2010 Consulting Editor: John Davies

GCRGLOBAL COMPETITION REVIEW Merger Control

The international regulation of mergers and joint ventures in 64 jurisdictions worldwide 2010 Consulting editor: John Davies

Published by Global Competition Review in association with:

Allens Arthur Robinson Babic & Partners Law Firm Bae, Kim & Lee LLC Bowman Gilfillan Castañeda y Asociados Chitale & Chitale Partners Corpus Legal Practitioners Coulson Harney, Advocates D’Empaire Reyna Abogados Davis Polk Djingov, Gouginski, Kyutchukov & Velichkov Dr Dr Batliner & Dr Gasser Drew & Napier LLC ELIG, Attorneys-at-Law Elvinger, Hoss & Prussen Epstein, Chomsky, Osnat & Co Freshfields Bruckhaus Deringer GTG Advocates Guevara & Gutiérrez SC Isabel Diaz & Asociados Jadek & Pensa Klavins & Slaidins LAWIN Konnov & Sozanovsky Kromann Reumert Lenz & Staehelin Lepik & Luhaäär LAWIN Lideika, Petrauskas, Valiu¯nas ir partneriai LAWIN Logos Legal Services M & M Bomchil Mannheimer Swartling Advokatbyrå Manrique & Associates Marques Mendes & Associados McCann FitzGerald McMillan LLP Mens Legis Cakmakova Advocates Oppenheim Panagopoulos, Vainanidis, Schina, Economou PRK Partners sro Rizkiyana & Iswanto Antitrust and Corporate Lawyers Roschier, Attorneys Ltd Rubin Meyer Doru & Trandafir SCA Russell McVeagh Salans Europe LLP SimmonsCooper Partners TozziniFreire Advogados Wardyn´ski & Partners Wikborg Rein Wolf Theiss YangMing Partners contents Introduction Michael Han, Álvaro Iza and Bruce McCulloch Freshfields Bruckhaus Deringer 3

® Timelines Michael Bo Jaspers and Claudia Lange-Tramoni Freshfields Bruckhaus Deringer 8 Acknowledgements 21

Albania Guenter Bauer, Sokol Nako and Mariana Spasojevic Wolf Theiss 23 Merger Control Argentina Marcelo den Toom M & M Bomchil 28 2010 Australia Wendy Peter and Jacqueline Downes Allens Arthur Robinson 35 Austria Axel Reidlinger and Heinrich Kühnert Freshfields Bruckhaus Deringer 46 Consulting editor: John Davies, Belgium Laurent Garzaniti, Thomas Janssens and Vincent Mussche Freshfields Bruckhaus Deringer 52 Freshfields Bruckhaus Deringer Bolivia Jorge Luis Inchauste Guevara & Gutiérrez SC 57 Business development manager Bosnia and Herzegovina Guenter Bauer, Sead Miljkovic and Mariana Spasojevic Wolf Theiss 61 Joseph Samuel Brazil José Regazzini and Marcelo Calliari TozziniFreire Advogados 66 Marketing managers Bulgaria Nikolai Gouginski and Miglena Ivanova Djingov, Gouginski, Kyutchukov & Velichkov 71 Alan Lee Canada Neil Campbell, Mark Opashinov and Sorcha O’Carroll McMillan LLP 77 Dan Brennan Chile Isabel Díaz Isabel Diaz & Asociados 84 George Ingledew Edward Perugia China Alex Potter and Michael Han Freshfields Bruckhaus Deringer 90 Robyn Hetherington Colombia Javier Cortázar-Mora Manrique & Associates 95 Dan White Croatia Boris Babic, Marija Gregoric, Katarina Fulir and Boris Andrejas Babic & Partners Law Firm 100 Tamzin Mahmoud Ellie Notley Czech Republic Lucie Bányaiová and Alena Bányaiová Salans Europe LLP 104 Denmark Morten Kofmann, Jens Munk Plum and Erik Bertelsen Kromann Reumert 110 Subscriptions manager Estonia Katri Paas and Martin Simovart Lepik & Luhaäär LAWIN 115 Nadine Radcliffe Subscriptions@ European Union John Davies and Rafique Bachour Freshfields Bruckhaus Deringer 120 GettingTheDealThrough.com Faroe Islands Morten Kofmann, Jens Munk Plum and Erik Bertelsen Kromann Reumert 129 Finland Christian Wik and Niko Hukkinen Roschier, Attorneys Ltd 133 Assistant editor France Jérôme Philippe and Jean-Nicolas Maillard Freshfields Bruckhaus Deringer 138 Adam Myers Germany Helmut Bergmann and Frank Röhling Freshfields Bruckhaus Deringer 145 Editorial assistants Nick Drummond-Roe Greece Aida Economou Panagopoulos, Vainanidis, Schina, Economou 155 Charlotte North Hong Kong Connie Carnabuci, Margaret Wang and Ivy Yam Freshfields Bruckhaus Deringer 160 Hungary Zoltán Marosi and Gábor Fejes Oppenheim 166 Senior production editor Iceland Helga Melkorka Óttarsdóttir Logos Legal Services 172 Jonathan Cowie India Suchitra Chitale and Abhishake Sinha Chitale & Chitale Partners 179 Indonesia Rikrik Rizkiyana, Vovo Iswanto and Albert Boy Situmorang Rizkiyana & Iswanto Antitrust and Corporate Lawyers 183 Senior subeditor Kathryn Smuland Ireland Philip Andrews and Damian Collins McCann FitzGerald 187 Subeditors Israel Eytan Epstein, Tamar Dolev-Green and Michelle Morrison Epstein, Chomsky, Osnat & Co 193 Jonathan Allen Italy Gian Luca Zampa Freshfields Bruckhaus Deringer 200 Laura Zúñiga Japan Akinori Uesugi and Kaori Yamada Freshfields Bruckhaus Deringer 209 Ariana Frampton Sarah Dookhun Kenya Richard Harney Coulson Harney, Advocates 217 Korea Keum Seok Oh and Seong Un Yun Bae, Kim & Lee LLC 222 Editor-in-chief Latvia Liga Hartmane and Martins Gailis Klavins & Slaidins LAWIN 226 Callum Campbell Liechtenstein Helene Rebholz and Corina Bölsterli Maier Dr Dr Batliner & Dr Gasser 232 Publisher Richard Davey Lithuania Marius Juonys and Laura Šlepaite˙ Lideika, Petrauskas, Valiu¯nas ir partneriai LAWIN 236 Luxembourg Patrick Santer and Léon Gloden Elvinger, Hoss & Prussen 242 Macedonia Biljana Cakmakova and Eva Veljanovska Mens Legis Cakmakova Advocates 245 Merger Control 2010 Published by Malta Ian Gauci and Cynthia Van Der Weerden GTG Advocates 249 Law Business Research Ltd Mexico Gabriel Castañeda Castañeda y Asociados 256 87 Lancaster Road Netherlands Winfred Knibbeler, Paul Kreijger and Peter Schepens Freshfields Bruckhaus Deringer 261 London, W11 1QQ, UK Tel: +44 20 7908 1188 New Zealand Andrew Peterson, Sarah Keene and Troy Pilkington Russell McVeagh 267 Fax: +44 20 7229 6910 Nigeria Babatunde Irukera and Ikem Isiekwena SimmonsCooper Partners 274 © Law Business Research Ltd Norway Mads Magnussen and Simen M Klevstrand Wikborg Rein 279 2009 Poland Dorothy Hansberry Biegun´ska and Andrzej Madała Wardyn´ski & Partners 284 No photocopying: copyright licences do not apply. Portugal Mário Marques Mendes and Pedro Vilarinho Pires Marques Mendes & Associados 289 ISSN 1365-7976 Romania Anca Ioachimescu Rubin Meyer Doru & Trandafir SCA 296 Russia Igor Gerber and Alexander Viktorov Freshfields Bruckhaus Deringer 302 The information provided in this publication is general and may not Serbia Guenter Bauer, Maja Stankovic and Mariana Spasojevic Wolf Theiss 307 apply in a specific situation. Legal Singapore Lim Chong Kin and Ng Ee Kia Joy Drew & Napier LLC 314 advice should always be sought before taking any legal action based on the Slovakia Peter Oravec PRK Partners sro 321 information provided. This information Slovenia Pavle Pensa Jadek & Pensa 326 is not intended to create, nor does receipt of it constitute, a lawyer–client South Africa Robert Legh and Tamara Dini Bowman Gilfillan 332 relationship. The publishers and Spain Paco Cantos, Álvaro Iza and Margarita Fernández Freshfields Bruckhaus Deringer 342 authors accept no responsibility for any acts or omissions contained Sweden Tommy Pettersson, Johan Carle and Stefan Perván Lindeborg Mannheimer Swartling Advokatbyrå 347 herein. Although the information Switzerland Marcel Meinhardt, Benoît Merkt and Astrid Waser Lenz & Staehelin 352 provided is accurate as of August 2009, be advised that this is a Taiwan Mark Ohlson and Charles Hwang YangMing Partners 357 developing area. Turkey Gonenc Gurkaynak ELIG, Attorneys-at-Law 364 Ukraine Alexey Pustovit Konnov & Sozanovsky 371 Printed and distributed by United Kingdom Nicholas French, Alison Jones and Martin McElwee Freshfields Bruckhaus Deringer 376 Encompass Print Solutions Tel: 0870 897 3239 United States Ronan P Harty Davis Polk 385 Venezuela José H Frías D’Empaire Reyna Abogados 393 Zambia Charles Siamutwa Corpus Legal Practitioners 397 Law Business Introduction to the ICN John Fingleton Chair of the steering group of the ICN 401 Quick Reference Tables 403 Research www.gettingthedealthrough.com Davis Polk united states

United States

Ronan P Harty Davis Polk

Legislation and jurisdiction 2 What kinds of mergers are caught?

1 What is the relevant legislation and who enforces it? The HSR Act requires parties to file a formal notification with the Antitrust Division and the FTC – and to wait a specified number of Section 7 of the Clayton Act, enacted in 1914 and amended in 1950, days (30 days in most transactions) while the agencies review the fil- is the principal US antitrust statute governing mergers and acquisi- ings – before consummating certain acquisitions of ‘assets’ or ‘voting tions. Section 7 prohibits acquisitions of assets or stock where ‘the securities’. Thus, the HSR Act can apply to any kind of transaction effect of such acquisition may be substantially to lessen competition, (be it an acquisition of a majority or minority interest, a joint venture, or to tend to create a monopoly’. Transactions may also be challenged a merger or any other transaction that involves an acquisition of under section 1 or 2 of the Sherman Act as unreasonable restraints of assets or voting securities). trade or as attempts at monopolisation. The Federal Trade Commis- Although the term ‘assets’ is not defined in the HSR Act, the sion (FTC) also has the authority under section 5 of the FTC Act to agencies have taken the position that it should be given a broad challenge a transaction as an ‘unfair method of competition’. interpretation similar to that it has been given by the courts in inter- The Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the preting section 7 of the Clayton Act. Under these principles, it is HSR Act) was enacted to give the federal agencies responsible for clear that acquisitions of assets – within the meaning of the HSR Act reviewing the antitrust implications of mergers and acquisitions – the Federal Trade Commission and the Antitrust Division of the Depart- – will include acquisitions of both tangible and intangible assets. The ment of Justice (collectively, ‘the antitrust agencies’ or ‘the agencies’) acquisition of exclusive patent licences, for example, may require – the opportunity to review the antitrust issues presented by certain notification. acquisitions of assets or voting securities before those acquisitions are The Rules define ‘voting securities’ broadly to include, gener- completed. Pursuant to congressional authorisation, the FTC, with ally speaking, any security in a corporate entity that either currently the agreement of the Antitrust Division, has promulgated detailed entitles the holder to vote for the election of directors, or is convert- and complex rules (the Rules) governing pre-merger notification ible into such a security. The acquisition of securities that do not at under the HSR Act. Both the HSR Act and the Rules were amended present possess, or are not convertible into securities that will pos- significantly in February 2001. sess, such voting power is exempt from the HSR Act. Although they The antitrust agencies also have jurisdiction to investigate and are defined as voting securities, the Rules exempt the acquisition of challenge transactions under the US antitrust laws, whether or not convertible securities, options and warrants at any time before they they have been notified under the HSR Act and whether or not they have been converted or exercised. It may, however, be necessary to have been consummated. make a filing before such securities can be converted (provided that The Antitrust Division has exclusive federal responsibility for the relevant jurisdictional tests are met at the time of conversion). enforcing the Sherman Act; the FTC is an independent administra- An acquisition of interests in a non-corporate entity (eg, LLCs tive agency and has exclusive responsibility for enforcing the FTC Act and partnerships) that confers the right to either 50 per cent or more and joint authority (with the Antitrust Division) over enforcement of of the profits or, in the event of dissolution, 50 per cent or more the Clayton Act. Although both agencies have jurisdiction to enforce of the assets of the entity is considered to be an acquisition of the the antitrust laws, any given merger or acquisition will be dealt with underlying assets of the entity. In other words, the Rules do not treat by only one of the two bodies. non-corporate interests as ‘voting securities’. Which agency will concern itself with any particular transaction is decided by informal discussions between the two agencies and can often be predicted to some extent (but not with certainty) on the basis 3 Are joint ventures caught? of the relative familiarity of one or other agency with the industry If it involves an acquisition of non-corporate interests or voting secu- or companies involved. Mergers and acquisitions can, under some rities, the formation of a for-profit joint venture may be subject to circumstances, also be challenged by private parties and by state the HSR Act. (Generally, not-for-profit joint ventures are exempt, attorneys general. although in certain cases they may be reportable.) The Rules contain The risk of a challenge by private parties has been reduced some- a special provision governing the formation of new corporations and what by court decisions requiring that such challengers demonstrate corporate joint ventures (new companies). As a general matter, where a threat that they will be injured by the anti-competitive aspects of two or more persons contribute to form a new company, and as a the transaction (rather than, for example, by the new firm’s enhanced result receive voting securities of this new company, the Rules treat effectiveness as a competitor). In situations where a private party the contributing parties as acquiring persons, and the new company has standing to challenge a transaction, that party can seek the same as the acquired person. In these cases, the Rules provide a special remedies (including divestiture) that are available to the government, jurisdictional test based on the size of all contributors and the size of although a private party may be subject to certain equitable defences the new company itself. (such as laches and ‘unclean hands’), which might protect a consum- Additionally, if the acquisition is of interests in a joint venture mated transaction from attack. that is formed as a non-corporate entity, only the acquiring person (if www.gettingthedealthrough.com 385 united states Davis Polk applicable) which will hold 50 per cent or more of the interests in the An HSR filing is not required in connection with any particu- entity will be subject to HSR reporting obligations. If no acquiring lar acquisition unless it will result in the acquiring person holding person will hold 50 per cent or more following the acquisition, the assets or voting securities having an aggregate total value in excess non-corporate joint venture is not reportable. of US$65.2 million (as adjusted annually). In most cases, this threshold is cumulative. For example, if an acquirer already owns US$50 million of voting securities of an issuer, and seeks to acquire US$20 4 Is there a definition of ‘control’ and are minority and other interests million in voting securities of that same issuer, the US$20 million less than control caught? acquisition will result in the acquirer ‘holding’ voting securities of The requirement to comply with the HSR Act is not limited to trans- US$70 million. actions that involve a change of control. As explained in greater However, while the acquisition of a 50 per cent or more interest detail below, any acquisition that results in the acquiring person in a non-corporate entity is considered an acquisition of the assets of holding more than US$65.2 million-worth of the voting securities the entity, the value of the interest is not the value of 100 per cent of of another company (as adjusted annually, each February, to reflect the underlying assets, but rather only of the percentage interest held changes in GNP) may require a filing, even if that amount represents as a result of the acquisition. a very small percentage of the total outstanding stock of the target. (However, acquisitions of less than 50 per cent of a non-corporate The size-of-the-parties test entity are not reportable.) The size-of-the-parties test does not apply to transactions resulting in The HSR Rules do include a definition of ‘control’. However, this holdings valued in excess of US$260.7 million (as adjusted annually). definition is used primarily to determine which companies should be For all smaller transactions, the test remains in effect. included within the ‘acquiring’ or ‘acquired’ persons (see below). The The size-of-the-parties test looks at the size of both the acquiring basic principles used in determining if control exists are as follows: and acquired person and, generally speaking, is satisfied if one party • controlling a corporate entity means either holding 50 per cent (including all entities in its corporate family) has worldwide sales or more of its outstanding voting securities, or having the con- or assets of US$13 million or more (as adjusted annually), and the tractual power presently to designate 50 per cent or more of its other has worldwide sales or assets of US$130.3 million or more (as directors; adjusted annually). Sales and assets, as a general rule, are defined as • controlling a partnership, LLC, or other non-corporate entity those set forth in an entity’s last regularly prepared income statement means having the right to either 50 per cent or more of its prof- and balance sheet. its or, in the event of its dissolution, 50 per cent or more of its It is important to note that ‘acquiring person’ and ‘acquired assets; person’ are terms of art under the HSR Act and the Rules. To sum- • a natural person will never be deemed to be controlled by any marise a complex definition, these terms include not only the entity other entity or person; and making the acquisition and the entity being acquired, but also the • controlling a trust means having the contractual power to appoint entire corporate family of which each is a part. Thus, assuming that 50 per cent or more of the trustees. an entity’s assets or sales, or both, are US$130.3 million or more, a purchase or sale of assets or voting securities by any subsidiary of that entity would satisfy the size-of-the-parties requirement under the 5 What are the jurisdictional thresholds? HSR Act if the other party to the transaction was part of a corporate The initial determination of whether the notification requirements of family that had assets or sales of US$13 million or more (as adjusted the HSR Act may be applicable to a particular acquisition of assets or annually). voting securities focuses upon the following jurisdictional issues: • whether either the acquiring or acquired persons are engaged Exemptions in US commerce or in any activity affecting US commerce (the Once it is determined that a proposed transaction meets the juris- commerce test); dictional tests described above, the next step in determining if a • the amount of voting securities or assets which will be held as a pre-merger notification filing is required is examining whether the result of the acquisition (the size-of-the-transaction test); the dollar transaction qualifies for any of the exemptions set forth in the HSR thresholds are adjusted annually to reflect changes in the GNP; Act or the Rules. • where the size of the transaction is US$260.7 million (as adjusted There are a variety of such exemptions, each of which excuses annually) or less but greater than US$65.2 million (as adjusted certain categories of transactions from the notification and waiting annually), the magnitude of the worldwide sales and assets of the requirements of the HSR Act. For example, the notification require- acquiring and acquired persons (the size-of-the-parties test) (as ments do not apply to: noted, the dollar thresholds are adjusted annually); and • the acquisition of non-voting securities; • whether any exemptions apply to the transaction. • certain acquisitions of voting securities ‘solely for the purpose of investment’; The commerce test • the acquisition of goods or realty in the ordinary course of This requires that either the acquiring or acquired party be engaged business; in US commerce or in any activity affecting US commerce. • certain acquisitions that require the prior approval of another federal agency; The size-of-transaction test • stock dividends and splits; The size-of-transaction test looks at the assets or voting securities • certain acquisitions by securities underwriters, creditors, insurers that will be held by the acquiring person as a result of a proposed and institutional investors; and acquisition. In other words, any voting securities or, in some cases, • certain financing transactions where the acquiring person con- assets held by the acquiring person prior to the transaction, together tributes only cash to a non-corporate entity and will no longer with those assets or voting securities to be acquired in the acquisi- control the entity after it realises its preferred return. tion in question, must be considered. Likewise, the acquisition of non-corporate interests of an entity must be aggregated with any The FTC has also adopted a specific set of exemptions applicable to interests currently held by the acquiring person in that same entity to transactions involving non-US companies in which the US sales or determine whether or not the acquiring person holds 50 per cent or assets involved are both below certain thresholds (as adjusted annu- more of the entity, thus potentially requiring HSR notification. ally). These are described in detail in question 7.

386 Getting the Deal Through – Merger Control 2010 Davis Polk united states

The application of each of these exemptions will, of course, all of the target companies must be aggregated to determine whether depend upon the particular circumstances of the transaction, and either of the US$65.2 million thresholds (as adjusted annually) is upon the limits and conditions to those exemptions set forth in the exceeded. Even if either of the US$65.2 million thresholds described HSR Act and the Rules. above (as adjusted annually) is exceeded, the transaction will none- Finally, as noted above, transactions that fall below the HSR theless be exempt where: thresholds or are otherwise exempt from HSR reporting can still be • both the acquiring and the acquired persons are foreign; investigated and challenged. • the aggregate sales in or into the US and the aggregate assets in the US of the acquiring person and the acquired person are less than US$143.4 million; and 6 Is the filing mandatory or voluntary? If mandatory, do any exceptions • the value of the voting securities that will be held as a result of exist? the transaction is US$260.7 million or less. If the threshold requirements described above are met and no exemption is available (such as those described above), filing under the Finally, if both foreign assets and foreign voting securities are being HSR Act is mandatory; that is, the proposed transaction cannot be acquired from the same acquired person, the US sales attributed to consummated until the filing is completed and applicable waiting both the assets and to the foreign issuer must be aggregated to deter- periods, discussed below, have expired. There is no scheme for vol- mine whether the US$65.2 million threshold (as adjusted annually) untary filings as such, but parties to non-reportable transactions can is exceeded. bring their transaction to the attention of the agencies. The Rules also provide an exemption from the requirements of the HSR Act for acquisitions of foreign assets or voting securities where the parent of the buyer or seller is the government of that same 7 Do foreign-to-foreign mergers have to be notified and is there a local foreign juristiction. effects test? In certain circumstances, the acquisition of foreign assets or voting Notification and clearance timetable securities of a foreign company are exempt from the pre-merger noti- 8 What are the deadlines for filing? Are there sanctions for not filing and fication requirements of the HSR Act. The Rules reflect the agencies’ are they applied in practice? views that certain foreign acquisitions may affect competition in the US, but that pre-merger notification should not be required if there There is no specific deadline for making a filing under the HSR Act. is insufficient nexus with US commerce. The parties can submit their filings at any time after the execution of a letter of intent (which can be non-binding) or a definitive agreement. Acquisitions of foreign assets However, it is crucial to note that if a transaction is covered by the The HSR Rules provide that acquisitions of foreign assets by US and HSR Act, it cannot be consummated until all required filings have non-US companies shall be exempt from the HSR Act unless the for- been made and the applicable waiting periods have been observed. eign assets that would be held as a result of the acquisition generated Failure to comply with the HSR Act can result in a fine of up to sales in or into the US exceeding US$65.2 million during the acquired US$16,000 per day and the agencies may seek to unwind a transac- person’s most recent fiscal year. Even if the acquisition exceeds this tion that has been consummated in violation of the HSR Act. threshold (as adjusted annually), the acquisition will nonetheless be In general, the level of compliance with the HSR Act has been exempt if: extremely high. In those instances in which a required filing has not • both the acquiring and acquired persons are foreign; been made, or the waiting period observed, the agencies have not • the aggregate sales in or into the US of the acquiring and the hesitated to seek significant penalties. The agencies have obtained acquired person in the most recent fiscal year were less than fines on six occasions during the last five fiscal years, ranging from US$143.4 million; US$250,000 to US$2 million. • the aggregate total assets in the US of the acquiring and the acquired person are less than US$143.4 million; and 9 Who is responsible for filing and are filing fees required? • the assets that will be held as a result of the transaction are valued at US$260.7 million or less. If a transaction is subject to the filing requirements of the HSR Act, parties to the transaction must make separate filings with the antitrust Acquisitions of voting securities of a non-US issuer agencies. All acquiring persons that are required to file must pay a fil- With respect to acquisitions of a foreign issuer by a US person, the ing fee that is calculated according to the total value of the securities or Rules provide that such an acquisition shall be exempt from the HSR assets to be held as a result of the transaction. The parties may agree Act unless the foreign issuer (together with any entities it controls) to split the fee or even have the acquired person pay the fee. Transac- either holds assets in the US valued over US$65.2 million, or made tions valued at less than US$130.3 million are subject to a filing fee aggregate sales in or into the US of over US$65.2 million in the most of US$45,000. Transactions valued at US$130.3 million or more but recent fiscal year. The Rules also make clear that if interests in several less than US$651.7 million are subject to a filing fee of US$125,000. foreign issuers are being acquired from a common parent company, Transactions valued at US$651.7 million or more are subject to a the assets and sales of all of the target companies must be aggregated filing fee of US$280,000. This fee must be submitted at the time the in order to determine whether either of the US$65.2 million thresh- notification form is filed, or the waiting period will not begin. olds described above (as adjusted annually) is exceeded. With respect to acquisitions of voting securities of a foreign issuer 10 What are the waiting periods and does implementation of the by a foreign person, the Rules provide that such an acquisition shall transaction have to be suspended prior to clearance? be exempt unless it confers on the acquiring person control of the target issuer (ie, it is an acquisition that will give the acquiring person If a transaction is subject to the HSR Act, and a filing is thus required, 50 per cent or more of the voting stock of the target) and the target, the acquisition must be delayed for a 30-day period (or, in the case again, either holds assets in the US valued at more than US$65.2 mil- of a cash tender offer or a transfer in bankruptcy covered by 11 USC lion, or made aggregate sales in or into the US of more than US$65.2 section 363(b), a 15-day period) while the agencies review it. If the million in the most recent fiscal year. As with acquisitions by US per- agencies take no action, the transaction may be consummated when sons, if controlling interests in multiple foreign companies are being the waiting period has expired. The agencies do not issue a formal acquired from the same parent company, the US assets and sales of decision clearing a transaction. www.gettingthedealthrough.com 387 united states Davis Polk

To the extent that a merger is subject to the HSR Act, the initial bankruptcy covered by 11 USC section 363(b)), the statutory initial waiting period generally begins as soon as both parties to the transac- waiting period is 15 days (instead of the usual 30 days). If a second tion have made the requisite filing with the antitrust agencies. In cases request is issued in such a transaction, the waiting period is extended involving tender offers and other acquisitions of voting securities until the 10th day (instead of the usual 30 days) after the date on from third parties, the waiting period begins as soon as the acquir- which the acquiring person complies with the request. Also, for any ing person has made the requisite filing, although the acquired party tender offer, failure to substantially comply with a second request by must file within a prescribed time. the acquired person does not extend the waiting period. Further, in If any deadline for governmental action falls on a weekend or cases involving tender offers or other acquisitions of voting securi- a legal public holiday, the deadline is automatically extended to the ties from third parties, the waiting period begins when the acquiring next business day. person files. All other aspects of the HSR Act are equally applicable to public and non-public transactions. Early termination of the waiting period The parties may request that the antitrust agencies terminate the 14 What is the level of detail required in the preparation of a filing? waiting period before it has run its full course, and the agencies may, at their discretion, grant such requests. It should be noted that when The Notification and Report Form (the Form) that must be submit- early termination is granted, the agencies are required to publish ted to comply with the HSR Act requires the filing party to provide notice of their action in the Federal Register. This notification only basic information about its US revenues, corporate organisation and identifies the acquiring person, the acquired person, and the acquired minority shareholdings on a worldwide basis, and the structure of the entity. None of the confidential business information filed by the transaction, as well as a variety of business documents. In particular, parties is disclosed. the parties are required to submit ‘all studies, surveys, analyses and The antitrust agencies have taken no public position on expediting reports which were prepared by or for any officers or directors [of requests for early termination as a result of the current economic cli- any entity within the filing party] for the purpose of evaluating or mate. That said, the agencies’ recent track record exemplifies diligence analysing the acquisition with respect to market shares, competition, in clearing, on a expedited basis, some very large mergers involving competitors, markets, potential for sales growth or expansion into distressed firms. For example, Wells Fargo & Company’s US$12.7 bil- product or geographic markets.’ The antitrust agencies consider these lion acquisition of Wachovia Corporation received early termination documents highly relevant to their initial evaluation of the antitrust implications of a transaction. one day after it was publicly announced, and Mitsubishi UFJ Financial Unlike, for example, the European Union’s form CO, comple- Group’s acquisition of 21 per cent of Morgan Stanley was granted tion of the Form does not require any discussion or description of early termination four days after HSR notifications were lodged. the relevant markets or the competitive conditions in those markets. Preparation of the Form can take a number of days to a number of Extension of the waiting period weeks, depending principally on whether the company has submit- The agency responsible for reviewing a particular transaction may, ted a filing in the recent past and on how the company organises its before the end of the initial 30-day waiting period, issue what is gen- data. To facilitate the process, the agencies recently amended their erally referred to as a ‘second request’ seeking additional information procedures to allow electronic submissions. from the parties to a transaction. The issuance of a second request extends the waiting period to the 30th day (or, in the case of a cash tender offer or a transfer in bankruptcy covered by 11 USC section 15 What is the timetable for clearance and can it be speeded up? 363(b), the 10th day) after the date of substantial compliance with As noted, if a transaction is subject to the HSR Act, the closing of the the request for additional information. The procedural aspects of a transaction must be delayed for an initial 30-day waiting period (or, second request are discussed further below. in the case of a cash tender offer or a transfer in bankruptcy covered by 11 USC section 363(b), a 15-day period) following the filing of the 11 What are the possible sanctions involved in closing before clearance Form. The parties may request that the antitrust agencies terminate and are they applied in practice? the waiting period before it has run its full course, and the agencies may, at their discretion, grant such requests. If the agencies decide to A transaction subject to the HSR Act may not close prior to the open a second-phase investigation, the applicable waiting period will expiration or early termination of the applicable waiting period or be extended until the 30th day (or the 10th day in the case of a cash periods. Failure to comply can result in a fine of up to US$16,000 tender offer or a transfer in bankruptcy covered by 11 USC section per day and the agencies may seek to unwind a transaction that has 363(b)) following substantial compliance with the second request. been consummated in violation of the Act. As noted in question 8, As noted in question 10, the antitrust agencies have taken no the agencies have imposed fines for failure to file and observe the public position on expediting requests for early termination as a waiting period. result of the current economic climate, but have been sensitive to the need to complete investigations of mergers involving distressed firms promptly. 12 What solutions might be acceptable to permit closing before clearance in a foreign-to-foreign merger? There are no special remedy rules or practices applicable to foreign- 16 What are the typical steps and different phases of the investigation? to-foreign mergers. If the transaction gives rise to competitive issues Once the parties to a transaction file their forms, the FTC will ini- in the United States, those issues must be resolved before the transac- tially review the Forms to ensure that they are complete and comport tion can proceed. The range of remedies described in the preceding with the transmittal rules. Then, the two antitrust agencies decide section is equally relevant to foreign-to-foreign mergers. between themselves which one of them will review the transaction beyond the filings themselves and publicly available information. If either the FTC or the Antitrust Division wants to conduct such fur- 13 Are there any special merger control rules applicable to public ther review of the transaction, it notifies the other agency and obtains takeover bids? ‘clearance’. If both agencies want to investigate the merger, the mat- The Rules contain provisions that are applicable only to tender ter is assigned through an internal liaison process. Often, one of the offers. As noted above in the discussion of the waiting periods, if agencies will have greater expertise than the other with respect to a the transaction in question is a cash tender offer (or a transfer in particular industry or company.

388 Getting the Deal Through – Merger Control 2010 Davis Polk united states

Once a transaction has been assigned to a particular agency, a process that they will employ in determining whether to challenge staff attorney will normally contact the parties’ lawyers to ask for a horizontal merger. (The 1997 amendments clarified the way by additional information. Responding to such a request is not manda- which agencies consider efficiencies in merger analysis.) The antitrust tory during the initial waiting period, but a failure to respond may agencies have also, in 2006, published a joint Commentary on the leave the agency with important issues unresolved that may result Horizontal Merger Guidelines (www.ftc.gov/os/2006/03/Commen- in the issuance of a formal second request. The FTC has published taryontheHorizontalMergerGuidelinesMarch2006.pdf). The unify- guidelines listing the types of information and documents which may ing theme of these guidelines is that a merger should not be permitted be useful to provide during the initial waiting period (available on the to proceed if it will create or enhance market power or facilitate its FTC’s website at www.ftc.gov/bc/hsr/hsrguidance.shtm). exercise. Market power is defined as the ability of a seller ‘profitably Often, the information provided to the agency during the initial to maintain prices above competitive levels for a significant period waiting period will be sufficient to allow the agency to terminate its of time’. investigation. It is not uncommon for the parties to submit some As a general matter, in merger cases, the US federal courts have form of letter or ‘position paper’ to the agency during the initial wait- largely adopted the methodology set out in the antitrust agencies’ hori- ing period, addressing the questions of the agency and explaining zontal merger guidelines. The evaluation of a merger or asset acquisition in detail why the transaction will not reduce competition. It is also under the guidelines focuses on determining whether the proposed trans- very common for the agency to contact the parties’ customers and action will likely create or enhance ‘market power’ or facilitate its exer- competitors to obtain additional information regarding the industry, cise. This likelihood may be established either by direct evidence of likely or to interview executives from the merging firms. anti-competitive effects (or actual anti-competitive effects in cases of con- For those mergers that continue to raise significant antitrust summated transactions) or alternatively by circumstantial evidence. In issues at the end of the initial waiting period, the procedure avail- the latter instance, the competitive effects analysis is based on: able to the agencies is to issue a ‘request for additional information • identification of the relevant product and geographic markets in and documentary material’ or, as it is more commonly referred to, a which the competitive effects of the acquisition can be analysed; ‘second request’. • determination of the market shares of all significant firms partici- A second request is a detailed set of interrogatories and document pating in the relevant market and estimating the likely change in demands designed to provide the agency responsible for reviewing market concentration and size distribution that would flow from the transaction with information on issues such as market structure, the transaction; entry conditions, competition, marketing strategies, and the rationale • identification of market characteristics that will influence the of the acquisition under review. ability of the combined firms to affect competition adversely, Compliance with a second request may be a burdensome and such as the extent to which barriers to entry would hinder the time-consuming task, requiring the parties to a transaction to produce establishment of a new competitor; and substantial volumes of documents and to answer detailed questions. • identification of other factors that might be used to justify an The burden may be particularly great in cases involving parties located otherwise problematic merger (eg, would there be merger-specific outside the United States, because the rules require all documents sub- efficiency gains sufficient to reverse any expected anti-competitive mitted in response to a second request to be translated into English. effects? But for the transaction, would the acquired firm’s assets However, the agencies have implemented a number of reforms to exit the business and would this leave the relevant market less the second request process designed to reduce the burdens associated competitive than if the merger took place?). with compliance by, among other things, limiting the scope of initial document requests and the number of company personnel whose files In response to questions about whether, and to what extent, enforce- must initially be searched. ment policy may be affected by the current economic crisis, several Either during the period of compliance, or following the submis- senior enforcement officials in the new administration have cautioned sion of the complete response, it is not uncommon for the agency against a relaxation of the antitrust laws during a recession. If any- reviewing the transaction to take the sworn testimony of senior exec- thing, the new heads of the antitrust agencies may view an economic utives of the parties to the transaction. These oral examinations, or downturn as a period which provides greater incentive to engage depositions, can cover a wide range of issues and are usually designed in anti-competitive behaviour, and thus warrants increased scrutiny. to explore the rationale for the transaction, entry issues, competitive (See ‘Update and trends’ for more.) conditions and other strategic issues. The depositions can be useful vehicles for the parties to put forward their views on the likely com- 18 Is there a special substantive test for joint ventures? petitive impact of the transaction. Following the parties’ compliance with the second request (which Joint ventures involving competitors that completely eliminate com- can take a number of months), the agency responsible for reviewing petition between the parties and that are intended to exist for at least the particular transaction must decide whether to let the transaction 10 years are analysed in the same way as all other mergers or acquisi- proceed, or whether to seek a court order enjoining the transaction, tions. Other competitor collaborations are analysed by the agencies or take other enforcement action for alleged violation of the antitrust pursuant to a framework described in the agencies’ 2000 ‘Antitrust laws. Alternatively, the parties and the responsible agency may enter Guidelines for Collaborations Among Competitors’. into a ‘consent agreement’ – a form of settlement that is designed to address the anti-competitive effect which the agency believes may result if the transaction proceeds as planned. If the agency in question 19 What are the ‘theories of harm’ that the authorities will investigate? takes no action, the parties are free to consummate the transaction at Market share analysis is only the starting point of an antitrust review the end of the second 30-day waiting period. in the US. The responsible agency, if it believes that the transaction may raise competitive concerns, will examine all aspects of competi- Substantive assessment tion in the relevant markets. In recent years, the agencies have been particularly concerned about transactions that have combined com- 17 What is the substantive test for clearance? petitors that sell products or services that are especially close sub- As noted earlier, the Clayton Act prohibits acquisitions the effect of stitutes for each other, which could give rise to unilateral effects, as which ‘may be substantially to lessen competition or to tend to create well as the possibility of coordinated effects. See the agencies’ 2006 a monopoly’. The antitrust agencies have issued joint guidelines (first joint Commentary on the Horizontal Merger Guidelines for a more released in 1992, and modified in 1997) describing the analytical detailed discussion of market definition and coordinated effects. www.gettingthedealthrough.com 389 united states Davis Polk

Elimination of potential competition – where one of the merging the authority to seek an injunction in federal court prohibiting com- firms is about to enter the relevant market – has also been a concern, pletion of a proposed transaction. The FTC may also bring an admin- particularly in pharmaceuticals mergers. Vertical concerns are less istrative proceeding to determine the legality of a merger or other common, but a number of transactions have been subject to the con- transaction. The agencies do not have the authority to preliminarily sent decrees which the agencies based on vertical theories (particu- enjoin a transaction themselves; but if a court preliminarily enjoins a larly in the communications sector). Finally, conglomerate theories or transaction, both agencies may seek a permanent injunction from the ‘portfolio effects’ have not, as such, been a genuine source of concern court. In addition, the FTC may issue an order, following administra- to the antitrust agencies in recent times. tive trial, permanently enjoining the transaction. As a practical mat- However, the new Chairman of the FTC Jon Leibowitz, has ter, however, parties usually abandon a transaction if a preliminary recently urged the FTC to more carefully consider vertical concerns injunction is issued. As noted, mergers and acquisitions can, under in reviewing potential acquisitions. some circumstances, also be challenged by state attorneys general and private parties. 20 To what extent are non-competition issues (such as industrial policy or If the responsible agency believes that all relevant information has public interest issues) relevant in the review process? not been provided in the parties’ filings or in the parties’ response to a request for additional information, the applicable waiting period The antitrust agencies can seek to enjoin only transactions that vio- will not commence until all information has been provided. The FTC late certain substantive antitrust statutes (section 7 of the Clayton has recently challenged the sufficiency of an acquirer’s responses to a Act, section 5 of the FTC Act, and sections 1 and 2 of the Sherman second request (which led to a temporary settlement with the agency Act). The agencies have often pointed out that they do not and can- but, ultimately, abandonment of the transaction). not take non-competition-related factors into account in analysing Failure to comply with any provision of the HSR Act may result a merger. in a fine of up to US$16,000 for each day during which the person is in violation of the HSR Act. The agencies have recently imposed 21 To what extent does the authority take into account economic very substantial fines (up to US$5 million) on parties for completing efficiencies in the review process? transactions without observing the requirements of the HSR Act. The agencies may also seek injunctive relief to prevent a violation The aforementioned 1997 revisions to the 1992 Merger Guidelines of the HSR Act. and the 2006 Commentary on the Merger Guidelines clarify how the In addition, if a transaction has been completed in violation of antitrust agencies analyse and evaluate claims that mergers will result the HSR Act and is believed to violate the antitrust laws, the agencies in efficiencies and lower prices. In the agencies’ words, the revisions may seek to undo the transaction through an action in the district provide a ‘clearer road map for determining whether efficiencies will court. This would be more likely where the agency believes the acqui- lead merging firms to lower prices, create new products or otherwise sition also violated the substantive merger laws. enhance competition. They also make clear what merging firms must Finally, as noted in question 5, the antitrust agencies have juris- do to demonstrate claimed efficiencies.’ Although the revised guide- diction to investigate and challenge transactions that fall below the lines were welcomed, they did not result in a sea change in federal HSR Act notification thresholds. They have challenged four such merger enforcement in the United States. Indeed, the FTC chairman transactions since December of 2008, in the industries of pharma- was quoted in 1997 as saying that the revisions ‘won’t change the ceuticals, medical diagnostics, medical devices, and chemical addi- result in a large number of cases, [rather they will have] the greatest tives (oxidates). Prior to these actions, the last instance in which a impact in a transaction where the potential anti-competitive problem transaction that fell below the thresholds was challenged occurred is modest and the efficiencies that would be created are great’. in July of 2006. The Guideline revisions can be summarised as follows: • they explain the relevance of efficiencies in merger analysis; • they indicate that the agencies will only consider those efficiencies 23 Is it possible to remedy competition issues, for example by giving that are ‘merger-specific’, that is, efficiencies that could not be divestment undertakings or behavioural remedies? achieved by the parties in the absence of the merger; • they make it clear the parties to a merger will have to substantiate If the agency responsible for a given transaction determines that the any efficiency claims by ‘reasonable means’. Efficiency claims will transaction may harm competition in a relevant market, the par- not be considered if they are vague or speculative; and ties and the agency may attempt to negotiate some modification to • they clarify the types of efficiencies that are more likely to be the transaction or settlement that resolves the competitive concerns accepted by the agencies. For example, reductions in production expressed by the agency. The most common form of such a settlement costs that are achieved through a consolidation of underutilised is a consent order pursuant to which the acquiring company agrees manufacturing facilities are more likely to receive favourable con- to divest a certain portion of its existing assets or a portion of the sideration than are efficiencies relating to procurement, manage- assets it will acquire. ment or capital costs. In the context of certain acquisitions, the antitrust agencies have indicated that, before they will enter into a consent order, the parties In sum, the revisions provide a useful clarification on the issue of must identify an acceptable buyer for the businesses that are to be efficiencies and make explicit the actual practice of the agencies in sold and must enter into a definitive divestiture agreement with such recent years. They do not, however, represent a radical departure a buyer (with the buyer being approved by the responsible agency). from the past. Nor do they hold out the promise that merging par- Furthermore, consent orders require that the divestiture be completed ties are likely to encounter less vigorous merger enforcement in the within a fixed period of time. If the divestiture is not completed within United States. Moreover, Chairman Leibowitz has recently remarked this period, a trustee can be appointed to complete the divestiture. that the Merger Guidelines are ‘badly in need of updating’. Behavioural remedies may also be imposed, though they are quite uncommon in practice. Remedies and ancillary restraints

22 What powers do the authorities have to prohibit or otherwise interfere 24 What are the basic conditions and timing issues applicable to a with a transaction? divestment or other remedy? The antitrust agencies have the power to subpoena documents and In fashioning an acceptable divestiture, the agencies’ goals are to information in a merger investigation. In addition, the agencies have eliminate the competitive problems raised by the transaction, find a

390 Getting the Deal Through – Merger Control 2010 Davis Polk united states

Update and trends

The new heads of the federal antitrust agencies, Christine A Varney, substitution for a competitive market during a difficult economic time. the assistant attorney general in charge of the Antitrust Division of Second, vigorous antitrust enforcement must play a significant role in the Department of Justice (DOJ), and Jon Leibowitz, chairman of the government’s response to economic downturn.’ Shapiro stated, the FTC, have both, in recent public statements, signaled a more on a separate occasion, in response to the idea that the antitrust vigorous enforcement of the antitrust laws with respect to mergers agencies might ease up on regulation during such a pronounced and acquisitions than was the case during the prior Republican economic downturn, that ‘the same basic principles of antitrust administration. economics apply during a recession as apply during an economic Varney has stated that ‘ineffective government regulation’ expansion’. Varney has also promised increased merger enforcement has contributed to the global economic downturn, and ‘the recent with respect to the ‘high-tech and internet-based markets’, as well as developments in the marketplace should make it clear that we can greater focus on vertical theories of enforcement. no longer rely upon the marketplace alone to ensure that competition Jon Leibowitz, appointed by President Obama from among sitting and consumers will be protected’. In particular, Varney acknowledged FTC commissioners to be chairman of the agency, appears also to possible gaps in US antitrust law related to scrutinising mergers of favour a reinvigoration of vertical theories to challenge mergers in large financial institutions, stating, during her Senate confirmation those markets. In 2007, he issued a concurring statement in the hearings: ‘I think it is time to take a fresh look at what standards matter of Google Inc’s acquisition of DoubleClick, suggesting that we use to measure consolidation and concentration in the financial vertical competition concerns with that merger, though not justifying markets […] I often wonder if antitrust is failed […] if we’ve allowed intervention, raised ‘difficult’ questions for continued monitoring. institutions to be created that are too big to fail.’ His concurring opinion can be found at www.ftc.gov/os/caselist/ Further, Varney and Carl Shapiro, the DOJ’s new chief economist, 0710170/071220leib.pdf. have recently cited the antitrust enforcement record during the Great Leibowitz’s opinions over the last several years also suggest that Depression as an example of the dangers of loosening antitrust the pharmaceutical industry will be an enforcement priority for the restrictions in response to a severe recession. To the contrary, they FTC on several fronts, not just in the area of merger control. However, have suggested that such a lax enforcement policy during that era he sounded unconvinced that antitrust law could be used to stop had the unintended effect of fostering abuses and prolonging the pharmaceutical mergers that would create companies ‘too big to fail’. economic crisis. ‘The lessons learned from history are twofold’, ‘It’s hard to fit “too big to fail” into antitrust doctrine,’ he said. ‘But as said Varney, during a speech in May of 2009, immediately following a policy matter, it’s a legitimate issue.’ confirmation of her appointment. ‘First, there is no adequate buyer that can effectively and rapidly ‘step into the competitive shoes’ Involvement of other parties or authorities of the divesting party, and ensure that the buyer has all of the assets 27 Are customers and competitors involved in the review process and necessary to enable it to be an effective competitor. In this regard, the what rights do complainants have? Federal Trade Commission has published a helpful guide to its divestiture process entitled ‘Frequently Asked Questions About Merger Complainants (customers, competitors or others) have no formal Consent Order Provisions’ (www.ftc.gov/bc/mergerfaq.htm) and rights to participate in the HSR process. Nonetheless, as a practi- a Statement of the Bureau of Competition on Negotiating Merger cal matter, the agencies are very likely to contact a broad group of Remedies (www.ftc.gov/bc/bestpractices/bestpractices030401.htm). interested parties if a transaction presents possible competitive issues. The Department of Justice has also issued its Policy Guide to Merger The agencies often rely on information provided by such parties (par- Remedies (www.usdoj.gov/atr/public/guidelines/205108.htm). ticularly from customers) in deciding whether or not to challenge a particular transaction. Both agencies’ procedures, however, provide for third-party participation before a settlement is made final: at the 25 What is the track record of the authority in requiring remedies in FTC there is a period for public comment, and the Department of Jus- foreign-to-foreign mergers? tice must follow the procedures of the Tunney Act providing notice As stated above, the range of remedies are the same for domestic and an opportunity to file views. Under certain limited circumstances, and foreign transactions. In most transactions, remedies involve the private individuals, as well as foreign and state governments, may sue divestiture of certain assets, a business line or intellectual property (or in federal court for damages or injunctive relief based on violations a combination thereof) of one of the parties that overlaps in the geo- of the Clayton Act or Sherman Act. graphic or product market of the other party. Sometimes, one party is required to license certain intellectual property to a third-party 28 What publicity is given to the process and how do you protect competitor (or potential competitor). The agencies do not discrimi- commercial information, including business secrets, from disclosure? nate between foreign-to-foreign mergers and those involving domestic undertakings when imposing remedies, so long as the requisite Pursuant to the HSR Act, the information contained in the Form, anti-competitive effect in the United States is found. as well as the fact that the Form has been filed, is confidential and may be disclosed only to Congress or pursuant to an administrative or judicial proceeding. The same is true of information submitted in 26 In what circumstances will the clearance decision cover related response to a second request. arrangements (ancillary restrictions)? As noted above, however, if early termination is requested and The HSR review process does not result in affirmative ‘clearance’ or granted, notice of the fact of early termination will be published in ‘approval’ of a transaction or any ancillary arrangements. Instead, the Federal Register and on the website of the FTC. In addition, if if the agencies decide not to challenge a transaction, the applicable the responsible agency interviews third parties in connection with the waiting period expires and the parties are free to close the transac- transaction, the practical impact may be to make public the existence tion. The agencies retain the legal right to challenge the transaction of the transaction. or any ancillary arrangements in the future, although, as a practical matter, this is not very likely. 29 Do the authorities cooperate with antitrust authorities in other jurisdictions? The United States has entered into various cooperation agreements with jurisdictions such as Australia, Brazil, Canada, Germany, Israel, www.gettingthedealthrough.com 391 united states Davis Polk

Japan, Mexico, and the European Union that allow competition of appeals for the circuit in which the district court is located. If authorities to share certain information relating to antitrust inves- the court of appeals denies the appeal, the parties may petition the tigations. International enforcement efforts may be further assisted Supreme Court to hear the case. It is rare for the Supreme Court to by the International Antitrust Enforcement Assistance Act of 1994 accept such an appeal. (IAEAA), which authorises the Antitrust Division and FTC to enter into written agreements with foreign antitrust enforcement authorities in order to exchange otherwise confidential investigative informa- 32 What is the usual time frame for appeal or judicial review? tion in situations where such exchange is in the public interest. The The usual time frame for a resolution of an agency’s application for IAEAA also authorises the domestic enforcement agencies to collect an injunction to block an acquisition is approximately three to six evidence in the United States on behalf of foreign antitrust authori- months. An appeal to a court of appeals of an injunction blocking ties. Cooperation can also occur without an agreement and the par- the transaction may be heard within a few months of the grant of ties often provide waivers that allow the agencies to do so. that injunction. As noted above, it is rare for the Supreme Court to accept an appeal of a court of appeals decision. 30 Are there also rules on foreign investment, special sectors or other relevant approvals? Enforcement practice and future developments Certain industries (including banking, telecommunications, transport 33 What is the recent enforcement record of the authorities, particularly and energy) have special legislation governing mergers and acqui- for foreign-to-foreign mergers? sitions. In these industries, approval of other federal agencies may The agencies have been active in their enforcement of the merger laws be required for certain transactions. Other industries have certain in recent years. Numerous transactions have resulted in divestiture restrictions on foreign ownership of US assets. Finally, transactions agreements or court challenges. These have included domestic and that have national security implications may also require special noti- foreign transactions. fication and approval by CFIUS (organised within the US Depart- ment of Treasury). 34 What are the current enforcement concerns of the authorities? Judicial review The agencies have required divestitures or other conditions, or both, 31 What are the opportunities for appeal or judicial review? through settlements, in a number of cases in recent years involving pharmaceuticals, medical devices and clinics, telecommunications If the agency responsible for reviewing a transaction determines that services, media, supermarkets, agriculture, and the petroleum indus- the transaction would violate the US antitrust laws, and if an accept- try, including refining and pipeline and other distribution methods for able consent arrangement cannot be negotiated, the agency may petroleum products. It can be expected that these industries, as well apply to a federal court for a preliminary injunction blocking the as financial services, will continue to be enforcement priorities. acquisition. The agencies are not required, however, to seek prelimi- The antitrust agencies have also indicated that they may more nary relief. Failure to seek such relief does not preclude the agency’s closely scrutinise vertical mergers, citing foreclosure of rivals challenge at a later time (see question 22). concerns. To obtain a preliminary injunction, the agency has to persuade a court that it has a ‘probability of success on the merits’ of its antitrust claims. The merits will be adjudicated in a subsequent trial before the 35 Are there current proposals to change the legislation? court or in an FTC administrative proceeding. The preliminary injunction action may be essentially a ‘mini-trial’, during which the agency The most recent significant amendments to the HSR Rules were in and the parties submit evidence to the court on the antitrust issues. In 2005 when the FTC amended the rules regarding the application of some instances, the trial on the merits and the preliminary injunction the HSR Act to non-corporate entities (partnerships, LLCs, etc). Dol- lar thresholds in the HSR Act and the Rules are adjusted annually to motion have been combined in an action for permanent injunction. reflect changes in the GNP. You are advised to refer to the FTC web- If the responsible agency obtains an injunction from the district site, at www.ftc.gov/bc/hsr/index.shtm, to confirm the currently appli- court prohibiting the transaction, the parties may appeal to the court cable thresholds and for notice of any potential changes to rules.

Arthur F Golden [email protected] Paul W Bartel [email protected] Ronan P Harty [email protected] Joel M Cohen [email protected] Arthur J Burke [email protected] Stephen M Pepper [email protected]

450 Lexington Avenue Tel: +1 212 450 4000 New York Fax: +1 212 450 3800 NY 10017 www.davispolk.com United States

392 Getting the Deal Through – Merger Control 2010 Reproduced with permission from Law Business Research. This article was first published in Getting the Deal Through - Merger Control 2010, (published in September 2009; consulting editor John Davies). For further information, please visit www.GettingTheDealThrough.com.