I would like to introduce an overview of the U.S. Merger Control.
Most of the antitrust merger policy commentators write that antitrust enforcement agencies in the U.S., having in mind Department of Justice (hereinafter referred to as: DOJ) and Federal Trade Commission (hereinafter referred to as: FTC), are not in a position to view mergers and acquisitions as anticompetitive comparing to their counterparts in Europe, for instance. The antitrust law that refers to the mergers was enacted at first in 1890. It includes two sections of the Sherman Antitrust Act that mergers and acquisitions may violate: Section 1, which prohibits combinations in restraint of trade , while Section 2 prohibits monopolization and attempts to monopolize . However, the most significant to takeovers is Clayton Act and its Section 7 which prohibits any person engaged in commerce from acquiring the stock or assets of any other person engaged in commerce where the effect may be to substantially lessen competition or to tend to create a monopoly. The result is that Clayton Act applies not only to mergers with immediate anticompetitive effects but also to those that have a future probability of substantially reducing competition.
It is noteworthy to add the extraterritoriality of the U. S. Antitrust laws that was confirmed in a decision established in United States v. Aluminum Co. of America . That case mentioned the “effects test” that states the antitrust laws apply where wholly foreign conduct had an intended effect in the U.S. What seems to be complicated and confusing, it is difficult nowadays to conceive of a wholly foreign act that could not be extended to meet the effects test having in mind the global nature of industry. In Timberlane Lumber Co. v. Bank of America , the Court of Appeals limited the test ruling that the U.S. antitrust laws shall apply only if the intended effect on U. S. commerce was of substantial magnitude. It is known as a balance test or reasonableness test, where court should weigh the interest of the U.S. with the interests of the foreign nation. Finally, the U. S. Supreme Court held that comity is only required if there is an obvious conflict between foreign and domestic law . Above, much suggest that courts in the U.S. have a large discretion in order to decide about the international merger activity, however, the practice shows that U.S. rarely prohibit international takeovers as mentioned earlier.
Since 1976 large international acquisitions are controlled by the Hart-Scott-Rodino Antitrust Improvements Act . It covers the requirement of pre-merger notification that is subject to the control by either DOJ or the FTC.
Hart-Scott-Rodino Act overview.
It prohibits every person to acquire (directly or indirectly) any voting securities or assets of any other person, unless both persons :
1) file notification and
2) the waiting period has expired,
if the following requirements are met.
The acquiring person is engaged in commerce or in any activity affecting commerce and as a result of such acquisition:
1) the acquiring person would hold an aggregate total amount of the voting securities and assets of the acquired person more than $200,000,000
2) the acquiring person would hold more than $50,000,000 of the voting securities and assets of the acquired person but not more than $200,000,000 and any voting securities or assets of a person (acquired person) engaged in manufacturing which has annual net sales or total assets of $10,000,000 or more and are being acquired by any person (acquiring person) which has total assets or annual net sales of $100,000,000 or more;
3) the acquiring person would hold any voting securities or assets of a person not engaged in manufacturing which has total assets of $10,000,000 or more are being acquired by any person (acquiring person) which has total assets or annual net sales of $100,000,000 or more;
4) or any voting securities or assets of a person with annual net sales or total assets of $100,000,000 or more are being acquired by any person (acquiring person) with total assets or annual net sales of $10,000,000 or more.
All the amounts are being adjusted for inflation.
The waiting period for the acquiring party is 30 days after filing the notification or 15 days in the case of a cash tender offer. The FTC and AAG may terminate the waiting period and allow proceeding with any acquisition.
A few examples of the exempt transactions:
1) Acquisitions of bonds, mortgages, deeds of trust, or other obligations which are not voting securities.
2) Acquisitions of voting securities of an issuer at least 50 per centum of the voting securities of which are owned by the acquiring person prior to such acquisition.
3) Transfers to or from a Federal agency or a State or political subdivision.
4) Transactions specifically exempted from the antitrust laws by Federal statute.
5) Acquisitions, solely for the purpose of investment, by any bank, banking association, trust company, investment company, or insurance company, of voting securities pursuant to a plan of reorganization or dissolution; or assets in the ordinary course of its business.
Waiting period extensions:
The FTC or the AAG may require the submission of additional information or documentary material relevant to the proposed acquisition.
The FTC and AAF may extend the 30-day waiting period (or in the case of a cash tender offer, the 15-day waiting period) for an additional period of not more than 30 days (or in the case of a cash tender offer, 10 days) after the date on they receive such information.
This note is an excerpt of the paper:
Mergers and Acquisitions according to the antitrust law in the United States and competition law in Europe: comparative analysis.
prepared by the author of the note for the International Business Transactions class.
