Author: Steven J. Cernak
Submitting the form and documents required under the Hart-Scott-Rodino premerger notification system can be complicated. If only the initial submission must be made, however, the pain and expense can be short-lived. If, on the other hand, the parties receive a “second request” for information at the end of the thirty-day waiting period, the parties and their executives are in for months of discovery, questioning, and plenty of quality time with antitrust lawyers instead of their customers. To give themselves a chance to avoid that fate, parties should consider taking a few basic steps before and immediately after the initial HSR filing.
As we discussed in prior posts, HSR requires the parties to certain large mergers and similar transactions to submit a form and certain documents to the two U.S. antitrust agencies prior to closing the transaction. If the antitrust agencies fear the transaction will cause antitrust problems, they can sue to stop it; if not, they allow the transaction to move forward. After the parties complete their submission, the agencies have thirty days to decide if they need more information to make that determination.
HSR was the first premerger notification scheme when it was passed in 1976. Since then, dozens of other jurisdictions have passed similar, but far from identical, schemes. HSR remains simpler (not simple) in two key-ways. First, the HSR form does not require any market, share, or similar information that would go into an antitrust analysis; instead, the parties must merely describe themselves and the transaction. Second, the HSR process does not require any pre-filing consultation with the agency to ensure the submission is complete; instead, the parties can just upload the submission and wait to be told if anything is missing.
That is not to say that submitting the HSR form and documents is simple. Like most tax forms, the form itself is only a few pages long but the instructions, definitions, rules, and interpretations necessary to correctly fill in the blanks run to hundreds of pages. And some of the information required can be obscure—for instance, many companies do not have ready their U.S. revenues classified by North American Industry Classification System codes. (Those of us who have been filing for decades appreciate that the FTC has simplified the form. For example, it no longer requires a base year of revenues or a list of added and deleted products since that base year.)
HSR Second Requests
Most parties submit the filing, let out a sigh of relief, and try not to think of HSR again. Usually that course of action is correct. After all, the vast majority of all HSR filings are cleared in the first thirty days. If the reviewing antitrust agency believes it needs more information to decide the transaction’s likely effects, however, it will issue a “second request” for information.
A second request is a long list of document requests and interrogatories that can take months to fulfill. In the meantime, the parties and their lawyers, executives, and expert economists will debate the meaning of all that information. At the end of the process (often about a year later), the agency will decide if it should sue to stop the transaction from closing. If the agency challenges the transaction, the parties must then decide to either abandon the transaction or spend several more months, at least, defending it in court.
An HSR Second Request—Will You Get One?
Therefore, parties to an HSR filing need to predict if their filing will be one of the minority that receive a second request. If so, they must then decide which steps, if any, to take to try to head it off.
There is no set of questions to ask that will unfailingly predict the receipt of a second request; however, a positive response to several of the following questions makes it much more likely that the reviewing agency will want more information than is contained in the initial HSR submission:
- Does your HSR Item 7 response show an overlap in revenues?
- Is there any other reason to see the parties as either competitors or suppliers/customers (vertical issues are hot now too)?
- Do your Item 4(c) or (d) documents indicate competition among the parties?
- Is the industry one where there have been other recent mergers, especially investigated ones?
- Is the industry a politically hot one for antitrust or even non-antitrust reasons?
- Have there been, or are there likely to be, complaints from others in the industry, especially customers, about the parties or the transaction?
A Second Request—Can You Avoid One?
If you determine that the reviewing agency likely will show some interest in your transaction, you can try to proactively provide additional information voluntarily in hopes of heading off or narrowing the ultimate scope of a second request. Gathering and providing such documents and information will take time, so consider taking these steps even before you submit the HSR:
- Work with your client and the other party to decide on your position and then gather information that supports it. Maybe the parties are not really competitors; or are small competitors in a very large market; or one party is a particularly weak competitor. Whatever the position, be prepared to explain and support it at a high level and, if necessary, in greater detail.
- Find others who will support your position and, if possible, the transaction. Customers, suppliers, industry experts — credible experts who are willing and able to back up your position to agency staff will go a long way. Be sure to gather names, credentials, and contact information to provide to the agency.
- Gather the documents and information that the agency always requests. The reviewing agency will use this information to learn more about the parties and the industry and begin to test your position. The FTC provides a non-exhaustive list on its website, including recent organization charts and strategic and marketing plans; lists of products sold and in development; contact information for top customers and competitors; and market share estimates in overlap areas.
Some advisers and their clients will make the strategic decision not to proactively engage with the agency during the initial waiting period. The thinking is that such engagement will be expensive and might pique the interest of an agency that had none. If a client is wary of such a proactive approach, a middle way can be to gather some of the information described above and be prepared to quickly submit it voluntarily if the agency indicates an interest. Such a reactive approach can be less expensive and will not inadvertently trigger interest by the agency but often will not leave much time to completely avoid a second request.
For the vast majority of transactions, only knowledge of the HSR form and process is necessary. Little substantive antitrust analysis is needed. The antitrust art, however, lies in predicting which particular transaction will be one of the few filings that triggers significant interest by an antitrust agency and then taking the appropriate steps at the right time to efficiently obtain antitrust clearance.