunset Act, 49 U.S.C. § 1551(a)(7), on § 802.6(b) of the Commission's premerger notification rules, 16 C.F.R. § 802.6(b). Its primary purpose is to state that any airline merger or acquisition that is to be consummated on or after January 1, 1989, must be reviewed under the Hart-Scott-Rodino premerger notification program, regardless of whether the parties to it have sought or even obtained approval from the Department of Transportation before that time.

EFFECTIVE DATE: November 14, 1988

FOR FURTHER INFORMATION CONTACT: John M. Sipple, Jr., Chief, Premerger Notification Office, Bureau of Competition, Room 301, Federal Trade Commission, Washington, DC 20580. Telephone: (202) 326-3100.

SUPPLEMENTARY INFORMATION: The text of Formal Interpretation Number 14 is set out below:

Interpretation Number 14

Formal Interpretation Pursuant to § 803.30 of the Premerger Notification Rules, 16 CFR § 803.30, Concerning § 802.6(b) of the Rules, 16 CFR § 802.6(b), As It May Relate To Transactions Between Air Carriers And Others Consummated On Or After January 1, l989.

Mergers and similar transactions between airlines have for decades required federal regulatory approval prior to consummation. Until 1985, that authority was granted to the Civil Aeronautics Board, and since then, to the Department of Transportation (DOT). The Hart-Scott-Rodino premerger notification rules, 16 C.F.R. § 801.1 et seq., have taken account of the prior approval requirement and have attempted to eliminate duplicative notification and review by providing in § 802.6(b)(1) that:

[A]ny transaction which requires approval by [DOT] prior to consummation, pursuant to section 408 of the Federal Aviation Act, 49 U.S.C. 1378, shall be exempt from the requirements of the act if copies of all information and documentary material filed with [DOT] are contemporaneously filed with the Federal Trade Commission and the Assistant Attorney General.

As of January 1, 1989, under the provisions of the CAB Sunset Act, 49 U.S.C. § 1551(a)(7), DOT will no longer have authority over airline mergers. The Federal Trade Commission is issuing this formal interpretation in anticipation of the following question that may arise concerning the transition: Is a transaction for which DOT approval has been sought or obtained (and for which papers filed with DOT have been contemporaneously filed with the antitrust agencies) but which has not been consummated prior to Jsnuary 1, 1989, exempt from premerger notification requirements pursuant to § 802.6(b)(1), or is a Hart-Scott-Rodino premerger notification required?

The Commission construes § 802.6(b)(1) as not exempting such a transaction; therefore, Hart-Scott-Rodino premerger notification would be required, assuming that the size thresholds are met and no other exemption applies. A transaction that takes place after January 1, 1989, is not "[a] transaction which reguires approval by [DOT] prior to consummation" and thus does not come within the § 802.6(b)(1) exemption. This interpretation is consistent with the most basic policy behind the Hart-Scott-Rodino Antitrust Improvements Act and DOT statutory authority over airline mergers. That policy is to assure that a merger or similar transaction will be subjected to a premerger competitive review. This interpretation eliminates the possibility that a transaction would avoid all premerger review if the parties sought, but did not receive, final approval by DOT of a merger or acquisition.

This interpretation limits the exemption provided by § 802.6 to transactions that are both approved by DOT and consummated by the parties prior to January 1, 1989. Without these limitations, approval of a transaction by DOT might enable the parties to complete a transaction without further premerger competitive review at a much later date when the likely competitive effects of the transaction could be significantly different. This interpretation thus meets the premerger notification rules' concern about the amount of change that can take place in the marketplace between the review and the completion of the transaction. (That concern is addressed by § 803.7 of the premerger notification rules, which requires that the parties complete the acquisition for which notification was filed within a limited time following the Hart-Scott-Rodino review or seek another such review before they complete it.)

The Hart-Scott-Rodino premerger notification obligation that may arise for transactions for which DOT approval has been sought need not significantly delay such transactions. Parties may file Hart-Scott-Rodino premerger notification and seek early termination of their waiting period. If the antitrust agencies have, in the course of a DOT section 408 proceeding, actually completed their antitrust analysis of the proposed transaction, early termination could be granted promptly.

In addition, parties need not wait until January, 1989, to submit Hart-Scott-Rodino premerger notifications for proposed transactions. In the unique circumstances of this sunset law, the Commission and the Antitrust Division of the Department of Justice will review a premerger notification notwithstanding that the transaction would be exempt if consummated with DOT approval prior to January 1989. In other words, the parties may both claim the exemption provided for in § 802.6 and separately file for antitrust premerger review of the same transaction. If both procedures are invoked, the partiea would be free to consummate a transaction before January 1989 with DOT approval even if the Hart-Scott-Rodino premerger notification waiting period had not terminated.

Section 802.6(b)(2) provides that acquisition of:

(2) The following . . . assets will not be exempt under § 802.6(b)(1):  

(i) if the transaction is an acquisition of assets, the assets which are engaged in a business or businesses other than aeronautics or air transportation . . . ;

(ii) if the transaction is an acquisition of voting securities. . . , the business or businesses of the acquired issuer (and all entities which it controls) which are not engaged in aeronautics or air tranaportation . . . .

Because there will no longer be any transactions that satisfy the criteria of § 802.6(b)(1), § 802.6(b)(2) will no longer be invoked with respect to transactions that were previously covered by § 408 of the FAA. However, through informal interpretations pursuant to § 803.30, the Commission's Premerger Notification Office has used the method reflected in § 802.6(b)(2) to define the extent to which "assets held as a result of a transaction requiring approval" by other federal regulatory agencies are exempt from premerger notification requirements. The Premerger Notification Office will continue to apply this method to such other transactions consummated after December 31, 1988.

The Assistant Attorney General in charge of the Antitrust Division of the Department of Justice concurs in this formal interpretation.

By direction of the Commission.

Date: November 14, 1988


Donald S. Clark