Author: Paul Moore2
Over the past several decades State Attorneys General have become increasingly involved in merger reviews in tandem with the Federal Trade Commission and/or the U.S. Department of Justice’s Antitrust Division (the Regulatory Agencies). This increase in state merger reviews has been in parallel with states raising their merger and non-merger profile and general antitrust enforcement efforts statewide and nationally. This trend has occurred, in part, as Attorneys General expanded their staffs and have become increasingly experienced in antitrust enforcement efforts and merger analysis. While many states, including California, do not have statutes mandating proposed merger registration, Attorneys General have statutory authority to investigate conduct to ensure no laws have been violated3. This means that an Attorney General can decide to review a proposed merger whenever they think it may violate a state’s antitrust laws. Therefore, it makes sense to notify an Attorney General when a proposed merger may have a competitive impact in a specific state and is likely to trigger an in-depth analysis at the federal level. Some examples might be a merger between two competitors who have substantial overlapping retailing assets, service routes, or service areas in one state. Such a notification to a state allows parties to avoid duplicative and possibly successive investigations. Best practices have emerged around how to conduct a merger investigation with a Regulatory Agency and tandem with the California Attorney General’s office.
Best Practices When Cooperating with Staff
Contacting the federal agency likely to review a transaction before submitting an HSR filing is increasingly becoming part of merger review practice. Since there is no statutory requirement to seek regulatory authority to merge at the state level in California a best practice is to invite the Attorney General to participate in the review process to avoid subsequent investigations that could have been run in parallel with other agencies and possibly avoid efforts by the staff ex-post to unwind a transaction4. Contacting the California Attorney General (Cal-AG) before an HSR is filed is generally well-received by staff and is typically considered a smart strategy because it allows the staff assigned to the transaction the ability to begin reviewing the transaction before the 30-day statutory clock has started. This extra time allows staff more time to conduct a review before any enforcement decisions need to be made and in some cases provides the time necessary to avoid one altogether. In addition, a pre-filing notification to both staffs permits the two agencies to interact freely since there is no HSR confidence to maintain.
We are in an era where many meetings are conducted over video. Generally, saving time and client resources is a good thing; however, visiting a State Attorney General’s staff in their office at the beginning of a merger can pay significant dividends. An in-person visit can establish the foundation for a positive working relationship, allow for clear communications5 and most importantly, communicate to the staff and Attorney General that you are aware of the importance of their involvement and welcome their participation. The in-person visit makes a significant first-step in ensuring that things start off on the right foot.
Once the HSR is submitted, the Cal-AG is able to file her Form 712 and to continue the interagency dialogue with the benefit of the documents and filings the parties have made. The Cal-AG’s staff can also begin to reach out to third parties and seek waivers that permit the FTC/DOJ to share what is produced with the states. This is more efficient for the producing parties as well, as they can make what amounts to a single production to satisfy both reviewing agencies6. Securing these waivers early in the process also allows the staffs to communicate freely, to share economic analyses based on produced information, and for the CAL-AG staff to join party meetings with the FTC/DOJ7. This level of cooperation benefits all involved as it prevents parties from making the same presentation twice and it allows both regulatory agencies to hear the same information simultaneously.
There will occasionally be third parties that will not grant a state Attorney General access to their materials or witnesses throughout the course of the investigation. Often the reluctance is due to the fact that another aspect of their business is under review by the same office and it does not want to provide evidence in one investigation that may have a detrimental impact in another. While understandable, the third party that chooses this strategy runs the risk of the state attorney general issuing their own investigative process which implicates a whole other set of issues regarding public reporting and different timelines that may not be parallel with the HSR timelines.
Often the greatest concern for parties participating in a joint FTC/DOJ-California investigation is the ability of the Cal-AG to maintain the confidentiality of any information it may produce. California Government Code section 11180, et seq. protects information and documents produced during the course of an investigation. Parties will often seek such confidentiality assurances, but given the strength of the Government Code provisions, the Cal-AG is able to provide a framework that is generally sufficient for parties. Finally, if the transaction is challenged there may be confidentiality concerns related to investigation information that must be produced during litigation. Courts are typically concerned with providing protections to parties interested in protecting their business secrets while at the same time ensuring sufficient access to information to allow parties and the court to adequately engage the issues. A protective order and restricting third party information to outside counsel only is often sufficient to overcome these concerns.
A merger investigation can involve a close call between an enforcement action and choosing not to pursue a challenge of the proposed transaction—and sometimes agencies may not reach the same conclusions. Conducting a merger review in tandem with a federal Agency and the California Attorney General (and any other interested states) allows for better cooperation amongst the agencies, permits the agencies to access a wider pool of analytical resources and talent and often prevents surprises. These surprises can come when one agency approves a transaction and another objects. Learning these outcomes simultaneously allows for a more informed course of action rather than receiving approval only to be followed later in time by an objection.
As with most processes early and frequent communication with a decision maker provides for a better and more manageable experience.
1Based in part on Federal-State Coordination: Recent Experiences in Joint FTC and California Energy Sector Investigations – ABA Antitrust Section State Enforcement Committee newsletter, (Moore & Milder) Spring 2020
2Paul Moore is a former senior Deputy Attorney General in the Antitrust Section of California’s Office of the Attorney General.
3The Attorney General is the chief law enforcement officer for the State of California. California Government Code Section 11180 authorizes the Attorney General to investigate to satisfy herself that no laws have been broken. Many other states equally empower their Attorney General with the same plenary authority.
4Frequently, the Attorney General learns of significant mergers through press reports, merging parties, and industry contacts.
5Being able to read body-language and facial expressions are much easier in person than over video. Besides, it allows you to better understand how a person processes information and how to work with them during the investigation.
6Or additional agencies if more states are involved in the investigation.
7While staffs will discuss factual aspects of an investigation, the bases for a decision remain within each agency.