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US Merger Control. April 2008. Impact of merger control. Terms, timing, cost . Merger control can impact deal valuation timing desirability of target (retained synergies) structure (potential hold-backs, divestitures) profile of auction bidders closing?. Latest in the States.

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impact of merger control
Impact of merger control
  • Terms, timing, cost.
    • Merger control can impact
      • deal valuation
      • timing
      • desirability of target (retained synergies)
      • structure (potential hold-backs, divestitures)
      • profile of auction bidders
      • closing?
latest in the states
Latest in the States
  • Whole Foods Market/Wild Oats Market (FTC)
    • “Premium natural and organic supermarkets”
    • Unilateral effects – relevant market?
  • XM/Sirius (DOJ)
    • US satellite radio
    • Unilateral effects – relevant market?
  • Monsanto/Delta and Pine Land (DOJ)
    • Biotechnology traits for cottonseed
    • Divestment and licensing remedies
election 2008
Election 2008
  • FTC: hand-over starting now
    • Significant shift in enforcement policy unlikely
  • DOJ: viewed as tough on cartels, soft on mergers
  • Democratic administration could lead to somewhat tougher merger reviews
what s ahead
What’s ahead?
  • More global coordination
  • “The Department’s Antitrust Division and the European Commission cooperated throughout the course of their investigations … [an example of] effective cooperation in global competition enforcement.”

DOJ Press Release Cookson/Foseco

  • What does this mean?
    • Outcome/Remedies – more efficient
    • Timing/Flexibility – less efficient
    • Coordination by parties across

jurisdictions – crucial

what are they looking for
What are they looking for?

Creation of market power

  • Horizontal product line overlaps
    • Oracle/PeopleSoft unilateral effects
      • combined market share over 40%
    • ArchCoal coordinated effects (oligopoly)
      • share of four (or fewer) firms >75% and combined share >15%
  • Pipeline overlaps
  • Vertical foreclosure (much less frequent)
  • Evidence
    • Bad documents and customer complaints
how do they find you
How do they find you?
  • Most deals notified in HSR filings
  • Deals under the thresholds show up through press reports or customer complaints
  • Bad things do happen to small deals
    • Aloha Petroleum
    • Chicago Bridge & Iron
    • Aspentech/Hyprotech
    • Airgas/Puritan Bennett
hsr process
HSR Process

“Hart-Scott-Rodino Antitrust Improvements

Act of 1976, as amended”

  • If thresholds met:
    • mandatory notification (both parties)
    • observance of waiting period
    • filing fee ($45,000 - 280,000)
  • Waiting period
    • 30 days / 15 days for all cash offers
    • Can be extended by Second Request
who will review it
Who will review it?

The two-headed beast.

  • Federal Trade Commission
    • Independent agency - antitrust and consumer protection
    • 5 Commissioners (with antitrust experience)
    • 1100 employees
  • Department of Justice, Antitrust Division
    • Civil and criminal antitrust laws
    • Assistant Attorney General
    • 360 lawyers, plus field offices
who will review it1
Who will review it?
  • “Clearance.”
when do i have to file
When do I have to file?

Acquisitions of . . .

  • A. 15% of outstanding voting securities
  • B. $50 million
  • C. $59.8 million
  • D. $63.1 million
  • E. none of the above
hsr thresholds
HSR Thresholds
  • New: $63.1 million.
  • Acquisitions of assets or voting securities
    • Transaction value: more than $63.1 million
    • “Size of person” test applies for deals up to $252.3 million
      • Persons with sales or assets in excess of $12.6 million and $126.2 million
hsr thresholds1
HSR Thresholds
  • Overseas deals picked up if they have some potential to affect US commerce
  • Several exemptions available
    • Investment purpose
    • Acquisitions by underwriters
    • Intracompany acquisition
    • Most real estate
what s a person
What’s a person?
  • I own therefore I am.
    • UPE
    • Person
    • Issuer
    • Entity
















foreign to foreign exemption
“Foreign to foreign” exemption
  • Foreign acquisition of foreign target is exempt unless
    • It confers control – 50%
    • Target has $63.1 million in US sales or assets
    • Not fair!
      • Yes, a non-US buyer can acquire up to 49.9% without filing
      • No, a US buyer cannot
    • A foreign person – UPE not US incorporated, no US HQ (subsidiaries in the US ok)
what s in an hsr notification
What’s in an HSR Notification?
  • Key information:
    • Description of deal
    • Acquisition agreement(s)
    • Financial statements and SEC filings
    • US revenues for 2002 and current year
    • Item 4(c) documents
4 c documents
4(c) documents

Defined . . .

  • Studies, surveys, analyses, reports
  • Prepared by or for an officer or director of the company (or any subsidiary)
  • For the purpose of analyzing the transaction with respect to markets, market shares, competition, competitors, potential for sales growth or expansion into new product or geographic markets
  • Bankers’ documents:
    • offering circulars, information memoranda
    • board papers
    • management presentations to bidder
    • vendor due diligence packages, reports
4 c documents1
4(c) documents
  • Avoiding a documentary own-goal.
    • Agencies rely on 4(c) documents to
      • Provide indications of competitive overlap (e.g., parties’ market shares)
      • Reveal pro-competitive efficiencies
      • Identify possible anticompetitive effects
        • Higher prices forecasted
        • Create dominant position
        • Raise barriers to entry/expansion
    • Watch out for, manage privilege
  • Confidential
    • HSR filing, 4(c) documents
    • the fact of the filing
  • But . . .
    • if there are issues, the agencies will want to speak with customers soon after filing
    • “Good news” grants of early termination are published
  • And . . the global agencies like to talk

Time and money.

  • HSR compliance enforcement increased
  • Fines up to $11,000 per day
  • Restart waiting period
  • Examples of HSR Fines:
    • ValueAct Capital Partners L.P. - $1.1 million
    • Iconix Brand Group Inc. - $550,000 (4(c))
    • Blackstone Capital Futures - $3 million (4(c)) document)
    • Bill Gates - $800,000
so when can we close
So when can we close?

“30 days and out.”

  • Can’t close until all filings in and waiting periods observed
  • Most deals:
    • Initial waiting period expires in 30 calendar days
    • Carryover the end for weekends / holidays
    • Early termination in the 15 to 20 day range
  • Key is coordination of global merger review
so when can we close1
So when can we close?

Long haul.

  • Second Request on 30th day
  • Deal suspended until substantial compliance with Second Request
  • Second Waiting Period expires 30 days from substantial compliance
  • Compliance with Second Request frequently takes 12 weeks or more
  • Second Request: delay, expense, risk
so when can we close2
So when can we close?

Theoretically . . .

Day N





Calendar days (US)

Second Request












30 c. days

Second Request Compliance

3 months

Final Waiting


30 c. days






Phase I

25 w. days


10 w. days

Phase II

90 w. days






Working days (EU)

Day N






fixing the deal
Fixing the deal

Agencies want certainty.

  • Goal of merger remedies is to restore competition
  • Preference for structural remedies
    • divestiture of assets to a competent buyer
    • create an independent and viable competitor
    • stand-alone business unit
    • fully integrated - “global” fixes may be required
    • no supply links with buyer
  • Licenses and contract remedies occasionally used, but mainly in vertical cases, and typically not alone
fixing the deal1
Fixing the deal

Fire sale.

  • Promise to divest identified assets in a set time after closing
  • Purchaser must be approved by agency
  • If you don’t sell it, the “trustee” will
  • Trend is “buyer up front” - a buyer and contract approved before the main deal can close (strong FTC preference)
gun jumping
Gun Jumping
  • Until closing, parties must continue to compete independently
  • If competitors share competitively sensitive information or coordinate customer bids pre-closing, they violate §1 of the Sherman Act (even if no HSR required at all)
  • Any integration or control before clearance violates the HSR Act, and maybe the Sherman Act
managing the risk
Managing the risk
  • Global assessment
    • Major filing requirements
    • Assess substantive issues, global arguments
    • Consider potential timeline - best / worst
    • Potential fixes / buyers - net impact on value
    • Fix it first?
  • Negotiating the contract - who bears the risk?
    • Which clearances are closing conditions?
    • How much effort to defend? Who’s in charge?
    • What obligation to divest? Cap?
    • Share the value loss?
    • Drop dead date?
    • Break-up fees?
cfius review
CFIUS Review

What we do

  • Deal planning / structuring advice
  • Working to build a capability to prepare basic CFIUS submissions as one stop shop for non-US client base
  • Controversial deals will require specialist counsel