[Federal Register Volume 63, Number 122 (Thursday, June 25, 1998)]
[Rules and Regulations]
[Pages 34592-34594]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-16954]


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FEDERAL TRADE COMMISSION

16 CFR Part 802


Premerger Notification; Reporting and Waiting Period Requirements

AGENCY: Federal Trade Commission.

ACTION: Final rule with request for comments.

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SUMMARY: This final rule amends the premerger notification rules that 
require the parties to certain mergers or acquisitions to file reports 
with the Federal Trade Commission and the Assistant Attorney General in 
charge of the Antitrust Division of the Department of Justice, and to 
wait a specified period of time before consummating such transactions. 
The reporting and waiting period requirements are intended to enable 
these enforcement agencies to determine whether a proposed merger or 
acquisition may violate the antitrust laws if consummated and, when 
appropriate, to seek a preliminary injunction in federal court to 
prevent consummation. During the nineteen years the rules have been in 
effect, the Federal Trade Commission, with the concurrence of the 
Assistant Attorney General for Antitrust, has amended the premerger 
notification rules several times to improve the program's effectiveness 
and to lessen the burden of complying with the rules. This final rule 
amends Rule 802.70, which exempts from the reporting requirements 
acquisitions of stock or assets required to be divested by an order of 
the Federal Trade Commission or of any Federal court in an action 
brought by the Commission or the Department of Justice. As amended the 
Rule will exempt as well divestitures pursuant to consent agreements 
that have been accepted by the Commission for public comment or have 
been filed with a court by the Commission or the Department of Justice 
and are subject to public comment, but are not yet final orders. These 
transactions are adequately reviewed for potential antitrust concerns 
during the approval process under the consent agreement, in which the 
antitrust agencies determine that the divestiture to that party does 
not raise antitrust concerns. The Commission has thus made this change 
to Section 802.70 because such acquisitions are unlikely to raise 
antitrust concerns.
    The Commission has made this final rule without notice and comment 
because notice and comment would be unnecessary and the delay in 
implementing the rule would be contrary to the public interest. Section 
802.70 already exempts from the reporting requirements transactions 
that satisfy divestiture requirements under Commission or Court orders 
in cases brought by the Commission or the Department of Justice. The 
amendment merely extends the exemption to transactions entered into 
before the relevant order has been made final. Whatever delay and cost 
result from the HSR reporting requirements are contrary to the public 
interest where the antitrust agencies already have notice of the 
transaction and have completed their review.
    Notice and comment in this matter are unnecessary because the 
Commission has already exempted acquisitions pursuant to a final 
divestiture order, and there is no relevant difference between the two 
situations. The agencies in each case already have all the notice and 
information they would otherwise obtain under HSR. No other person has 
access to or interest in the information provided under HSR, and 
therefore no other person has an interest in ensuring a filing in these 
circumstances.

DATES: This final rule is effective on June 25, 1998. The Commission 
will, however, accept comments on the revised rule that are received on 
or before July 27, 1998, and may reevaluate the rule in light of those 
comments.

ADDRESSES: Written comments should be submitted to both (1) the 
Secretary, Federal Trade Commission, Room 159, Washington, D.C. 20580, 
and (2) the Assistant Attorney General, Antitrust Division, Department 
of Justice, Room 3214, Washington DC 20530.

FOR FURTHER INFORMATION CONTACT: Roberta S. Baruch, Deputy Assistant 
Director, Bureau of Competition, Room S-2115, Federal Trade Commission, 
Washington, DC 20580. Telephone: (202) 326-2687.

SUPPLEMENTARY INFORMATION:

Regulatory Flexibility Act

    The Regulatory Flexibility Act, 5 U.S.C. 601-12, requires that the 
agency conduct an analysis of the anticipated economic impact of the 
proposed amendment on small businesses.
    The purpose of a regulatory flexibility analysis is to ensure that 
the agency considers impact on small entities and examines alternatives 
that could achieve the regulatory purpose while minimizing burdens on 
small entities. Section 605 provides, however, that such an analysis is 
not required if the agency head certifies that the regulatory action 
will not have a significant economic impact on a substantial number of 
small entities. Because of the size of the transactions necessary to 
invoke a Hart-Scott-Rodino filing, the premerger notification rules 
rarely, if ever, affect small businesses. Furthermore, the amendment 
will merely exempt companies from Hart-Scott-Rodino reporting 
requirements for certain transactions. Accordingly, pursuant to the 
Regulatory Flexibility Act provisions of the Administrative Procedure 
Act, 5 U.S.C. 605(b), the Federal Trade Commission has certified that 
this rule will not have a significant economic impact on a substantial 
number of small entities. Section 603 of the Administrative Procedure 
Act, 5 U.S.C. 603, requiring a final regulatory flexibility analysis of 
these rules; is therefore, inapplicable.

Paperwork Reduction Act

    The premerger notification rules and report form contain 
information collection requirements that have been reviewed and 
approved by the Office of Management and Budget under OMB Control 
Number 3084-0005. The Paperwork Reduction Act, 44 U.S.C. 3501 et seq., 
requires agencies to submit requirements for ``collections of 
information'' to OMB and obtain

[[Page 34593]]

clearance prior to instituting them. Such collections of information 
include reporting, recordkeeping, or disclosure requirements contained 
in regulations. The proposed amendment does not impose any such 
requirements beyond those that have already been approved by OMB. The 
amendment will exempt reporting requirements for transactions that have 
been made pursuant to consent agreements that have been accepted by the 
Commission for public comment or that have been filed with a court by 
the Commission or the Department of Justice for public comment, but 
that are not yet final orders. This revision will eliminate an 
unnecessary burden in connection with these acquisitions and will 
generally provide some reduction of the Paperwork Reduction Act burden 
currently associated with the Rule.

Background

    Section 7A of the Clayton Act, 15 U.S.C. 18a, as added by Secs. 201 
and 202 of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 
(``the act'' or ``HSR''), requires persons contemplating certain 
acquisitions of assets or voting securities to give advance notice to 
the Federal Trade Commission (hereafter referred to as ``the 
Commission'') and the Assistant Attorney General in charge of the 
Antitrust Division of the Department of Justice (hereafter referred to 
as ``the Assistant Attorney General''), and to wait certain designated 
periods before the consummation of such acquisitions. The transactions 
to which the advance notice requirement is applicable and the length of 
the waiting period required are set out respectively in subsections (a) 
and (b) of Sec. 7A. This amendment to the Clayton Act did not change 
the standards used in determining the legality of mergers and 
acquisitions under the antitrust laws.
    The legislative history suggests several purposes underlying the 
act. Congress wanted to assure that large acquisitions were subjected 
to meaningful scrutiny under the antitrust laws prior to consummation. 
To this end, Congress expressly intended to eliminate the large 
``midnight merger,'' which is negotiated in secret and announced just 
before, or sometimes only after, the closing takes place. Congress also 
provided an opportunity for the Commission or the Assistant Attorney 
General (who are sometimes hereafter referred to collectively as the 
``antitrust agencies'' or the ``enforcement agencies'') to seek a court 
order enjoining the completion of those transactions that the agencies 
deem to present significant antitrust problems. Finally, Congress 
sought to facilitate an effective remedy when a challenge by one of the 
enforcement agencies proved successful.
    Thus, the act requires that the antitrust agencies receive prior 
notification of certain acquisitions; provides certain tools to 
facilitate a prompt, thorough investigation of the competitive 
implications of those acquisitions; and assures the enforcement 
agencies an opportunity to seek a preliminary injunction before the 
parties to an acquisition are legally free to consummate it, reducing 
the problem of unscrambling the assets after the transaction has taken 
place.
    Subsection 7A(d)(1) of the act, 15 U.S.C. 18a(d)(1), directs the 
Commission, with the concurrence of the Assistant Attorney General, in 
accordance with the Administrative Procedure Act, 5 U.S.C. 553, to 
require that the notification be in such form and contain such 
information and documentary material as may be necessary and 
appropriate to determine whether the proposed transaction may, if 
consummated, violate the antitrust laws. Subsection 7A(d)(2) of the 
act, 15 U.S.C. 18a(d)(2), grants the Commission, with the concurrence 
of the Assistant Attorney General, in accordance with 5 U.S.C. 553, the 
authority to: (a) define the terms used in the act; (b) exempt 
additional classes of persons or transactions which are not likely to 
violate the antitrust laws from the act's notification and waiting 
period requirements; and (c) prescribe such other rules as may be 
necessary and appropriate to carry out the purposes of Sec. 7A.
    The rules are divided into three parts, which appear at 16 CFR 
Parts 801, 802, and 803. Part 801 defines a number of the terms used in 
the act and rules, and explains which acquisitions are subject to the 
reporting and waiting period requirements. Part 802 contains a number 
of exemptions from these requirements. Part 803 explains the procedures 
for complying with the act. The Notification and Report Form, which is 
completed by persons required to file notification, is an appendix to 
Part 803 of the rules. Changes of a substantive nature have been made 
in the premerger notification rules or Form on nine occasions since 
they were first promulgated.
    The Commission recognizes that the premerger notification 
obligations can create delay and impose the cost of the filing fee even 
for acquisitions that do not raise competitive concerns, and that this 
delay and cost can impose burdens on buyers and sellers. The delay that 
occurs is the necessary consequence of preventing consummation while 
the antitrust agencies assess the likelihood that proposed transactions 
will violate the antitrust laws. The special treatment of cash tender 
offers in section 7A(b)(1)(b) of the Act illustrates congressional 
concern to avoid unnecessary disruption of the operation of the market 
for corporate control. See 122 Cong. Rec. H. 10,293 (daily ed. Sept. 
16, 1976). In addition, the Commission has tried to minimize any 
unnecessary disruptive effect of premerger review by the design of its 
procedures and the speed with which it reviews proposed transactions 
and in a majority of transactions grants early termination of the 
waiting period. Moreover, whenever the Commission can determine that a 
class of transactions is unlikely to violate the antitrust laws, it has 
sought, with the concurrence of the Assistant Attorney General for 
Antitrust, to exempt such transactions from all notification 
obligations and the delay and cost inherent in premerger review.

Statement of Basis and Purpose for the Commission's Revised Premerger 
Notification Rules

    The Commission, with the concurrence of the Assistant Attorney 
General, promulgates this amendment pursuant to 15 U.S.C. 18a(d).
    Section 802.70 of the Rules exempts from the reporting requirements 
acquisitions of assets or voting securities from an entity required to 
divest such assets by order of the Federal Trade Commission or of any 
Federal Court in an action brought by the Federal Trade Commission or 
the Department of Justice. The agencies have recognized that there is 
no need for filing under HSR in these circumstances. Under existing 
procedures the agencies already review divestitures required by final 
orders. This review gives the agencies the full opportunity to weigh 
the competitive impact of the proposed transaction prior to 
consummation and to prevent the transaction if appropriate, the same 
goal that HSR was designed to accomplish.
    Both the Commission's Rules of Practice and the Antitrust 
Procedures and Penalties Act require a proposed settlement to be 
published in the Federal Register for a 60-day public comment period. 
Proposed orders thus do not become final until at least 60 days 
following their acceptance by the parties and the antitrust agencies, 
and therefore the exemption created by section 802.70 of the Rules does 
not apply to any divestiture that might be made during the period 
between acceptance of a settlement and issuance of a final order, even 
if such divestiture were to an acquirer and according to a

[[Page 34594]]

contract that is specified in the proposed settlement.
    Recently, the Commission has been shortening the time period in 
which divestiture is to take place and has more frequently included 
specific approved acquirers and reference specific divestiture 
agreements in proposed orders when the Commission accepts proposed 
orders for public comment. This trend has increased the likelihood that 
the divestiture transaction will occur before there is a final order 
requiring divestiture. In these circumstances, Rule 802.70 as written, 
because it applies only to final orders, does not provide an exemption. 
Nevertheless, the same reasons to exclude from the HSR filing 
requirements divestitures after the order is entered also apply in 
cases where the proposed order identifies the acquirer and the 
divestiture contract. The agencies have already had an opportunity 
comparable to that which HSR provides to weigh the competitive impact 
of proposed transaction and to approve or disapprove the transaction. 
There is therefore no need for a separate HSR filing.
    The Federal Trade Commission believes that an acquisition of assets 
or voting securities pursuant to the terms of a proposed order of 
divestiture is unlikely to violate the antitrust laws and that 
exempting such acquisitions is necessary and appropriate to carry out 
the purposes of the act. Accordingly, the Commission has amended 
Sec. 802.70 of its premerger notification rules to exempt such 
acquisitions from premerger reporting requirements.
    The following section outlines briefly the rationale for this 
rulemaking. Subsequent sections discuss certain key issues concerning 
the Commission's authority to promulgate Sec. 802.70, and the nature of 
the new rule.

Statement of the Underlying Problem

    The purpose of section 7A of the Clayton Act is clear: to give the 
antitrust agencies an opportunity to determine whether a proposed 
acquisition might violate the antitrust laws and an opportunity to 
challenge any such transaction prior to consummation. At the same time, 
the program is not without cost, including the cost of filling out the 
form, filing fees, delaying transactions and otherwise. For 
transactions that do not rise significant issues under the antitrust 
laws these costs can be particularly burdensome. The Commission has 
continually reviewed the premerger notification program in an effort to 
increase its efficiency and decrease the burden on filing parties. This 
rulemaking proceeding is part of this effort.

Analysis of Proposed Revised Rule 802.70

    Revised rule 802.70 exempts completely from HSR premerger 
notification requirements acquisitions pursuant to a divestiture order 
once the order is accepted by the Commission for public comment or is 
filed with the Federal court for public comment. It does so because the 
Commission believes that such transactions, having received a full 
review and been accepted by the Commission or the Antitrust Division, 
are not likely to violate the antitrust laws and because exempting such 
acquisitions is necessary and appropriate to carry out the purposes of 
the act.
    In deciding to revise rule 802.70, the Commission relied upon its 
own extensive merger enforcement experience, as well as that of the 
Antitrust Division of the Department of Justice.
    Congress expressly has authorized the Commission, with the 
concurrence of the Assistant Attorney General, to ``exempt from 
requirements of [the act], classes of * * * transactions which are not 
likely to violate the antitrust laws.'' Section 7A(d)(2)(B) of the Act. 
The finding required by the statute can be demonstrated in different 
ways. The Commission can exempt a class of transactions because that 
class of transactions is inherently unlikely to be anticompetitive. 
Acquisitions pursuant to divestiture orders are inherently unlikely to 
be anticompetitive. Such transactions are already subject to the 
approval of the agencies and such approval would not be granted if the 
transaction would be anticompetitive. This is true whether or not the 
divestiture order is final. Accordingly, there is no need for a 
separate HSR filing.

List of Subjects in 16 CFR Part 802

    Antitrust.

Final Rule

    The Commission amends Title 16b Chapter I, Subpart H, The Code of 
Federal Regulations as follows:

PART 802--EXEMPTION RULES

    1. Authority. The authority citation for Part 802 continues to read 
as follows:

    Authority: Sec. 7A(d) of the Clayton Act, 15 U.S.C. 18a(d), as 
added by sec. 201 of the Hart-Scott-Rodino Antitrust Improvements 
Act of 1976, Pub. L. No. 94-435, 90 Stat. 1390.

    2. Section 802.70 is revised to read as follows:


Sec. 802.70  Acquisitions subject to order.

    An acquisition shall be exempt from the requirements of the act if 
the voting securities or assets are to be acquired from an entity 
pursuant to and in accordance with:
    (a) An order of the Federal Trade Commission or of any Federal 
court in an action brought by the Federal Trade Commission or the 
Department of Justice;
    (b) An Agreement Containing Consent Order that has been accepted by 
the Commission for public comment, pursuant to the Commission's Rules 
of Practice; or
    (c) A proposal for a consent judgment that has been submitted to a 
Federal court by the Federal Trade Commission or the Department of 
Justice and that is subject to public comment.
Donald S. Clark,
Secretary.
[FR Doc. 98-16954 Filed 6-24-98; 8:45 am]
BILLING CODE 6750-01-M