The spread of merger control law has the potential to create significant benefits. Merger review regimes with advance notification requirements give competition authorities the ability to identify and remedy potentially problematic transactions, thereby benefiting consumers and competition. At the same time, the marked increase in the number of jurisdictions possessing merger review regimes renders it increasingly likely that international mergers and acquisitions will be reviewed by multiple jurisdictions.

      While recognizing the benefits of merger review systems, the Advisory Committee also sees that significant and sometimes unnecessary transaction costs may be imposed on proposed transactions through the notification and review procedures implemented by various jurisdictions. These costs are of particular concern given that the vast majority of transactions reviewed by competition authorities are permitted to proceed with no action, suggesting that the transactions are either competitively benign or beneficial to society.

      In considering the consequences of multijurisdictional merger review, the Advisory Committee has sought to identify those problematic practices employed by various jurisdictions around the world, as well as the exemplary practices that others could usefully adopt. The Advisory Committee believes that the challenges identified in this chapter can most profitably be addressed by advocating targeted reform in individual merger control regimes through the promotion of best practices. Broadly speaking, the best practices that the Advisory Committee identifies in this chapter fall within two major categories: ensuring that each jurisdiction's merger review regime examines only those mergers that have a nexus to and the potential to create appreciable anticompetitive effects within that jurisdiction; and ensuring that each jurisdiction refrains from unduly burdening those transactions during the course of the merger review process. The Advisory Committee believes that identifying the beneficial and troublesome practices of various jurisdictions provides useful comparisons and ultimately provides countries with the ability to select those practices that will enhance their merger review processes while comporting with national legal and cultural characteristics.

      The United States by virtue of its experience and developed practices can and should play a leading role in the effort to implement reforms in the international arena. Perhaps one of the most effective ways in which the United States can stimulate global reform is through leading by example. It is therefore important that the United States continue to examine and perfect its own merger review processes. After addressing problems within its own borders, the United States is well positioned to advocate that other jurisdictions make modifications in their merger review systems.

      In the previous chapter the Advisory Committee considered ways to bridge the differences between systems and to minimize the risk that differing substantive standards employed by reviewing jurisdictions will lead to diverging evaluation on the merits, incompatible or burdensome remedies, and international friction. This chapter examines those problematic features within merger review systems that heighten uncertainty about filing obligations and review schedules and generate unnecessary transaction costs. It also identifies concrete ways in which the United States and other jurisdictions constructively may begin to address these international challenges. The chapter first explores in greater detail both the benefits and the challenges presented by the proliferation of merger control regimes with antitrust notification obligations. It then identifies specific practices that require reform, together with ways in which the Advisory Committee believes that these reforms may be implemented most effectively. Finally, the Advisory Committee identifies the likely impact of its recommendations in the United States.

Benefits of Antitrust Merger Notification

      While mergers frequently lead to significant cost savings and other benefits, they also may be anticompetitive. Merger review regimes give competition authorities the ability to identify and remedy potentially problematic transactions, thereby benefiting consumers and competition. The U.S. Department of Justice (DOJ) has estimated that its merger review efforts during 1998 saved consumers $4 billion.⁽¹⁾ Although the Federal Trade Commission (FTC) does not track total estimated consumer savings flowing from its enforcement efforts, estimates in two specific actions are notable. The FTC estimates that it has saved consumers approximately $250 million annually since it obtained a preliminary injunction to prevent two office supply superstores from merging in 1997. The agency also estimates that it has saved consumers another $300 million annually by blocking two nearly simultaneously proposed mergers in the drug wholesaling industry in 1998.⁽²⁾ Recognizing the benefits created by merger review systems, scores of jurisdictions around the world have enacted merger control laws within the last decade.

      The more established national competition laws, as well as many of those more recently implemented, include substantive prohibitions on anticompetitive mergers, acquisitions, and joint ventures. Many of the laws require advance notice of proposed transactions. In fact, commentators have noted that "[i]t is not hyperbole that perhaps the greatest U.S. export in the last decade has been the adoption of pre-merger review processes, particularly in developing countries."⁽³⁾ Of the more than 80 jurisdictions currently possessing competition laws, it is estimated that at least 60 require (or provide for) antitrust merger notification.⁽⁴⁾ This number undoubtedly will increase as other countries implement competition laws.

      Advance notice is viewed as useful to competition authorities because it permits them to evaluate and either prohibit or restructure potentially anticompetitive transactions before the transaction is implemented. In this way, competition authorities avoid the widely acknowledged difficulties that accompany attempts to restore competition by "unscrambling the eggs" after allegedly anticompetitive transactions have been completed. The experience of the U.S. antitrust enforcement agencies before 1976 illustrates that imposing structural relief after a transaction has been consummated is often difficult, if not impossible. Attempting to prevent anticompetitive harm by relying on antitrust conduct cases after an anticompetitive merger has been implemented, according to the U.S. antitrust enforcement agencies, is a poor substitute for preserving competitive structure in the market in the first place. Even if postconsummation remedies were effective, consumers would suffer the harmful effects of the loss of competition during the interim period before remedies were imposed. Indeed, the stated purpose of the U.S. Congress in enacting the premerger notification regime embodied in the Hart-Scott-Rodino Act of 1976 (HSR Act or HSR) was to give the agencies "an effective mechanism to enjoin illegal mergers before they occur."⁽⁵⁾

      Reliance on premerger notification systems to provide advance notice of proposed transactions is based in large part on the recognition that competition authorities have neither the time nor the resources to monitor all business transactions in an attempt to identify those that pose a threat to competition. Nor do they have the ability to detect those "midnight mergers" that are consummated without public notice. Moreover, it is not practical to place the burden of notification on concerned competitors and consumers. Reliance on these entities to provide advance notice may prove imperfect either because these entities may not know about transactions before their consummation or because the transaction costs incurred by these entities in notifying the competition authorities may outweigh any benefits obtained by having the proposed transactions reviewed.

      For these reasons, many jurisdictions view premerger notification regimes as the most efficient way of systematically obtaining advance notice of potentially anticompetitive transactions. Most competition law systems thus require merging parties to notify competition authorities of proposed transactions that meet certain criteria and to await the competition authorities' review before consummating those transactions. Parties to a proposed transaction that meets the threshold filing requirements of the HSR Act, for example, must file a premerger notification form with the DOJ and FTC and observe a 30-day initial waiting period before consummating the proposed transaction. If either of the agencies requests additional information before the expiration of the initial waiting period, the parties must wait an additional 20 days after substantially complying with the request for additional information before going forward with the proposed transaction.⁽⁶⁾

      So that competition authorities need not review each proposed transaction, premerger notification regimes require notification only for proposed transactions that meet certain criteria.⁽⁷⁾ Because substantive merger control laws are concerned with structural restraints of competition, merger notification regimes in the first instance generally limit notification requirements to those transactions that result in the change of control by one or more entities over one or more other independent entities.⁽⁸⁾ Most regimes also generally limit their scope by requiring notification only for those transactions deemed large enough to justify the expenditure of agency resources. In the United States, for example, parties to a merger need not notify the DOJ or FTC unless the statutory "size of party" and "size of transaction" tests are met.⁽⁹⁾

Challenges Presented by the Proliferation of Merger Regimes

      While the spread of merger control law has the potential to create significant benefits, the growing tendency of nations to apply their laws to offshore mergers and the sheer volume of law that firms undertaking mergers must now consider may be a mixed blessing. As a result of this explosion in merger regulation, merging parties face an array of up to 60 merger regimes that require, among other things:⁽¹⁰⁾

• Knowledge of and compliance with complex filing rules.
• Completion of an array of forms in accordance with various national requirements.
• Payment of substantial fees to the reviewing authorities (often designed to subsidize the operation of government agencies).
• Knowledge of and compliance with review schedules and waiting periods.

      Although no comprehensive data are available that quantify the overall public and private costs imposed by compliance with multijurisdictional merger notification and review requirements, the responses of firms and their advisors to ICPAC outreach efforts suggest that these costs are sizeable.⁽¹¹⁾ According to those responses, one significant category of costs imposed on international mergers results from having to ascertain potential notification obligations in literally dozens of separate jurisdictions. Determining whether merger control regulations exist in all potentially affected jurisdictions is in itself a daunting task, as is determining whether the disparate jurisdictional thresholds for merger notification in these various countries are met. Many jurisdictions' filing requirements are vague, subjective, or difficult to interpret. Perhaps the biggest culprit in this category concerns notification thresholds based on market share tests, which currently are employed by many jurisdictions (though not the United States). Mistakes may be costly: several jurisdictions, including the United States and the European Commission (EC), impose fines for failure to notify a reportable transaction.⁽¹²⁾

      A second significant category of costs results from having to file multiple merger notifications. Many of the forms used in various jurisdictions require the submission of extensive information about markets, competitors, customers and suppliers, and entry conditions in each of the markets in which the merging parties operates. This information is required even for transactions those pose few or no competition issues. In some cases, filings must be made in countries having no reasonable basis for exerting jurisdiction over a transaction. Numerous premerger notification regimes set reporting thresholds at exceedingly low levels or require notification of transactions that lack any appreciable nexus to the economy of the reviewing jurisdictions. Precise statistics regarding the percentage of proposed transactions that ultimately are reviewed by multiple jurisdictions are not available. Anecdotal evidence collected by the Advisory Committee indicates, however, that it is not unheard of for merging parties to file notifications with a dozen or more jurisdictions.⁽¹³⁾

      Direct costs of compliance include attorneys' fees, filing fees, and document production costs. Companies frequently must retain local counsel in a multiplicity of jurisdictions to obtain guidance on whether the proposed transaction is subject to notification requirements and on how to comply with premerger filing requirements, a task complicated by the fact that, in many jurisdictions, few attorneys may be experienced in competition law. As one submission to ICPAC observed, "local counsel must be retained to guide the parties through the complexities of the individual antitrust regimes and obtain the approval of the local antitrust authorities. Often the laws in a particular jurisdiction, including their standards for filing, are ambiguous, or the forms that must be submitted to the reviewing authorities are complex and call for detailed local information, requiring the active intervention of local counsel."⁽¹⁴⁾

      Annex 3-A identifies the filing fees imposed by several jurisdictions and shows how quickly they mount when multiple jurisdictions are involved. The United States, for example, requires each acquiring party to pay a US$45,000 filing fee; filing fees in the United States totaled $195 million in fiscal year 1999.⁽¹⁵⁾ Similarly, Canada in November 1997 introduced a filing fee of Cdn$25,000 for each prenotifiable transaction and request for an Advance Ruling Certificate.⁽¹⁶⁾ Although filing fees may account for only a tiny fraction of the total cost of a large transaction, multiple filing fees may impose relatively significant costs on smaller transactions.

      Multijurisdictional merger review also imposes indirect and difficult-to-quantify costs that may exceed the direct costs identified above. These indirect costs include, for example, the drain on executives' time and productivity. One observer notes that:

      Executives' time and productivity lost due to a protracted investigation (or series of investigations) takes a heavy toll on the parties to the transaction. In each jurisdiction where some form of compliance is required, senior officers of the companies involved will have to spend many hours conducting, coordinating, and supervising the search for financial and market information that will have to be produced to each of the regulating authorities involved. The senior officers will also likely have to make themselves available to counsel and to the authorities for interviews and other information gathering activities, which distract the senior officers from the business of the firm.⁽¹⁷⁾

     The same observer notes that the "loss to the company of the executives' time and productivity will compound with each follow up request propounded by the regulating authorities."⁽¹⁸⁾

      Other intangible costs arise from the delays that may be engendered by the review process in a number of jurisdictions. Delays imposed on proposed transactions result from the lack of strict deadlines and lengthy review periods. At the extreme, the merging parties may abandon the transaction. Mergers are almost always time sensitive; delays may prove fatal to a transaction, particularly if it relates to a high-technology industry, such as electronics, computers, or software, with a very short life cycle. In addition, delay breeds uncertainty in product, labor, and capital markets, enabling competitors to raid customers and staff.⁽¹⁹⁾

      Delays also create lost opportunity costs. For example, "[d]uring the time that deals are delayed, the parties to a transaction lose the savings, efficiencies and synergies (assuming there are any) that induced their respective business decisions to do the deal in the first place, and the economy is denied whatever competitive benefits would result."⁽²⁰⁾ One ICPAC hearing participant testified that he is aware of a merger where the annual efficiencies exceed a billion dollars. "This particular merger will take at least a year to clear, and that's one merger out of a world of mergers."⁽²¹⁾ Other opportunity costs may include the inability of the individual parties to accept business that the merged entity would have been well positioned to accept because of the anticipated synergies realized from combining their operations.

      Despite these escalating costs, the Advisory Committee was presented with no evidence suggesting that transaction costs associated with multijurisdictional merger review have slowed the pace of the global economy.⁽²²⁾ However, some ICPAC hearing participants cautioned that as more and more countries adopt competition laws, transaction costs incurred by global firms tend to increase, creating the danger that those costs could "cancel out the efficiency gains that one would expect from the globalization process."⁽²³⁾

Rationalizing the Merger Review Process in Light of Globalization

      After looking at the transaction costs that result from multijurisdictional merger review, the Advisory Committee considered whether they are merely costs of doing business in multiple jurisdictions or whether they are excessive and could be minimized while still ensuring that enforcers have the tools necessary to identify and remedy anticompetitive transactions. In the Advisory Committee's view, many of the transaction costs imposed by merger regimes are rationally related to the efficient review of transactions that have the potential to create appreciable anticompetitive effects within the reviewing jurisdiction and therefore should be taken in stride by companies as a cost of doing business. At the same time, the Advisory Committee is of the view that while antitrust merger control regimes have the potential to create benefits for society, those same notification and review processes also impose significant transaction costs on international transactions. It is therefore important to focus on those unnecessary and burdensome costs that have little or no relationship to antitrust enforcement goals.

      These costs are of particular concern when it is recognized that the majority of the transactions that are reviewed by competition authorities are permitted to proceed with no enforcement action, suggesting that those transactions are efficiency enhancing or competitively benign. Indeed, statistics for several jurisdictions, including the United States, indicate that only a small percentage (generally ranging from 1 to 5 percent) of all notified mergers ultimately are either prohibited or restructured by competition authorities (Box 3-A). This evidence leads the Advisory Committee to conclude that the growing incidence of multijurisdictional merger reviews is imposing unnecessary transaction costs in a large number of transactions that present little, if any, actual competitive concern.

Box 3-A: Merger Challenge Rate Australia: In 1997-98 the Australian Competition and Consumer Commission considered 176 mergers and joint ventures of which it objected only to 8 (5 percent). Australian Competition & Consumer Commission Annual Report 1997-98. Brazil: From June of 1998 to September of 1998, only 2 of the 48 notified transactions (4 percent) were not approved outright. From May of 1996 to May of 1998, all but 17 of the 104 notified transactions were approved without any condition. Cade. Canada: During the fiscal year ending March 31, 1999, the Canadian Competition Bureau received notification of 192 transactions (an additional 222 requests were made for advance ruling certificates). Of the examinations concluded during the year, all but 5 were approved outright. Annual Report of the Commissioner of Competition (1999). European Commission: According to the EC, only 14 transactions out of 292 notifications (less than 5 percent) in 1999 were challenged or subjected to a second-phase investigation. In response to concerns expressed by the European Commission, an additional 19 transactions (approximately 6.5 percent) were cleared subject to undertakings accepted during the first phase of investigation. Japan: In 1998, no formal measures were taken against the 3,813 notified mergers and acquisitions, although at least two transactions (less than 1 percent) were revised in response to concerns raised during prenotification consultation (others may have been abandoned or revised during prenotification consultation). Annual Report on Competition Policy in Japan. Notably, the thresholds were revised effective January 1, 1999, and are expected to capture approximately 200 transactions annually. Taiwan: Of the 1,045 notified cases that were concluded in 1999, all but 13 (less than 2 percent) were approved. Taiwan Fair Trade Statistics. United Kingdom: The Office of Fair Trading in the United Kingdom examined 425 transactions in 1998, of which only 8 (less than 2 percent) were referred to the Monopolies and Mergers Commission (MMC) for further investigation. Undertakings were accepted in an additional three (less than 1 percent) in lieu of a reference to the MMC (others may have been abandoned in response to confidential guidance). Director General's Annual Report to the DTI. United States: Of the 4,679 transactions notified during the fiscal year ending September 30, 1999, requests for additional information were issued in 113 (2.4 percent), and only 76 transactions (1.6 percent) resulted in enforcement actions. U.S. DOJ Premerger Office.

      To preserve the benefits of merger review while easing unnecessary burdens on international transactions, the Advisory Committee concludes that in the first instance each jurisdiction should take steps to ensure that it casts its merger review "net" only as broadly as necessary to identify potentially problematic transactions. Once a transaction has come under the merger review net of a particular jurisdiction, moreover, the Advisory Committee concludes that jurisdictions should ensure that unnecessary burdens are not imposed on that transaction.

      To achieve these goals, the Advisory Committee recommends several "best practices" designed to rationalize the application of merger review procedures.⁽²⁴⁾ Having considered problematic practices in various jurisdictions around the world, the Advisory Committee recommends the following approaches to remedy those ills, which are discussed later in this chapter:

• In designing their merger review systems, jurisdictions should seek to review only those transactions that have a nexus to and that pose the threat of appreciable anticompetitive effects within the reviewing jurisdiction. To this end, threshold filing requirements should be designed to screen out mergers that lack a nexus to the reviewing jurisdiction. In addition, notification thresholds should be set at levels designed to screen out transactions unlikely to generate appreciable anticompetitive effects within the jurisdiction. Additional steps that can be taken to eliminate unnecessary burdens on merging parties during this stage include establishing objectively based notification thresholds and ensuring their transparency.
• Once a proposed transaction falls within the merger review system of a given jurisdiction, that jurisdiction should avoid imposing unnecessary costs on the transaction. To this end, premerger notification and review should occur within a two-stage process designed to enable enforcement agencies to identify and focus on transactions that raise competitive issues while allowing those that present none to proceed expeditiously.
• This goal can be accomplished by adopting reasonable deadlines and time frames for review. Jurisdictions should strive to clear nonproblematic transactions within a 30-day or one-month time frame following notification. In addition, jurisdictions should seek to rationalize review periods by harmonizing rules pertaining to when premerger filings can (or must) be made. Finally, merger review periods should not be open ended and more deadlines should be employed during second-stage review processes so as to provide greater certainty to the merging parties.
• To ensure that transactions that trigger notification obligations are not faced with excessive information requirements, while at the same time ensuring that competition authorities have sufficient information to identify competitively sensitive transactions, the initial notification should require the minimum amount of information necessary to make a preliminary determination of whether a transaction raises competition issues sufficient to warrant further review. Mechanisms also should be established to narrow the legal and factual issues presented by each proposed transaction early in the merger review process.

      The Advisory Committee believes that these recommendations represent realistic goals that can reduce costs on international transactions without reducing the efficacy of the enforcement agencies. The Advisory Committee believes it is in the interest of the United States and other jurisdictions to examine their own merger review processes and undertake reform efforts, where necessary, targeted at minimizing the burdens associated with merger review. In particular, one additional area warranting consideration is overlapping decisionmaking power for competition policy within jurisdictions. This feature of merger review systems may hinder the ability of national governments to establish common policies and procedures within their own borders, and as a result, with their foreign counterparts.

      Various jurisdictions that rely on exceedingly low notification thresholds or that require a filing in the absence of any appreciable domestic effects impose significant costs on transactions that are unlikely to generate appreciable anticompetitive effects within the reviewing jurisdictions.⁽²⁵⁾ Thus, international transactions are burdened, but concomitant benefits are not necessarily created. To complicate matters, many jurisdictions' filing requirements are vague, subjective, or difficult to interpret.

Using Notification Thresholds to Screen Out Mergers That Are Unlikely to Have Appreciable Anticompetitive Effects Within the Reviewing Jurisdiction

      Several best practices can be employed to rationalize threshold tests for notification to reduce unnecessary transaction costs without significantly reducing the public benefit created by advance notification. First, in establishing its premerger notification thresholds, each jurisdiction should seek to screen out mergers that are unlikely to generate appreciable anticompetitive effects within the reviewing jurisdiction. This goal can be accomplished by implementing threshold tests that include an appreciable nexus to the economy of the jurisdiction, such as transaction-related sales or assets in the jurisdiction, and that are set at only as broad as necessary to require the reporting of transactions that may have the potential to cause appreciable anticompetitive effects within the jurisdiction. These thresholds also should be objectively based and transparent.

      Because notification thresholds are established by statute in many jurisdictions, revisions would require legislative action. Thus, it is recognized that the proposed reforms pertaining to notification thresholds likely cannot be accomplished in the short run. In the meantime, jurisdictions should ensure that transparency exists, with respect to their merger regimes generally, but should focus particularly on clarifying the manner in which those thresholds should be applied and providing information on how to comply with premerger filing requirements.

     Nexus to the Jurisdiction

      The Advisory Committee recognizes that transactions between firms with international operations can create anticompetitive effects in multiple countries. Thus, the Advisory Committee acknowledges that the reporting of foreign and domestic transactions is necessary and appropriate so long as those transactions possess an appreciable nexus to the reviewing jurisdictions. However, numerous jurisdictions require notification of transactions in the absence of any appreciable domestic effect. In delineating their sphere of application, few (if any) premerger notification regimes rely expressly on the potential for proposed transactions to create anticompetitive effects. Rather, most jurisdictions rely on surrogate criteria such as sales volume, asset values, or market shares to determine the reach of their premerger notification regimes. Reliance on surrogate criteria is understandable, given the subjectivity that necessarily is involved in determining whether a proposed transaction poses harm to competition and therefore whether a premerger notification filing is required. The use of these proxies may be problematic, however, when they are not tailored to identify transactions that may cause appreciable anticompetitive effects within a given jurisdiction.

      Specifically, several jurisdictions premise their notification threshold tests on worldwide figures, including worldwide sales volumes or worldwide asset values. Reliance by a premerger notification regime on thresholds of this nature creates the possibility that a transaction with no reasonable likelihood of generating any effect within a jurisdiction still may be required to make a premerger filing in that jurisdiction. This possibility exists even if the premerger notification regime requires that a certain volume of sales be made in the territory of that country.

      One example of this problematic practice can be found in the "effects test" employed by some jurisdictions, under which any transaction with the potential to generate effects within a jurisdiction may be subject to premerger notification requirements in that jurisdiction. For example, before the implementation of amendments that became effective on January 1, 1999, Germany required premerger notification if a transaction involved one party with annual worldwide sales of more than DM2 billion (approximately $1.06 billion), or two or more parties with annual worldwide sales of more than DM1 billion (approximately $530 million), whenever the transaction had any potential effect in Germany.⁽²⁶⁾

      Under the new German law, notification is not required unless the proposed transaction satisfies requirements with respect to both worldwide and German sales figures. The addition of the German turnover threshold makes it more likely that transactions captured within the merger review regime will have at least some nexus to Germany; the problem is not entirely eliminated, however, because transactions may still be notifiable notwithstanding the fact that one party has no (or de minimis) sales in Germany.⁽²⁷⁾ A number of other jurisdictions still employ variants of the effects test to assert jurisdiction and impose premerger notification requirements.⁽²⁸⁾ Box 3-A identifies several jurisdictions that rely on worldwide figures to assert jurisdiction over proposed transactions.⁽²⁹⁾

      In addition to capturing transactions with no reasonable likelihood of anticompetitive effects, thresholds based on worldwide figures generate significant uncertainty about when contacts in a foreign jurisdiction (particularly in Eastern European jurisdictions) rise to the level of "domestic effects" triggering application of a jurisdiction's merger control law.⁽³⁰⁾ Even local counsel remain uncertain as to how to interpret domestic effects in some jurisdictions.⁽³¹⁾ Input received from the legal community is that antitrust notifications may be made merely out of an abundance of caution in jurisdictions where arguably there are no (or de minimis) local effects.

      To eliminate unnecessary filings, notification should not be required in any jurisdiction based solely on potential domestic effects or local business activity unless such effects or activity exceeds some appreciable standard as measured, for example, by reference to the target's local activities, such as local sales or assets.⁽³²⁾ The Advisory Committee therefore recommends that the international community advocate that each jurisdiction review its notification thresholds to ensure that they incorporate an appreciable and objectively based nexus to the economy of the jurisdiction. This would screen out many transactions where there are no appreciable competitive effects in the jurisdiction and minimize uncertainty regarding the level of local contacts necessary to trigger a notification obligation, especially as to "foreign-to-foreign" transactions.

      In revising notification thresholds, jurisdictions can look to those premerger notification regimes that are designed to identify only transactions with an appreciable nexus to the jurisdiction. Positive examples in this regard include:

• Canada (to trigger a notification obligation the target company must carry on an operating business in Canada coupled with Canadian assets/sales tests);
• Sweden (statute as interpreted by the Swedish authority requires an "acquisition of a Swedish business" with non de minimis sales and a Swedish subsidiary, affiliate, employees or sales organization); and
• the United States (foreign transaction exemptions based on U.S. assets and/or sales of target).⁽³³⁾

      A number of jurisdictions recently have enacted laws with thresholds so low that acquisitions unlikely to have any appreciable effect on competition still must be notified. In other countries with longstanding laws, this problem may be the result of a failure to adjust notification thresholds to reflect the effects of inflation or increases in the value of companies as measured by stock market valuation. In fact, jurisdictions generally do not index their premerger notification thresholds to inflation rates or stock market indices. Italy is one of the few jurisdictions that does increase its thresholds annually to account for inflation. In countries that do not employ indexing measures, an ever-increasing proportion of mergers becomes reportable.⁽³⁴⁾

      In the United States, for example, premerger notification thresholds have not been adjusted since enactment of the HSR Act in 1976. Data provided by business groups and the private bar indicate that since 1976, stock market valuations of companies and their assets have increased dramatically; because the reporting thresholds have remained unchanged, an increasing proportion of transactions come under the merger review net. For 1997, the filing thresholds captured transactions that would be valued, in constant 1976 dollars, at approximately $5 million between parties with total sales and assets of approximately $35 million and $3.5 million, respectively. If the filing thresholds had simply kept pace with inflation, the number of filings in 1998 would have equaled their 1990 level, eliminating the nearly 134 percent increase in filings since 1990.⁽³⁵⁾

      Nor has Canada adjusted its notification thresholds for inflation since the country adopted its modern merger review system in 1986. Using the Consumer Price Index as of May 1998 to adjust the thresholds would increase the Cdn$400 million party-size and Cdn$35 million target-size thresholds to almost Cdn$560 million and Cdn$50 million, respectively. Canadian counsel point out that other legislation in Canada accounts for the effects of inflation: the threshold for a reviewable transaction under Section 14.1 of the Investment Canada Act is adjusted annually to account for inflationary effects.⁽³⁶⁾

      As these numbers suggest, indexing notification thresholds for inflation would exclude a significant number of transactions from notification and review. Given the significant cost of compliance, it seems reasonable not to subject so many competitively benign transactions to the notification and review process. At the same time, however, the Advisory Committee notes that an automatic indexing method may produce arbitrary results and cautions against raising thresholds to such a level that competition authorities' enforcement missions may be compromised. The trade-off for raising filing thresholds is less comprehensive antitrust enforcement. The ability of competition authorities to detect nonreportable mergers (and the risk that these transactions would go unreviewed), as well as the jurisdictional ability of competition authorities to investigate and challenge nonreportable transactions, must be factored into any decision to adjust notification thresholds.

      The Advisory Committee recommends that each jurisdiction consider whether its notification thresholds are appropriate or too low. Jurisdictions, of course, should continue to set the precise level, balancing the cost of compliance with notification rules and regulations against the likelihood that notifiable transactions will generate appreciable anticompetitive effects within the jurisdiction. If an automatic indexing mechanism is not employed, the Advisory Committee recommends that the jurisdictions review their notification thresholds periodically (at least every four years) to determine whether they should be adjusted.

      To better ensure that potentially anticompetitive transactions do not escape scrutiny, the Advisory Committee recommends that competition authorities should be given the authority to pursue potentially anticompetitive transactions even if they do not satisfy premerger notification thresholds.⁽³⁷⁾ Although the federal antitrust enforcement agencies in the United States already possess this authority, many existing merger regimes authorize regulators to review transactions only when premerger notification requirements are satisfied.

      Any efforts to revise notification thresholds also must account for the fact that filing fees currently constitute a significant source of revenue for numerous competition authorities, including federal antitrust agencies in the United States. Ideally, no competition authority should be dependent on filing fees for its budgets, staff salaries, or bonuses. A linkage of this nature may skew incentives to revise notification thresholds because consideration of limitations that may be warranted on the basis of competition-oriented objectives must be weighed against the collateral fiscal effects. Another risk that must be considered is that the ability of competition authorities to fund their law enforcement activities may be compromised when the current merger wave subsides.⁽³⁸⁾

      To ensure that these competition authorities will be able to pursue their enforcement missions vigorously, it is imperative to provide agencies with alternative sources of funding to offset the loss of any funds that may result from revision of notification thresholds. Although linking filing fees to agency budgets clearly is undesirable as a matter of sound public policy, delinking fees or raising thresholds is simply not tenable without offsetting measures.

      A variety of measures may be employed to offset any loss of filing fees flowing from the adjustment of notification thresholds. For example, the revision of thresholds could be accompanied by measures to increase filing fees for reportable transactions, or to levy filing fees scaled to the size of the transaction. Similarly, filing fees also could be assessed based on the amount of work performed by the reviewing authorities. In Germany, for example, the size of the filing fee for a transaction depends upon the economic importance and complexity of the case. Filing fees generally range from DM10,000 to DM100,000 (for straightforward cases, it is typically less than DM20,000). In exceptional cases, the fee may amount to as much as DM200,000.⁽³⁹⁾ Similarly, in Switzerland, no fee is required if a transaction is cleared within the initial review period. A filing fee is imposed if a second-stage investigation is opened and is based on the amount of work performed by the agency. The Advisory Committee notes, however, that when a transaction must be reviewed in several jurisdictions, filing fees will quickly mount.

Reducing Uncertainty and Unnecessary Burden Imposed by Notification Thresholds

      Notification thresholds that do not clearly and objectively delineate the circumstances requiring parties to a proposed transaction to notify the competition authorities also impose uncertainty and unnecessary burden on merging parties.

     Objectively Based Notification Thresholds

      Imprecise and subjective notification thresholds impose significant transaction costs on parties to international mergers. Perhaps the biggest culprit in this category concerns notification thresholds based on market share tests, which many jurisdictions, although not the United States, currently use.⁽⁴⁰⁾ One drawback of market share tests arises from the inherent subjectivity of market share calculations: reasonable minds may differ concerning the definition of the relevant markets. Another disadvantage of market share tests concerns their inherent impreciseness: calculation of market shares requires an estimation of the size of the relevant market. In addition, the calculation of market shares may entail a full and substantive analysis of the proposed transaction, which parties should not be required to undertake simply to determine whether premerger notification requirements are met in any given jurisdiction.⁽⁴¹⁾

      The difficulties associated with market share tests are exacerbated by interpretive ambiguities and inconsistencies. Under Greek rules, for example, a filing is required if either party meets the 25 percent market share threshold, regardless of whether there is any horizontal overlap or vertical relationship between the two parties. Until 1999 notification was required in Belgium if the parties (individually or together) had a market share of more than 25 percent in Belgium not only for overlapping products, but also in any "upstream," "downstream," or "neighboring" markets. Presumably in recognition of the inherent difficulties associated with market share tests, the Belgian authority abandoned that test and instead adopted a Belgian turnover test.

      To spare merging parties significant and unnecessary transaction costs, the Advisory Committee recommends that the international community should promote the elimination of market-share tests in favor of objectively quantifiable and readily accessible information, such as sales or assets. In addition to the Belgian thresholds, positive examples in this regard include Canada (Canadian assets/sales tests); the Netherlands (Dutch turnover); and Switzerland (Swiss turnover).⁽⁴²⁾

     Transparency

      A lack of transparency in many jurisdictions makes it difficult to track and interpret myriad complex notification requirements (particularly in jurisdictions without a long history of merger control).⁽⁴³⁾ Jurisdictions should ensure that their merger review regimes are transparent generally, but should focus particularly on identifying notification thresholds, clarifying the manner in which those thresholds should be applied, and providing information on how to comply with premerger filing requirements.

      Transparency may be facilitated in many ways. In Chapter 2 the Advisory Committee recommended that jurisdictions produce policy statements and annual reports on competition policy, and publish speeches and press releases. These sources also should be used to publicize changes in administrative practices or in the application of merger notification rules and regulations. In addition, competition authorities should issue interpretations of notification threshold tests so that legal counsel can correctly advise clients on whether premerger notification of a proposed transaction is required. These interpretations of threshold tests should make clear whether they apply to domestic or global assets, revenues, and market shares. This need is particularly acute in developing economies in which the local bar is not experienced in handling complex transactions or competition matters.

      The U.S. antitrust agencies have made a substantial effort to increase the transparency of the HSR rules and regulations, and their efforts to facilitate transparency provide a useful model for other jurisdictions. Informal interpretations of whether a transaction is notifiable can be obtained by calling or writing the Premerger Notification Office at the FTC. Informal interpretations from the FTC staff are collected and discussed in the ABA Antitrust Section, Premerger Notification Practice Manual, which is periodically updated. In addition, the U.S. agencies release significant volumes of materials to assist practitioners and businesses in complying with the HSR Act, including a source book that compiles HSR rules and regulations, Federal Register publications, form filing information, formal interpretations, press releases, speeches, an annual report, and merger guidelines.

      Detailed filing requirements and prolonged delays in merger reviews may impose significant and sometimes unnecessary or unduly burdensome costs on proposed transactions, particularly those that pose no harm to competition. To ensure that each jurisdiction refrains from unduly burdening transactions that trigger a notification obligation, the Advisory Committee recommends that merger review should be conducted in a two-stage process designed to enable enforcement agencies to identify and focus on transactions that raise competitive issues while allowing those that present none to proceed expeditiously. At each stage of the process, jurisdictions should set reasonable deadlines and time frames for review and craft focused information requests.

     Setting Reasonable Deadlines and Time Frames for Review

      ICPAC outreach efforts reveal that heightened uncertainty and prolonged delays in merger reviews result in large part from a lack of strict deadlines and lengthy review periods.⁽⁴⁴⁾ To facilitate the expeditious and efficient review of transactions, particularly those that do not raise competitive concerns, the Advisory Committee recommends that the international community should promote the adoption of 30-day or one-month initial review periods and harmonization of rules about when parties are permitted to file premerger notification.⁽⁴⁵⁾ For transactions that raise serious competitive issues and require a more in-depth review, the Advisory Committee concludes that merger review should not be an open-ended process and that companies derive value from certainty with respect to merger review periods. One approach to provide greater certainty required for effective transaction planning is the adoption of nonbinding but notional time frames for second-stage review that vary in relation to the relative complexity of the transaction.

     Triggering Events

      Rules pertaining to when merging parties are permitted or required to file premerger notification vary across jurisdictions. Some jurisdictions make premerger clearance mandatory, others make postclosing notification mandatory, and some jurisdictions make notification voluntary.

      Jurisdictions also differ with respect to which types of events will trigger filing requirements. In a number of jurisdictions with preclosing notification requirements, such as the United States and Canada, a filing may be made as early as an agreement in principle is reached or a (nonbinding) letter of intent or contract has been signed. In a few jurisdictions, such as Germany, a filing may be made whenever the intention of the parties has become sufficiently concrete to establish the structure of the transaction and the schedule for its implementation, or at least when a clear and serious intent to finalize the merger within a short time has emerged.⁽⁴⁶⁾ These systems give the parties with the flexibility of filing early in the transaction planning process (that is, during negotiations), at an intermediate stage (after signing the definitive agreement) or nearer to the end of the transaction process (generally no later than 30 days before the expected closing or completion, or 15 days in the case of cash tender offers).⁽⁴⁷⁾

      In several other jurisdictions, however, premerger notification is not permitted until the parties have executed a definitive agreement. For example, antitrust filings to the European Commission can be made only after the signing of a definitive merger agreement, acquisition of control, or announcement of a public bid.

      Although most jurisdictions that require notification before closing do not impose a notification deadline provided the parties observe any statutory waiting periods before consummating the transaction, other jurisdictions require notification within a specified number of days after the triggering event. The EC technically requires notification one week after the triggering event has occurred, for example, although extensions may be granted. Similar requirements are imposed in Belgium (1 month), Finland (1 week), Greece (10 days), Hungary (8 days), Poland (14 days), and Slovakia (15 days). To the extent that parties must observe mandatory waiting periods following notification, these arbitrary filing deadlines are superfluous.⁽⁴⁸⁾

      Preparation of a notification form in regimes that have both definitive agreement requirements and filing deadlines may entail a substantial amount of work, making compliance with these notification deadlines generally difficult. (As discussed below, many of these jurisdictions require the submission of detailed information in the initial filing.) Failure to comply with the applicable premerger notification rules can result in significant fines whether or not the transaction has an anticompetitive effect in the jurisdiction.⁽⁴⁹⁾ In practice, the enforcement authorities in some of these jurisdictions have shown flexibility in granting extensions of time. However, the EC recently fined a company that did not observe the filing deadline (Samsung was fined ECU33,000 (approximately $37,000)); it was the first time the EC had imposed such a fine.⁽⁵⁰⁾ Moreover, having to seek waivers from each jurisdiction where a filing is required would be burdensome and increase transaction costs with no corresponding enforcement benefit.⁽⁵¹⁾

      To permit merging parties to coordinate multijurisdictional filings in the most efficient manner and to facilitate cooperation among reviewing authorities, the Advisory Committee recommends that the international community promote harmonization of rules concerning when parties are permitted to file premerger notification. This can be accomplished by targeting reform efforts in those jurisdictions with definitive agreement requirement and postexecution filing deadlines to permit filings to be made at any time after the execution of a letter of intent, contract, agreement in principle, or public bid.

      ICPAC hearing participants suggested that this type of reform might encounter some resistance, particularly in the EU, because reviewing a transaction that has not become the subject of a binding agreement would require the use of scarce Merger Task Force (MTF) resources. It was suggested that this concern could be addressed with a "good faith intention to consummate" representation similar to the HSR Act affidavit requirement (although, in jurisdictions with hefty filing fees, the fee alone may be sufficient to infer a good faith intention to consummate the transaction.)⁽⁵²⁾ Moreover, as discussed in Chapter 2, to the extent that requirements calling for a written opinion for each reviewed transaction are eliminated, additional resources may become available.⁽⁵³⁾

     Initial Review Periods

      In most jurisdictions, the initial review period runs for either 30 days or one month following notification. This is the approach employed in the United States, for example, where the DOJ and FTC smoothly process thousands of transactions each year under the premerger notification system created by the HSR Act. Notably, the U.S. agencies resolve approximately 97 percent of all notified transactions in 30 days or less.⁽⁵⁴⁾

      The initial review period in several other jurisdictions, however, substantially exceeds this time frame. These jurisdictions include France (initial review period of 2 months), Greece (3 months), Hungary (90 days), Poland (43 working days), and Taiwan (2 months). Others do not have fixed review periods (or do not strictly abide by them). These jurisdictions include Kenya (no prescribed review period) and the Czech Republic (indefinite review period).⁽⁵⁵⁾

      ICPAC hearing testimony suggests that marginal differences in the initial review periods are manageable from a transaction planning standpoint and are therefore inconsequential.⁽⁵⁶⁾ The Advisory Committee recommends that jurisdictions with initial review periods that substantially exceed 30 days or one month or are undefined be encouraged to amend their regulations to provide for a maximum initial review period of one month. Jurisdictions that are unable to terminate investigations before the expiration of the initial (or second-stage) review period(s) also should be given authority to grant early termination (for example, for transactions that raise no substantive issues or in which the parties are willing to resolve concerns through consent decrees or undertakings).

     Second-Stage Review Periods

      Transactions that are identified at the initial filing stage as potentially raising serious substantive issues are subjected to more extensive review in all jurisdictions with merger control laws. Most jurisdictions also prohibit parties from going forward with the transaction for an extended period of time while the review is being conducted.⁽⁵⁷⁾ In some jurisdictions the extended waiting period is fixed and does not depend on the length of time required to comply with the reviewing authority's request for additional information, as long as that is done in a reasonable period of time. The European Commission has an initial review period of one month and an extended review period of four months, as do Austria and Switzerland. Similarly, Finland and Germany have an initial review period of one month and an extended review period of three months. In others, review periods may be tolled with each information request.

      The Advisory Committee recognizes the costs associated with lengthy delays in the completion of a transaction and the need for a more expedited time frame for review in many parts of the world. The Advisory Committee concludes that merger review periods should not be open ended and that companies derive value from certainty with respect to transaction planning. more deadlines should be employed to provide greater certainty. The Advisory Committee believes more deadlines should be employed to provide greater certainty and that jurisdictions with lengthy or open-ended review periods should adopt more expedited time frames for review. The Advisory Committee makes a number of suggestions in the U.S. context to address these concerns. One possibility is nonbinding but notional time frames for second-stage review that vary in relation to the relative complexity of the transaction.

     Refining Information Requests

      To ensure that transactions that trigger notification obligations are not faced with excessive information requirements, while at the same time ensuring that competition authorities have sufficient information to identify competitively sensitive transactions, the Advisory Committee recommends that information requests be structured in a two-stage process with focused information requests at each stage. The filing at the initial stage should require the minimum information necessary to make a preliminary determination of whether a transaction raises competition issues sufficient to warrant further review. Recognizing that there is a trade-off between the amount of information initially provided and the time frame in which clearance is to be granted, mechanisms also should be established to narrow the legal and factual issues as early as possible. One way to accomplish this goal would be to provide a short form-long form option. Alternatively, reviewing authorities may encourage merging parties voluntarily to provide sufficient information either to allow them to resolve any potential antitrust issues during the initial stage or to engage in a focused second-stage inquiry that narrowly targets the antitrust issues.⁽⁵⁸⁾

      The Advisory Committee recognizes that initial filing requirements in many jurisdictions may be statutorily imposed and that revising these requirements through legislative action may be time consuming. Until reform efforts can be achieved, the Advisory Committee recommends that jurisdictions consider permitting parties to submit an affidavit or letter (in lieu of a notification) alleging brief facts explaining why the transaction does not raise competitive concerns.⁽⁵⁹⁾

     Initial Filing Requirements

      The Advisory Committee acknowledges that agencies have a legitimate interest in requiring enough information to enable them to identify competitively sensitive transactions. Some jurisdictions, however, impose substantial and unnecessary burdens through the use of overly detailed initial filing forms. Many of the forms used in various jurisdictions require the submission of extensive information about markets, competitors, customers and suppliers, and entry conditions in each of the markets in which they operate. In some jurisdictions, extensive information is required even for markets in which there is no horizontal overlap or vertical relationship between the parties. Providing this information may require the creation or purchase of information, such as third-party market share reports, and may impose substantial burdens on merging parties that are unwarranted in transactions that do not raise competitive issues.⁽⁶⁰⁾

      One commentator observed that "[i]n some overly zealous jurisdictions, particularly in Eastern Europe, the initial form will require a top-to-bottom examination of the two companies involved in a merger, including obtaining and reporting information totally irrelevant to the merger's competitive effects in that jurisdiction -- such as information regarding market share and sales revenues for each non-overlapping product and services offered by the acquiring company in that jurisdiction, or in some cases, worldwide."⁽⁶¹⁾

      Some jurisdictions also require translation or certification of documents filed with the initial notification. It is entirely understandable that countries require premerger filings to be submitted in the local language. Some countries go far beyond this, however, and require the translation of all supporting documents, including merger agreements and annual reports.⁽⁶²⁾ Some require that the entire merger agreement not only be translated, but that the translation be a certified and notarized (or apostille) translation. In addition, several jurisdictions require exhaustive certifications of the certificates of incorporation of all subsidiaries and affiliates, whether or not those entities have any relevance to the competition analysis. Box 3-C identifies several jurisdictions that have overly burdensome initial filing requirements.

Box 3-C: Examples of Burdensome Initial Filing Requirements      Belgium requires essentially the same detailed level of information as is required by the European Commission's Form CO. Depending upon the transaction, parties may have to provide a detailed analysis of the relevant horizontal (if the parties are in the same market), vertical (upstream and downstream), and conglomerate markets (any market in which either party has a market share of 25 percent or more), as well as comprehensive information about the parties, their customers, and their competitors, for each of the Member States involved.      Brazil requires detailed information about the parties' worldwide activities and imposes onerous translation and procedural requirements (for example, not only must the entire merger agreement be translated into Portuguese, but it also must be a certified and notarized/apostilled translation).      Hungary requires, inter alia, a detailed breakdown of controlled entities (including creation of a chart showing "control relationships"); identification of other entities on the boards of which directors of the parties sit; sales for direct and indirect participants; a description of acquisitions in the last two years that were not reported; market definitions; parties' sales and shares in such markets; expectations of growth in market share; identification of competitors, customers, and suppliers; description of entry conditions; significance of research and development efforts; supply and demand factors; and horizontal and vertical relationships.      Mexico requires exhaustive certifications of the certificates of incorporation of all subsidiaries and affiliates, whether or not they have any relevance to the competition analysis, and otherwise imposes highly formalistic burdens that are not needed for the competition authority to analyze whether the proposed transaction is likely to generate harm to competition.      Slovakia requires detailed asset information for the parties and affiliates involved; market definitions; market share calculations; balance sheets and financial statements for the parties, "including undertakings in which the parties have an ownership interest or stock or in which they are directors, officers or otherwise similarly interconnected"; a description of reasons for and effects of the concentration and its competitive impact; and a list of principal suppliers, customers, and competitors of the parties.      Turkey requires definitions of relevant markets (product and geographic); contact information regarding competitors and customers; estimated market shares of competitors; a description of entry conditions; submission of "account information" (in addition to that contained in annual reports); and production of business plans, market research, and related studies by the parties or by "third persons." Even if the merger thresholds are not met, the parties may be required to submit detailed information concerning "other agreements, decisions or practices" affecting Turkey, such as distribution agreements by foreign parties with local sales agents.      Source: Submission by the American Bar Association Section of Antitrust Law, "Report on Multijurisdictional Merger Review Issues," ICPAC Hearings (May 17, 1999).

      Submissions from ICPAC hearing participants illustrate how some jurisdictions that have more experience with merger control employ varying methods to identify and focus on transactions that raise competitive issues while minimizing filing burdens on nonproblematic transactions.⁽⁶³⁾ One way is to use a detailed form at the initial filing stage that is administered in a flexible manner. This type of practice has been employed, for example, in the European Union. The EU's Form CO is quite burdensome on its face asking for extensive information about the markets in which either of the merging firms operates, and for each such market, extensive information concerning competitors, market shares, and entry conditions. This information must in theory be provided even for markets in which there is no competitive overlap between the merging parties.⁽⁶⁴⁾

      Before filing the form, however, merging parties are encouraged to contact the MTF to describe and provide basic information with respect to the proposed transaction, the merging parties and any competitive overlaps. During or shortly after that discussion, the MTF identifies for the parties the markets for which information will be required and the level of detail in which the information should be presented. In many transactions, the MTF grants derogations that free the parties from the need to provide much of the information that is technically required by the filing form.⁽⁶⁵⁾ In practice, these discussions also have enabled the parties to identify issues early on and potentially resolve them within the initial review period.⁽⁶⁶⁾

      ICPAC hearing participants note that the EU system has worked fairly well in avoiding the imposition of undue burdens on transactions that do not raise competitive issues but would not recommend the EU model as a suitable international template. It would obviously be burdensome to deal with a dozen or more jurisdictions that use an analogue to the EU initial filing process because that would require separate discussions with each jurisdiction.

      In contrast, the systems employed by the United States and Canada can serve as useful templates for the initial filing stage. The United States, for example, requires only limited information in the initial notification form. The limited nature of the form flows from the recognition that the HSR Act thresholds capture a broad universe of transactions, and that the vast majority raise no competitive concerns.⁽⁶⁷⁾ This is not to say that no burden is imposed: a company with multiple product lines, subsidiaries or affiliates must expend a fair amount of effort when it first completes the HSR form. The process of collecting the documents submitted with the form can be time consuming as well. The burden is sufficiently manageable, however, and those companies that frequently make acquisitions may choose to keep the nontransaction-specific portions of their HSR form current so that they are able to complete a filing for a new transaction without too much additional effort.

      Several practical techniques also have developed in the United States to focus the legal and factual issues during the initial review stage.⁽⁶⁸⁾ Parties voluntarily may choose to supplement the initial notification with a "White Paper" containing a competition analysis of the transaction. The U.S. agencies also may ask the parties to provide additional information voluntarily within the initial 30-day review period. The agencies have been able to use this information to identify and often resolve the antitrust issues within the initial review period.⁽⁶⁹⁾ As described more fully below, if, after an initial review, the transaction appears to raise potentially serious competitive concerns, a formal request for additional documents and information may be issued before the end of the initial waiting period.

      Canada uses a system that employs two different initial forms, known as the short form and the long form. Both forms require basic information such as a description of the proposed transaction, copies of current drafts of relevant legal documents, descriptions of the principal businesses of the notifying party and its affiliates, certain financial information, certain documents filed with stock exchanges and securities commissions, and any pro forma financials on the combined firm.⁽⁷⁰⁾ The short form is designed for transactions that do not raise competitive problems. The long form, used for transactions that may raise competition issues, requires significantly more information concerning affiliates of the notifying party and the products produced, supplied, or distributed by the parties and their affiliates, as well as the filing of all financial or statistical data prepared to assist the board of directors or senior management of the parties in analyzing the proposed transaction. Canada places the onus on the merging parties to select in the first instance which form to file. As a result, parties tend to choose the form most appropriate for their transaction.

      Canada also permits merging parties to apply for an Advance Ruling Certificate (ARC), which is issued at the discretion of the director of the Bureau of Competition Policy. If one is granted, then no premerger notification is required. If one is denied, the parties must file an initial notification form if their transaction is notifiable. Generally, an ARC can be obtained with the submission of less information than is required under either the long or short form. Usually the parties provide a description of their businesses and show that they do not overlap or, if they do, that the market shares are too low to warrant concern under the standards applied in Canada. The Competition Bureau can act on ARC requests in as little as two weeks.

      Some efforts have been made at the international level to reduce notification burdens. For example, France, Germany, and the United Kingdom introduced a common merger notification form in September 1997. This form is accepted by all three antitrust authorities for mergers that are notifiable in more than one of these countries. It is a voluntary regime that results from cooperation between the authorities to simplify the procedure for multiple notifications.⁽⁷¹⁾ On another front, the Competition Law and Policy Committee of the OECD undertook a review of OECD members' merger notification practices and released a framework for a merger notification form.⁽⁷²⁾ The framework seeks to synthesize the common elements of the merger notification forms currently employed by OECD members.

      Harmonizing the procedural requirements of different jurisdictions is itself not an easy task; some observers also question whether these efforts will significantly reduce transaction costs. In some cases it might well increase them by imposing more burdensome notification requirements than some jurisdictions currently require. These observers also note that while a standardized form would eliminate or reduce the costs associated with duplicating certain information, the main transaction costs associated with merger control do not result from having to submit similar information to several different agencies. Indeed, the actual incidence of truly duplicative information is somewhat limited, because much of the information is necessarily specific to individual jurisdictions and markets.⁽⁷³⁾ For these reasons, the recommendations made by the Advisory Committee focus more heavily on limiting the information required in connection with transactions that lack antitrust significance.

      Still, there is much that can be gained from multilateral efforts of the type undertaken by the OECD. The United States should continue to support further OECD efforts to develop a framework for notification, including the development of common definitions. The Advisory Committee recommends that the OECD continue to focus its efforts on identifying the minimum information required to make a preliminary determination of whether a transaction raises sufficient competition issues to warrant further review and to specify the categories of data that may be useful to narrow the factual issues to resolve any potential antitrust issues or engage in a focused second-phase inquiry.⁽⁷⁴⁾ Areas in which countries usefully could collaborate also could be identified and explored. For example, common approaches to issues such as defining relevant markets, barriers to entry, market power, and efficiencies may be usefully developed.⁽⁷⁵⁾

      As part of an OECD effort, the Advisory Committee recommends that consideration also be given to ways to reduce other unnecessary burdens. Included on the agenda should be efforts to reduce translation costs and certification and other procedural requirements. The Advisory Committee finds merit in the suggestion that parties should be able to provide brief summaries of certain foreign language documents or partial translations (limited to translation of closing conditions and other important relevant provisions in the merger agreement) on the condition that full translations, if requested, would be provided within a time certain. The U.S. system, which reduces the translation burden in the initial notification form for foreign language documents, provides a useful model. Merging parties are not required to translate many of the documents requested (such as annual reports, audit statements, balance sheets and studies, surveys, analyses, and reports), but must instead submit English language outlines, summaries or translations that already exist.

     Second-Stage Investigations

      For proposed transactions that are identified in the initial review stage as potentially raising serious substantive issues, most jurisdictions require the submission of more detailed information. the amount of information and documents that the parties are required to submit in these more thorough investigations varies from jurisdiction to jurisdiction. With the exception of the United States, this second-stage review process typically is not document intensive. Although the HSR system avoids placing undue burdens on merging parties at the initial filing stage, it is by far the most demanding in the second-stage review process with respect to the information and documents that merging parties are required to provide.

      The differences in the information requirements of various systems generally are attributable to different legal cultures. In the United States, for example, the agencies do not have the power to block a problematic transaction themselves, but instead must ask a federal court to enjoin the transaction.⁽⁷⁶⁾ As a result, the agencies may feel that they need far more extensive information and documents than do their counterparts in jurisdictions like the EU, where the agency itself can block a merger, subject to ex post judicial review. As a practical matter, however, few companies can keep their deals together for the many months or years that it takes to seek judicial review in the EU.⁽⁷⁷⁾

      Further, when drafting a second request, DOJ and FTC staff are sometimes at a disadvantage because they lack access to information about the industry, the proposed transaction, and other key facts. From the U.S. government officials' perspective, moreover, anything outside the scope of the second request, from a practical standpoint will not be available to the reviewing agencies. Second requests, therefore, are broadly drafted to ensure access to a wide array of potentially relevant information. Notably, data provided by the agencies indicate that most parties comply only partially with second requests and that the transactions are resolved with relatively modest document productions and limited translation requirements.⁽⁷⁸⁾ These data largely are explained by the institution of a "quick look" policy in 1995, which encourages document production in stages. Using this approach, the agencies focus initially on issues that may be determinative in concluding that the transaction likely does not raise competitive concerns. If the agencies can reach that conclusion based on a quick look, full document production is not required. Nonetheless, as described below, there are notable instances where merging parties have been required to submit hundreds, if not thousands, of boxes of documents, multiple gigabytes of computerized data, and extensive answers to dozens of interrogatory questions. These instances fuel the perception that second requests are unduly burdensome and "require the production of an enormous volume of materials, many of which are unnecessary for even the most comprehensive merger review."⁽⁷⁹⁾

      While recognizing the many strengths of the U.S. system, the Advisory Committee recommends a number of practices designed to instill more discipline in the U.S. system and to address some of the problems perceived by the business community and private bar. Some of these recommendations are practices designed to narrow the legal and factual issues and resolve antitrust issues expeditiously. Set out below are those that may serve as useful recommendations in other jurisdictions.

      Of paramount importance is that there be an open exchange of information between competition authorities and the parties to a proposed transaction. This may require modifications in conduct both by the parties and reviewing authorities. The merging parties should recognize that the process works best when both sides engage in a cooperative dialogue early in the process.

      To facilitate this process, the reviewing authority should tell the merging parties (either orally or in writing) at the beginning of a second-stage inquiry why it did not clear the transaction within the initial review period.⁽⁸⁰⁾ If the reviewing authority chooses to issue a written statement, the document need not be made public nor researched and written with the rigor of a judicial opinion. Rather, it should be a short and plain statement of the competitive concerns that led the reviewing authority to continue rather than terminate the investigation. Furthermore, this statement should not limit the reviewing authority's discretion to pursue any new theories of competitive harm if new information comes to light.

      This type of reasoned explanation would provide several benefits. First, it would facilitate transparency of agency action, which is still a problem in many parts of the world. While cognizant of the need to refrain from overburdening agencies, the Advisory Committee also believes that it is important to ensure that the reviewing authority possesses a substantively sound and clearly articulated basis for moving forward. Second, an explanation of this type would reduce transaction costs by allowing the parties to focus their efforts on the issues identified as problematic, thereby permitting a resolution to be reached as quickly as possible. Third, delays would be reduced by preventing, or at least discouraging reviewing authorities from opening a second-stage inquiry simply to gain more time to review a proposed transaction.⁽⁸¹⁾

      Agencies around the world also could assess their own performance with respect to those transactions they challenge. One way to do this is an after-the-fact audit of select merger challenges. Audits of this type have been used in transition economies as a condition for receiving assistance from groups such as the OECD. During these audits, the host country's competition authorities permit a group of outside observers to examine in great detail their decisions to prosecute, or to refrain from prosecuting, specific matters. These observers also examine the types of information collected during each investigation. The aim of these audits lies in obtaining an objective and frank assessment of performance in previous investigations, thereby laying the groundwork for improvement in future cases.⁽⁸²⁾ Audits could be conducted internally in more mature merger regimes or by a group of outside observers in newer regimes.

      In the preceding sections the Advisory Committee recommends a number of initiatives designed to rationalize the application of merger review procedures. The Advisory Committee believes that the United States should play a leading role in the effort to implement the reforms proposed herein in the international arena. One of the most effective ways in which the United States can stimulate global reform is through leading by example. It is therefore important that the United States examine its own merger review system in an attempt to identify and correct those aspects of the system that give rise to uncertainty and unnecessary transaction costs.⁽⁸³⁾ As one ICPAC hearing participant stated:

      In light of the proliferation and disparity of filing requirements around the globe, the increasingly complicated regulatory framework, and the associated escalation of transaction costs to meet the demands of the myriad jurisdictions, the United States can serve an important role by establishing a benchmark for the rest of the world. Before the United States can legitimately lay claim to a position of global leadership in the field of merger review, however, the U.S. first needs to conduct a balanced, candid assessment of its domestic requirements.⁽⁸⁴⁾

     Recommendations on Threshold Requirements

      The regime currently in place in the United States requires no change with respect to two of the Advisory Committee's recommendations on premerger notification thresholds. The notification thresholds are objectively based, and the U.S. antitrust agencies ensure the transparency of these thresholds and their application by offering guidance to practitioners and businesses through published rules, regulations, guides, speeches, and press releases, and through the advisory services of the FTC Premerger Office.⁽⁸⁵⁾

      The area in which the U.S. notification thresholds fall short is in screening out transactions that are unlikely to generate appreciable anticompetitive effects within the United States. As discussed more fully below, this goal may be accomplished by raising the notification thresholds.

     Nexus to the Jurisdiction

      The United States has a well-established history of asserting jurisdiction over international mergers.⁽⁸⁶⁾ By providing exemptions from reporting requirements for certain transactions involving foreign persons, however, the HSR Act ensures that only parties to transactions with a nexus to the jurisdiction must notify the U.S. antitrust authorities.⁽⁸⁸⁾ Notification obligations for foreign transactions (where the acquiring and acquired persons are both foreign) are triggered only if the acquired party possesses more than a de minimis U.S. presence.⁽⁸⁹⁾ Further, where both parties are foreign, the rules also provide an exemption if their aggregate annual sales in or into the United States are less than $110 million and their aggregate total assets in the United States are less than $110 million. In addition, all acquisitions of foreign assets by a foreign person are exempt from HSR notification requirements regardless of the amount of sales into the United States attributable to those assets.⁽⁹⁰⁾

      The HSR Act also exempts from notification obligations certain acquisitions by U.S. persons of foreign assets and shares. An acquisition of foreign assets is exempt from notification requirements if the acquiring person will not hold assets of the acquired person that accounted for $25 million or more in sales in or into the United States during the preceding year. An acquisition of shares of a foreign issuer is exempt from notification requirements unless the foreign issuer holds $15 million or more of U.S. assets or generated sales in or into the United States of $25 million or more during the preceding year.⁽⁹¹⁾

      Despite the exemptions for certain classes of foreign transactions, in fiscal year 1999, the HSR Act captured 849 transactions involving a foreign acquiring person or foreign acquired entity, an increase from 736 the previous year. Of the 849 transactions, preliminary investigations were opened in 111, and second requests were then issued in 21. Enforcement actions were undertaken in only 5 of the 849 transactions.⁽⁹²⁾ These statistics suggest not only that very few foreign transactions pose the potential for anticompetitive effects significant enough to warrant the intervention of the U.S. antitrust agencies, but also that many more transactions than may be necessary come within the U.S. merger review net. As a result several respondents to ICPAC outreach efforts have called for reform of the foreign person exemptions.⁽⁹³⁾

      Because of difficulties in obtaining data regarding the nature and extent of filings for transactions with an international aspect, the Advisory Committee believes that it is not in a position to make specific recommendations on exemption amounts for foreign transactions. Given that these levels have not been adjusted for many years, however, the Advisory Committee recommends that the FTC review the scope and level of the HSR exemptions for transactions involving foreign persons and that the U.S. antitrust agencies give serious consideration to the threshold exemptions to ensure that transactions that are not likely to violate the antitrust laws are exempt from premerger reporting classes of transactions.⁽⁹⁴⁾

     Appreciable Anticompetitive Effects

      More generally, the Advisory Committee recommends that the current notification thresholds be carefully reviewed to ensure that they are only as broad as necessary to identify transactions that may cause an appreciable anticompetitive effect. While recognizing that small transactions are not necessarily competitively benign, the Advisory Committee finds that the notification thresholds currently employed by the premerger notification regime are too low and capture too many lawful transactions. The Advisory Committee believes that the United States will not be well positioned to advocate that other jurisdictions review and revise their own premerger notification thresholds until it has addressed these same issues in its own system.

      Enacted in 1914, the Clayton Act prohibits mergers whose effect "may be substantially to lessen competition or tend to create a monopoly." The Clayton Act incorporates what has been characterized as an "incipiency standard," thereby empowering the U.S. antitrust agencies to prevent potentially anticompetitive mergers before they result in harm to competition. The premerger notification regime contained in the HSR Act is intended to give the U.S. antitrust enforcement agencies "an effective mechanism to enjoin illegal mergers before they occur."⁽⁹⁵⁾ With limited exceptions, the HSR Act requires premerger notification for each acquisition of assets or voting securities that exceeds $15 million (or that results in control of an acquired party with at least $25 million in sales or assets) in which one party to the transaction has at least $100 million in sales or assets and the other has at least $10 million in sales or assets.⁽⁹⁶⁾

      The DOJ and FTC Horizontal Merger Guidelines explain that while challenging potentially anticompetitive mergers, the U.S. antitrust agencies seek to avoid unnecessary interference with the larger universe of mergers that is either competitively beneficial or neutral.⁽⁹⁷⁾ As discussed above,

     however, only a small percentage of transactions captured by the notification thresholds currently in place leads to enforcement action. Indeed, no enforcement action is taken against more than 98 percent of all notified transactions. In addition, the annual level of filings made with the U.S. antitrust agencies has increased significantly since the HSR Act was enacted. The Advisory Committee believes that this increased level of filings is attributable not only to increased merger activity, but also to the failure to adjust the notification thresholds. They have not been changed since the HSR Act was enacted in 1976.

      The most straightforward way to decrease the number of required filings while not materially compromising the agencies' enforcement mission is to increase the size-of-transaction threshold for acquisitions of voting securities and assets. Business groups and others have recommended to the Advisory Committee that the notification thresholds be adjusted to account for inflation and indexed to account for future inflation.⁽¹⁾ Adjusting for inflation using the Consumer Price Index, for example, the $15 million size-of-transaction threshold in 1976, if measured in 1998 dollars, would now be set at approximately $43 million. Increasing the threshold commensurate with the gross domestic product deflator, an indicator of inflation in the entire country, translates into an HSR threshold of $37.8 million when measured in 1998 dollars.⁽²⁾

      The Advisory Committee acknowledges the benefits of this recommendation but notes that an indexing mechanism may produce arbitrary results. At the same time, the Advisory Committee recognizes that absent an automatic (that is, mandatory) indexing mechanism, there may be no incentive to raise the thresholds. If an indexing method is not used, the Advisory Committee recommends that Congress and the U.S. antitrust agencies review notification thresholds periodically (at least every four years) to determine whether they should be increased.

      Enforcement statistics for 1998 suggest that adjusting the notification thresholds to keep up with inflation measured in 1998 dollars should not materially compromise the enforcement mission of the U.S. antitrust agencies. Depending on the base year and deflator used, that calculation would mean increasing the size-of-transaction threshold in the $33 million to $43 million range.⁽³⁾ Although data are not publicly available for that range, HSR statistics show that raising the threshold to $25 million or $50 million would have eliminated approximately 25 to 50 percent of transactions notified in fiscal year 1998.⁽⁴⁾

      In 1998 transactions valued below $25 million raised few competitive concerns. In that year, the agencies received filings on 1,235 transactions valued at $25 million or less. The agencies issued second requests in only 11 (less than 1 percent) of these transactions. Indeed, in 95 percent of the 1,235 transactions, neither agency sought clearance to even contact the parties.⁽⁵⁾ The filing fees alone in the 1,224 transactions in which no second request was issued, however, cost the acquiring parties $55.1 million.⁽⁶⁾

      Likewise, only 27, or just over 1 percent, of the 2,398 transactions valued at $50 million or less received second requests. Although second-request investigations represented only a small percentage of notified transactions valued below $50 million, almost 9 percent of all investigated transactions involve transactions valued at less than $25 million and approximately 20 percent of all investigations involve transactions valued at less than $50 million, indicating that some small transactions raise sufficient antitrust concerns to warrant a more complete investigation.⁽⁷⁾

      If a transaction is not captured by the thresholds, however, the agencies have the authority to investigate and take enforcement action, if needed.⁽⁸⁾ For example, in each of the last two years the DOJ opened more than 50 investigations of transactions that were not reportable under the HSR Act.⁽⁹⁾ Although the agencies contend they have very little ability to detect nonreportable transactions, the Advisory Committee balances that concern with the recognition that only a small fraction of transactions that fall below notification thresholds will pose the threat of competitive harm. Thus, the Advisory Committee concludes that increasing the filing threshold in the $33 million to $43 million range should not materially affect the quality of Clayton Act enforcement efforts. Three Advisory Committee members advocate raising the size of the transaction threshold higher, to $50 million.

      Any efforts to revise notification thresholds must account for the fact that filing fees currently constitute a significant source of revenue for the U.S. antitrust agencies. To ensure that the DOJ and FTC will be able to pursue their enforcement missions vigorously, it is imperative to provide alternative sources of funding to offset the loss of any funds that may result from revision of HSR thresholds. This goal may be accomplished by delinking the fees from the budget and by direct funding from general revenue. If funds are not directly appropriated, alternative funds may be realized in a variety of ways, including raising the filing fee, adjusting the fee based on the size of the transaction, or assessing the fee based on the complexity of the transaction and the amount of work performed by the reviewing agency, although these alternatives would not accomplish delinking the fees from the budget.

      The existing linkage between filing fees and funding for the DOJ and FTC creates a conflict of interest for the agencies and also exposes them to substantial funding cuts if filings were to decrease, as occurred between 1989 and 1991 when filings dropped more than 40 percent.⁽¹⁰⁾ The Advisory Committee is of the view that filing fees should be delinked from funding for the agencies, but that any efforts to do so must occur in an environment where sufficient funds are assured from other sources. This step would be beneficial both for the United States and for those countries around the world that have followed the U.S. lead in implementing filing fees and have linked them to agency budgets.

     Recommendations on Deadlines and Time Frames for Review

      The Advisory Committee commends the flexibility of the U.S. premerger notification system, which permits filing at any time after the execution of a letter of intent, contract, agreement in principle, or public bid. In addition, the Advisory Committee commends the U.S. agencies for concluding their initial review in a maximum of 30 days following notification. Thus, no reform of the U.S. triggering event or initial review period is needed.

      More certainty with respect to time frames for the second-stage review process is needed, however. In the United States, the second-stage review process is triggered when a second request is issued prior to the expiration of the initial review period. The merging parties may not consummate the proposed transaction until 20 days (or, in the case of a cash tender offer, 10 days) after they have substantially complied with their respective second requests, which could take several months.⁽¹¹⁾ The length of the review process thus varies from case to case.

      Because the U.S. agencies issue relatively few second requests -- 113 (less than 3 percent of all notified transactions) in fiscal year 1999 -- this discussion pertains to only a minority of all notified transactions. In addition, data submitted to the Advisory Committee by the U.S. agencies indicate that, on average, second-request investigations are resolved in about four months (Box 3-D). For transactions in which second requests were issued but in which the DOJ did not file cases, moreover, the average time to resolution after the issuance of the second request was only two to three months.⁽¹²⁾ It is important to note, however, that some second-stage reviews may take up to a year or longer.⁽¹³⁾

      Although year-long second-stage review periods constitute a distinct minority of all reviewed transactions, second-stage merger review in the United States is a controversial topic and therefore deserves the attention of both the Advisory Committee and the U.S. antitrust agencies. Among the concerns raised about the second-stage review periods, some parties have suggested the process is

     open ended and raise concerns about a lack of certainty about when a transaction may be closed. Of course, after a party is in substantial compliance, in all mergers involving unregulated industries (the bulk of all transactions investigated), the agencies are required by statute to complete that investigation in 20 days. That period can only be extended if the parties choose to do so.⁽¹⁴⁾

Box 3-D: Average Days to Resolution after Issuance of Second Request1
Fiscal Year	Department of Justice	Federal Trade Commission
1995	135.88	92.3
1996	125.42	113.3
1997	153.84	152.22
1998	112.07	122.3
1999 (to June)	57.68	86.0
Source: Robinson Letter; Baer June 15, 1999 Letter.      1 From the date the second request is issued until closing of investigation or issuance of the proposed consent.      2 Includes two transactions in which the parties chose not to comply for over two years.

      The Advisory Committee is in accord on the need for certainty in merger review periods. Specifically, Advisory Committee members conclude that merger review be conducted within a reasonable time frame and that the review process should not be open ended. Advisory Committee members were not of a shared view on the appropriate mechanisms for addressing these concerns, however.

      One avenue for addressing these concerns lies in the use of fixed maximum review periods. In fact, the data provided by the agencies indicate that the majority of transactions are cleared within reasonable time frames, which suggests that the agencies could (or should be able) to conduct their reviews within fixed maximum review periods (for example, five months following notification, along the lines of the EC). There was a divergence of views among Advisory Committee members, however, regarding whether imposing a fixed maximum review period is advisable.

      Proponents of fixed maximum review periods contend that such limits are necessary to provide the certainty and discipline in the merger review process. These members believe that strict deadlines are particularly necessary in a two-stage review process to prevent the second stage from becoming a drawn out affair (discussed in detail below). Many practitioners, including some members of the Advisory Committee, believe that the strict time frames used by the European Commission show that fixed time limits for merger reviews are both feasible and beneficial.⁽¹⁵⁾

      The majority of members believe that strict fixed time frames would be fraught with risk and extremely difficult to achieve under the U.S. system.⁽¹⁶⁾ For example, unlike the EU system, in which the European Commission decides whether a merger should be permitted, the U.S. agencies do not have the power to block a transaction themselves but must ask a federal court to seek a preliminary injunction. It was observed that, in a system with fixed maximum review periods, merging parties could thwart the U.S. agencies' efforts to review a transaction and to prepare for litigation by refusing to comply with a second request. Although the agencies could impose fines for failure to comply, some Advisory Committee members raised concerns that the agencies' enforcement mission nonetheless could be seriously compromised. Thus, it was recognized that if fixed maximum review periods were imposed, a fixed time frame for responding to the agencies' request for additional information also would be needed. This, however, would eliminate much of the flexibility that parties now enjoy in structuring and implementing their transactions.⁽¹⁷⁾ It also would reduce the time available to negotiate reductions in the scope of second requests and hamper the ability of the agencies to conduct "quick look" investigations. Thus, fixed time frames could increase the burden on parties of complying with second requests.

      Even disregarding the specific characteristics of the U.S. system, Advisory Committee members expressed concerns generally about fixed maximum review periods. Fixed time limits could result in enforcement errors. An agency may be forced to act because it ran out of time. This may result in too much enforcement, insufficient enforcement, inappropriate enforcement, or ineffective enforcement, and may impose unnecessary burdens on the parties to a transaction, harm consumers, or both.⁽¹⁸⁾ There also was concern that maximum time periods would effectively turn into minimum or standard review periods.

      Based on these concerns, the majority of Advisory Committee members eschew strict time frames but recommend instead that alternative steps be taken to provide the greater certainty required for effective transaction planning. One approach to provide the greater certainty required for effective transaction planning is for the agencies to adopt nonbinding but notional time frames for second-stage review that vary in relation to the relative complexity of the transaction. The agencies should strive to meet these administrative deadlines and should publish the results on a regular basis. The Advisory Committee also notes that review periods might well be shortened if its recommendations for limiting the scope of second requests are adopted (see discussion on information requests below).

      The Canadian system has adopted a similar approach. The Canadian Competition Bureau uses "service standards" guidelines. These guidelines identify the maximum turnaround times parties can expect for merger review in Canada. Under the guidelines, the Canadian authority will endeavor to clear a notified transaction in 14 days for noncomplex mergers, 10 weeks for complex mergers, and 5 months for very complex mergers. The five-month review period coincides with the aggregated five-month review period used by the EC for mergers that are subjected to second-phase investigations. The service standards are not binding, and other than the three-year limitation period for challenging a transaction under the Competition Act, there is no legal limit on the length of a Bureau investigation.⁽¹⁹⁾ The Canadian Competition Bureau reports that during the first year in which these service standards were established it met or surpassed the standards in the majority of cases.⁽²⁰⁾

      Of course, the ability of the agencies to meet such notional timetables will be affected by the conduct of the parties and the time they take to respond to information requests. It is evident that the process may produce opportunities for strategic behavior or gaming on the part of the parties to the transaction that can cause delay. At the same time, the agencies must do what they can to instill discipline and efficiency in the review procedures. As described below, reviewing agencies and merging parties can cooperate in several ways to expedite the process. To this end, it was suggested to the Advisory Committee that agency staff and the merging parties should routinely engage in candid and good-faith exchanges regarding the scope of the second request, compliance with the second request, and projected review periods.⁽²¹⁾

     Recommendations on Focused Information Requirements

      The Advisory Committee commends the U.S. agencies for generally striking the right balance between avoiding unduly burdensome initial filing requirements and maintaining their ability to identify competitively sensitive transactions. The Advisory Committee observes, however, that the second-request process could benefit from adjustment.

     Initial Filing and "One and a Half" Requests

      The Advisory Committee believes that with modest exceptions, the HSR filing form requests only the information the agencies need to identify competitively sensitive transactions. Revisions to the HSR form, however, may enhance the agencies' ability to identify potentially problematic transactions. The FTC has acknowledged, for example, that it sometimes has difficulty identifying from the form the specific products produced by the filing parties.⁽²²⁾ Transactions also may be missed where the parties have not created 4(c) documents or where the documents that exist do not reveal the competitive overlaps, and where the transaction does not have a high enough profile to attract attention from the press or from competitors or customers who might wish to complain.

      The FTC has been contemplating changes to the HSR notification form to eliminate requests for information that are not essential to the substantive antitrust review of a reportable transaction and to focus the form more directly on product overlaps.⁽²³⁾ The Advisory Committee encourages the FTC to implement changes to achieve these objectives. In addition, the Advisory Committee recommends that the agencies formalize their current practices that encourage merging parties voluntarily to provide additional information at the initial filing stage in an effort to resolve potential issues without the need for a second request. One way to formalize the process is to create an optional long form, along the lines of the Canadian short form-long form filing. Another way is to create a model voluntary submission list that identifies the categories of useful data that merging parties could submit in facially problematic cases.

      Data provided by the agencies indicate that the voluntary submission of additional information during the initial waiting period does cut back the number of second requests. In fiscal year 1999, the DOJ issued nearly 15 percent fewer second requests than it had the preceding year. In fiscal year 1998, moreover, the FTC issued the same number of second requests (46) as it had in fiscal year 1994, when half as many filings were received.

      The U.S. agencies also could formalize the practice of permitting the merging parties to withdraw and refile the acquiring party's HSR form within 48 hours (without having to pay another filing fee) in order to give the agencies additional time to resolve the matter without having to issue a second request. This practice has usefully been employed when the reviewing agency has been unable to clear a transaction within the initial 30-day review period, despite the voluntary provision of additional information. In appropriate cases of this nature, the agencies should alert parties to the option of withdrawing and refiling the HSR notification. In cases in which this mechanism is employed, the agency should endeavor to clear the transaction during the second 30-day period or, if a second request is issued, the second request should be narrowly tailored to those issues identified by the agency as problematic. In addition, publishing statistics on the number of successful (and unsuccessful) attempts to avoid a second request by withdrawing and refiling a notification would demonstrate the viability of this option and alleviate concerns that it would only add an additional 30 days to the process.

      In several recent multijurisdictional merger investigations, voluntary information provided at the initial filing stage allowed the FTC to focus its investigations more quickly on the potentially problematic portions of the transactions. In The Seagram Company's acquisition of PolyGram, voluntary early cooperation allowed the FTC to clear the transaction within the 30-day initial review period (Box 3-E). Two other notable examples involve transactions that required second requests, but the companies cooperated so fully that the FTC was able to negotiate and propose consent orders very quickly. The first involved two foreign industrial firms in a $1 billion transaction. FTC staff quickly identified concerns in two relevant markets, involving fairly sophisticated products and technology. A consent order was negotiated and the FTC approved the proposed consent less than 60 days after the second request was issued. A modest amount of documents was submitted by the parties. A second involved a multibillion dollar merger involving two multinational pharmaceutical firms. The staff reviewed several potential overlap markets and identified one with substantial competitive concerns. The parties negotiated a consent, identified an up-front buyer and the FTC voted out the proposed consent less than 45 days after the second request was issued. Again, only a small number of documents were submitted.⁽²⁴⁾

Box 3-E: The Seagram Acquisition of PolyGram       The Seagram acquisition of PolyGram in 1998 was a $10.4 billion transaction that merged the sixth (Universal) and the fourth (Polygram) largest music companies in the world to create the world's largest music company. According to Seagram, the purpose of the merger was to match Universal's relatively strong U.S. business and less-developed international business with PolyGram's strong international presence and weaker U.S. presence. The merger afforded better opportunities for U.S. artists to export their music internationally and for international artists to reach U.S. consumers. Substantial cost savings were also anticipated (and reportedly achieved). The relevant market for antitrust purposes was prerecorded music, whether sold in the form of compact discs, cassettes, or vinyl records. The geographic market was no smaller than a national market. The transaction resulted in a combined market share of approximately 25 percent (in the United States, Europe, and most other major markets), with the four other "major" record companies (Sony, Warner, EMI, and BMG) each having shares between 10 percent and 23 percent, and independent labels as a group accounting for approximately 15-20 percent of sales.       The seriousness of the antitrust issues raised by the transaction was difficult for Seagram to gauge. The combined market share was moderately high but not clearly a problem. In 1983, however, when Warner had attempted to acquire PolyGram, the FTC had investigated and ultimately blocked the transaction when the Ninth Circuit preliminarily enjoined the merger. The combined shares (and the shares of the remaining competitors) in 1983 were virtually the same as the combined shares in 1998. Moreover, at the time Universal launched its bid for PolyGram, several investigations of horizontal agreements among the major record companies were underway in the United States, Europe, and elsewhere. All of these presented concerns for the merging parties.       As it turned out, clearance proceeded smoothly with very few significant problems. Seagram initially had anticipated a five-to-six month period between the announcement of the transaction and closing, driven in part by the time anticipated to obtain antitrust clearance and in part by the time needed to plan the integration of the two companies. Seagram expected a significant investigation in the United States and not much antitrust resistance in the EU or elsewhere. Because of prior FTC enforcement history, Seagram anticipated a second request. Seagram's strategy was to make its HSR filing first in the United States and then to open discussions with the FTC staff immediately in an effort to narrow the issues and possibly avoid a second request altogether. Seagram, crediting experienced FTC lawyers, found the FTC very responsive. The staff was able to eliminate many issues immediately (or with only minimal additional information) and then devote its resources to the tougher issues. In addition to a fairly large group of 4(c) documents, Seagram voluntarily provided strategic plans and other documents to help the FTC get its bearings at the outset. Seagram then met with the FTC staff, including economists, several times and again voluntarily provided information (approximately three boxes in total). Ultimately, the FTC decided not to issue a second request and cleared the transaction within 30 days.      Source: Logan Submission.

     The Second-Request Process

      Although the HSR system avoids placing undue b