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Prepared Remarks before the American Bar Association's "Mergers & Acquisitions: Getting Your Deal Through the New Antitrust Climate"
New York, N.Y.
Marian R Bruno, Deputy Director

For 25 years, the Hart-Scott-Rodino Act has provided the antitrust enforcement agencies with the opportunity to review mergers and acquisitions before they occur. In the words of Peter Rodino on the occasion of the HSR Act's 25th anniversary, "the legislation absolutely has transformed merger enforcement. Competition, as well as the consumer, has benefitted(2)." The HSR program has been instrumental in detecting transactions that have been the subject of numerous enforcement actions and continues to do its job well.

Since I'm here to talk about Hart-Scott-Rodino(3) at 25, a very brief history of the statute seems in order. Legislative efforts to introduce a premerger notification program go as far back as 1938.(4) After decades of attempts that failed for one reason or another, the HSR statute passed in 1976. Rules implementing the act were another 2 years in the making and the program became effective in 1978. For twenty plus years, the program functioned effectively with only occasional rules changes. Some of the more prominent changes include the introduction of the filing fee in 1989 and implementing an expanded ordinary course exemption and new real estate acquisitions in 1996. On occasion, there were minor form changes updating the revenue data requirements.

As you can tell from its simple history, the HSR program has remained relatively stable overall. It wasn't until last year that Congress made the first substantive reforms - twenty-five years is a pretty good run. In response to complaints that the $15 million size of transaction threshold was too low, Congress increased the size-of-transaction threshold to $50 million. It also removed the size-of-person test for transactions valued at over $200 million, removed the 15% size of transaction test, and implemented a graduated filing fee schedule. Other reforms were comparatively minor. These statutory reforms set the stage for the numerous rules changes also made last year, including restructuring the foreign exemptions, with which most of you are very familiar. While all of these reforms are important and have had substantial impact, it is important to remember that they did not change the purpose of the HSR program. As we were reminded on the 25th anniversary of the statute, Hart-Scott-Rodino was intended to give the antitrust agencies two things: critical information about a proposed transaction and time to analyze that information and take action to protect competition, if necessary.

First, let's talk about giving the agencies critical information. The HSR Act, 7A(d), allows the agencies to require notification to be in such form and contain such documentary material and information as is necessary and appropriate to enable the agencies to determine whether the acquisition may, if consummated, violate the antitrust laws. The document request that raises the most controversy is Item 4(c) - the request for studies, surveys, analyses and reports prepared by or for an officer or director for the purpose of analyzing the transaction(5). Production of 4(c) documents has been a topic of much debate and continues to attract attention, most recently in the latest issue of the ABA's Antitrust magazine. When responding to any item on the form, keep in mind the purpose of HSR filings is to give the agencies as complete a picture of a transaction as possible -- 4(c) documents are an integral part of that picture. Failure to provide those documents seriously impairs the agencies' ability to conduct their review.

Although many form changes were made in conjunction with the statutory reform, Item 4(c) remained unchanged. While there may be some disagreement on what should be produced as a 4(c) document, the general nature of what constitutes a 4(c) document is clear. I hear continuing controversy about what is required to be produced - apparently applying the instruction is more difficult than anyone fathomed. What appears give more difficulty than interpreting the language of 4(c), is the extent to which persons much search in order to fully comply with the requirement. What I hear most often is not that counsel didn't know it was a 4(c) when they found it, but that the documents didn't show up before the filing was made. 

The most recent case on this subject is Hearst. Hearst exemplifies what can happen if you fail to take the 4(c) requirement seriously. The FTC filed a complaint against The Hearst Trust for omitting several 4(c) documents from a December 1997 filing with respect to the acquisition of a competitor.(6) In the absence of the 4(c) documents, the FTC and the DOJ were unable to determine that the two companies were, in fact, competitors in a specific product market, did not issue a Second Request, allowed the waiting period to expire and the parties closed the transaction. Following consummation of the acquisition, dramatic price increases and customer complaints provoked the FTC to begin an investigation to determine whether the acquisition violated the antitrust laws and whether Hearst violated the HSR Act. During the investigation, the FTC discovered a number of documents that it believed should have been submitted as 4(c) documents with Hearst's premerger filing. According to the Complaint, " . . . Hearst's failure to submit the Item 4(c) documents . . .deprived the Commission of significant information relevant to its premerger analysis . . . ."(7) As part of its requested remedy, the FTC asked the District Court to require Hearst to disgorge any profits it earned from the price increases that followed the acquisition.(8)

On October 11, 2001, Hearst agreed to settle the charges and pay $4 million in civil penalties, the largest amount ever paid by a single company for a violation of the HSR Act.(9) Further, on December 14, 2001, Hearst and the FTC settled the charges that Hearst unlawfully acquired the business at issue. Under the terms of the settlement, Hearst must divest the acquired business and disgorge $19 million of profits obtained as a result of its unlawful acquisition of the business, thus providing relief for customers who were forced to pay post-acquisition monopoly prices for the business' products. The settlement marks the first time the FTC sought either divestiture or disgorgement of profits in a federal court action for a consummated merger.(10)

Practitioners continue to request guidance on Item 4(c). To that end, on July 25th, we'll have what we hope will be our first of several discussion session devoted entirely to 4(c). The goal of these sessions will be to delve into practitioner's specific questions and concerns on applying the instruction to Item 4(c) so that we may gain sufficient background information to provide meaningful guidance, either in the form of a program guide or potentially a rule change. If you're interested in contributing your thoughts, please consider joining us, or sending me information if you're unable to attend.

Two cases I also want to highlight concern the other primary purpose of the HSR Act - giving the agencies the time to analyze the information provided and time to take any necessary action. In both instances, actions by the parties - gun jumping and attempting to "fix it later" - seriously undermined the agencies' ability to review a transaction.

Gun jumping. Parties often ask what actions can be taken prior to closing a transaction. The answer depends on what you want to do and how you go about doing it. The DOJ recently shed some light on the subject with its Computer Associates(11) case. In CA, the Merger Agreement contained extraordinary "conduct of business" provisions that prevented Platinum from undertaking certain competitive activities during the HSR waiting period without CA's approval, including determining the prices and terms it would offer to its customers. Under the Merger Agreement, Platinum could not, without CA's prior written approval: offer discounts greater than 20% off list prices, vary the terms of customer contracts from an agreed-upon "standard" contract, offer computer consulting services over 30 days at a fixed price, or enter into contracts to provide year 2000 ("Y2K") remediation services. CA was "the sole arbiter" of whether to grant exceptions to these business restrictions during the HSR waiting period and installed a Division Vice President at Platinum headquarters to approve Platinum customer contracts. Platinum conceded in its May 14, 1999, SEC 10-Q filing that the "extremely tight restrictions" on its ability to conduct business without CA's consent "could have a severe detrimental effect" on its business. In addition, during the period that the proposed merger was being reviewed pursuant to the HSR Act, CA reviewed competitively sensitive information about Platinum's customers and business strategy. CA also made day-to-day management decisions, including decisions related to the manner in which Platinum recognized revenues.

The merger agreement transferred to CA control of Platinum's essential competitive assets -- the right to independently set prices and other conditions of sale, and the right to decide whether or not to approve contracts proffered by the Platinum sales force -- before expiration of the mandatory HSR waiting period. In addition, CA exercised control over Platinum by reviewing Platinum's competitively sensitive business information and by making numerous day-to-day management decisions. Computer Associates was assessed $638,000 in civil penalties.

In both Hearst and Computer Associates the parties' conduct was egregious. They were both serious violations of the HSR Act.

I'd now like to talk a bit on a situation that I'll refer to as "fix it later." The PNO has often taken the position that a new filing is not required in many situations where the structure of a notified transaction changes prior to consummation. These situations have included, for example, when an acquisition changes from an acquisition of 100% of the voting securities of an issuer to an acquisition of 100% of the assets of that issuer, or when there is a change in the acquiring person's acquisition vehicle. However, informal advice given by the PNO has always been limited to specific fact situations. Moreover it has always been the staff's position that new notifications will generally be required if significantly new information would be revealed by a new filing or if the change in the transaction may affect the enforcement agencies' antitrust analysis. This is true whether the change increases or decreases the amount of voting securities or assets being acquired.(12) Generally, a reduction in the assets or voting securities to be acquired would not require additional notification. However, in some instances, transactions may be altered such that the notification and report form no longer fairly reflects the transaction to be consummated

In Libbey,(13) on the eve of litigation, the parties modified their transactions in hopes that the court would respond more favorably to the altered transaction than the agencies would. The changes modified the transaction to the extent that the parties now claimed that the transaction was new or different from the one described in the notification form. This raises the question as to whether there should be a filing for this "new" transaction that is now materially different from the one the parties described in their HSR filing. The agencies are currently reviewing their options with regard to the situation that arose in Libbey, so stay tuned. I expect more on this subject in the months to come.

While I have your attention, I'd like to use this speech as an opportunity to address one more issue that recently caught our attention - use of the investment only exemption.

An investigation by staff of the Commission raised concerns that certain money managers and institutional investors may be relying improperly on the exemption for acquisitions made "solely for the purposes of investment" contained in § 7A(c)(9) of the HSR Act, and §§ 802.9 and 802.64 of the Commission's Premerger Notification Rules,(14) ("Rules"). The HSR Act and the Rules limit the investment only exemption to passive investors, i.e., persons who acquire voting securities solely for the purposes of investment. The exemption may not be invoked merely because the acquirer's "principal" or "predominant" intent is investment. 

The erroneous reliance on the "investment only" exemption appears to be due, at least in part, to an overall change in institutional investor behavior. Since 1978 when the Rules were adopted, institutional investors and money managers have acquired increasingly larger stakes in many publicly traded companies. As a result, many such institutional investors, who served as the model for "passive" investor behavior when the Rules were first adopted, have become routinely more active in seeking to influence the business decisions of the issuers of voting securities. Some of these large investors have sought to rely on the "investment only" exemption despite seeking to influence the management decisions of an issuer. This behavior has included both direct and indirect attempts by investors to persuade management to put the issuer up for sale. Such activity is inconsistent with the purely passive intent necessary to rely on the exemption.

The long standing position on the availability of the "investment only" exemption has not changed. A "passive" investor may vote or sell the securities it already holds. An investor may also change from a "passive" to an "active" status, wherein the investor takes steps to influence the conduct of an issuer, without any requirement to file premerger notification for prior acquisitions. Nonetheless, once the investor's intent changes to an "active" status, the investor must file premerger notification and observe the waiting period prior to acquiring any additional voting securities of an issuer. Furthermore, any investor who anticipates seeking to influence management decisions is an "active" investor and not entitled to rely on the "investment only" exemption.

Two other points I'd like to clarify about this exemption. First, if you are a competitor, even if only for a very small percentage of sales, or for a single product, you cannot claim that your acquisition of voting securities of your competitor is held for the purposes of investment only. Second, we have been confronted with the issue of whether a co-promotion agreement for a product can negate the availability of the investment only exemption. It has been the long-standing position of the premerger office that the existence of a co-promotion agreement does not automatically eliminate the exemption's availability. However, the facts may show that the acquiring person is actively involved in the basic business decisions of the issuer, and thus prohibited from using the exemption.

Discussing HSR at 25 would not be complete without mention of the developing international impact of premerger review. Twenty-five years ago, HSR stood alone. Over the last decade, merger review programs have proliferated and at last count, there were over 60 jurisdictions with some sort of merger notification requirement. Consequently, this speech would not be complete without a reference to the International Competition Network. Thus far 60 jurisdictions, including the U.S., have joined this effort to provide antitrust agencies from developed and developing countries with a more focused network for addressing practical antitrust enforcement and policy issues of common concern. By enhancing convergence and cooperation, the ICN is expected to promote more efficient, effective antitrust enforcement worldwide.(15) Consistency in enforcement policy and elimination of unnecessary or duplicative procedural burdens stands to benefit consumers and businesses around the world. As jurisdictions learn more about requirements and rationales in other countries, improvements should follow.

A few more minor matters before I wrap up. Transparency, a buzzword if I've ever heard one, is clearly part of the agenda. When I first came on board as head of the Premerger Office, one of the chief complaints I received was that you had to be an insider to have access to the PNO interpretations. It was claimed that the interpretive lore was available to a select few "inside the beltway," making the practice of HSR more of who you knew, rather than what you knew. To that end, we have endeavored to increase access to the program. The brown bag lunch series, both in the Washington office as well as the regions, has been invaluable to us. We have learned much from the outside bar and many of the rule and procedural reforms are the direct result of that contact. This past spring, the office held its first Basic Training session. The high attendance at that session has prompted us to plan on three more training sessions this year. The first on completing the form, the second on basic application of the rules, and the third a more advanced session on applying the rules. The dates and times will be announced on the web page.

Most recently, the Premerger Notification Office launched a web page where you can access informal interpretation letters.(16) This searchable database contains the numerous letters written to the premerger staff confirming the advice given by telephone. This increased ease-of-access should help practitioners receive consistent advice on applicability of the rules. One caveat, often advice given is for a specific factual situation so be sure to call the premerger office (our direct phone numbers are also on the web page) to confirm your conclusions if the letters you find are not directly on point, or if those letters are somewhat dated.

What's on tap:

As always, we have a variety of issues or tasks we'd like to accomplish. One of our quests is to reconcile the differing treatment among corporations, partnerships, LLCs and DLCs under the HSR Rules. A Herculean task but certainly one we want to address.

We have taken another look at the HSR form and have determined that more changes should be made to streamline the form. These changes are ministerial in nature and should be completed in the months to come.

We anticipate implementation of HSR e-filing capability this coming year. The project is in the bidding stage. Many thanks to everyone who has provided input or offered to test the system once we get it up and running.

I'll end here with a plug for the Premerger Notification Office. Please use our web page at []  Let us know your concerns, your complaints, your compliments. I look forward to hearing from you.


1. Assistant Director, Premerger Notification Office, Bureau of Competition, Federal Trade Commission. The views expressed here are my own and are not necessarily those of the Federal Trade Commission or any individual Commissioner.

2. Statement of Peter W. Rodino, Jr on the 25th Anniversary of Hart-Scott-Rodino

3. The Hart-Scott-Rodino Antitrust Improvements Act of 1976 ("HSR Act"), 15 U.S.C. § 18a.

4. Axinn, Fogg §2.02

5. The language in Item 4(c) reads "all studies, surveys, analyses and reports which were prepared by or for any officer(s) or director(s) (or, in the case of unincorporated entities, individuals exercising similar functions) for the purpose of evaluating or analyzing the acquisition with respect to market shares, competition, competitors, markets, potential for sales growth or expansion into product or geographic markets. . ."

6Federal Trade Commission v. The Hearst Trust, The Hearst Corporation and First Data Bank, Inc., Civ. No. 1:01CV00734 (D.D.C. April 5, 2001).

7. Hearst Complaint at ¶ 28.

8. Hearst Complaint, Prayer for Relief, at ¶ 3.

9. FTC Press Release re Hearst settlement at p. 1 (Oct. 11, 2001) (found on FTC website at /opa/2001/10/hearst.htm).

10. FTC Press Release re Hearst disgorgement and divestiture at p. 17 (Dec. 14, 2001) (found on FTC website at/opa/2001/12/hearst.htm).

11. United States v. Computer Associates Int'l, Inc and Platinum Technologies Int'l, Inc., Civ. No. 01-02062(GK), (D.D.C. April 23, 2002).

12. See, Interpretation #296, Premerger Notification Practice Manual, American Bar Association (1991)

13. Federal Trade Commission v. Libbey. Civ. Act. No. 02-0060 (RBW) (D.D.C. Apr. 22, 2002).

14. 16 C.F.R. § § 802.9 and 802.64.

15. See

16. /bc/hsr/informal/index.html