| Mergers & Acquisitions Primer |
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Background
As a starting point, the government gains its authority to review mergers and acquisitions under Section 7 of the Clayton Act (15 U.S.C. § 18). Section 7 prohibits mergers and acquisitions that may substantially lessen competition or tend to create a monopoly. The government gains its authority to review mergers and acquisitions before the parties are allowed to consummate the transaction under Section 7A of the Clayton Act (15 U.S.C. § 18a), or the Hart-Scott-Rodino Antitrust Improvements Act of 1976 ("HSR"). The HSR Act prohibits parties from acquiring voting securities or assets without first filing notification and the appropriate waiting period expiring. The rules under the HSR Act provide for how the parties report the transactions. The government has promulgated a set of guidelines on how mergers are to be evaluated for potential anticompetitive effect. These rules are found in the Horizontal Merger Guidelines.
The purpose of the HSR Act is to give the government the opportunity take the action needed to protect competition (under Section 7) before the parties have merged their operations. It is much more difficult to unwind an anticompetitive merger once it is consummated than it is to stop the transaction before the parties have spent time and resources integrating their assets. The process also gives some certainty and predictability to a process that, prior to the HSR Act, could take years and cost millions.
Any party contemplating a larger merger or acquisition, must consider whether the transaction is reportable under the HSR Act and to what extent there may be a substantive problem under Section 7, as interpreted by the DOJ and the FTC under the Horizontal Merger Guidelines. To provide some insight into this process, we will first address the requirements of the HSR Act and then the Horizontal Merger Guidelines.
Copyright 1999
Robert W. Doyle, Jr.
