Annual Report to Congress
Pursuant to Subsection (j) of Section 7A of the
There has been tremendous growth in merger activity since enactment of the Hart-Scott-Rodino Act (the "HSR Act" or "the Act") in 1976. The United States is in the midst of a merger wave of unprecedented proportions, with mergers exceeding one trillion dollars in fiscal year 1998.(1) As a result, antitrust merger enforcement concluded one of the most active years in recent memory.
During fiscal year 1998, the number of premerger transactions reported increased for the seventh year in a row to a total of 4728. (See Figure 1 below.) This represents a 28 percent increase over the 3702 transactions reported during fiscal year 1997, and a 200 percent increase over the 1529 filings recorded in fiscal year 1991.(2) Each of these acquisitions is reviewed individually by the antitrust agencies for possible competitive issues.
The record number of corporate mergers, as would be expected, increased antitrust enforcement activity by other measures, as well. The Commission challenged 33 transactions, leading to 23 consent orders, an administrative complaint, six abandoned transactions and three preliminary injunction proceedings authorized, including the Commission's successful litigation in Cardinal Health, Inc., and McKesson Corp., that prevented the nation's four largest drug wholesalers from combining into two and would have resulted in significantly reduced competition on price and services for health care consumers; and Tenet Healthcare Corp., which barred the nation's second largest hospital chain from acquiring its only significant hospital competitor in a region of Southern Missouri.(3)
The Antitrust Division challenged 51 transactions, leading to 11 consent decrees, and an additional 40 transactions that were restructured or abandoned after the Antitrust Division sued or informed the parties that it intended to sue. Antitrust Division successful court challenges included preventing Lockheed Martin's acquisition of Northrop Grumman, the single largest merger ever challenged by federal officials, and Primestar's acquisition of the direct broadcast satellite assets of News Corp. and MCI, which would have allowed the large cable companies that control Primestar to protect their monopolies and keep out new competitors.(4)
Swift and efficient review of proposed mergers is possible only if the parties comply with the Act's requirements and provide complete information. When parties fail to file the notification, or file a materially deficient notification form, the HSR Act provides that the courts may impose civil penalties. During fiscal year 1998, Commission investigations resulted in the collection of a $500,000 civil penalty for one violation of the Act.(5)
Despite the increased activity, the agencies continued to work to minimize the enforcement burden on business. While the number of merger investigations rose, the percentage of requests for additional information from merging parties ("second requests") declined and the percentage of early termination requests granted increased.(6)
Section 201 of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, Pub. L. No. 94-435, amended the Clayton Act by adding a new Section 7A, 15 U.S.C. § 18a ("the Act"). Subsection (j) of Section 7A provides:
This is the twenty-first annual report to Congress pursuant to this provision. It covers October 1997 through September 1998.
In general, the Act requires that certain proposed acquisitions of stock or assets must be reported to the Federal Trade Commission and the Antitrust Division of the Department of Justice prior to consummation. The parties must then wait a specified period, usually thirty days (fifteen days in the case of a cash tender offer or a bankruptcy sale), before they may complete the transaction. Whether a particular acquisition is subject to these requirements depends upon the value of the acquisition and the size of the parties, as measured by their sales and assets. Small acquisitions, acquisitions involving small parties and other classes of acquisitions that are less likely to raise antitrust concerns are excluded from the Act's coverage.
The primary purpose of the statutory scheme, as the legislative history makes clear, is to provide the antitrust enforcement agencies with the opportunity to review mergers and acquisitions before they occur. The premerger notification program, with its filing and waiting period requirements, provides the agencies with both the time and the information necessary to conduct this antitrust review. Much of the information needed for a preliminary antitrust evaluation is included in the notification filed with the agencies by the parties to proposed transactions and thus is immediately available for review during the waiting period.
If either agency determines during the waiting period that further inquiry is necessary, it is authorized by Section 7A(e) of the Clayton Act to request additional information or documentary materials from either or both of the parties to a reported transaction (a "second request"). A second request extends the waiting period for a specified period, usually twenty days (ten days in the case of a cash tender offer), after all parties have complied with the request (or, in the case of a tender offer, after the acquiring person complies). This additional time provides the reviewing agency with the opportunity to analyze the information and to take appropriate action before the transaction is consummated. If the reviewing agency believes that a proposed transaction may violate the antitrust laws, it may seek an injunction in federal district court to prohibit consummation of the transaction.
Final rules implementing the premerger notification program were promulgated by the Commission, with the concurrence of the Assistant Attorney General, on July 31, 1978.(7) At that time, a comprehensive Statement of Basis and Purpose was also published containing a section-by-section analysis of the rules and an item-by-item analysis of the Premerger Notification and Report Form. The program became effective on September 5, 1978. In 1983, the Commission, with the concurrence of the Assistant Attorney General, made several changes in the premerger notification rules. Those amendments became effective on August 29, 1983.(8) Additional amendments were published in the Federal Register on March 6, 1987,(9) May 29, 1987,(10) and March 28, 1996.(11)
STATISTICAL PROFILE OF THE PREMERGER NOTIFICATION PROGRAM
The appendices to this report provide a statistical summary of the operation of the premerger notification program. Appendix A shows, for a ten-year period, the number of transactions reported,(12) the number of filings received, the number of merger investigations in which second requests were issued, and the number of transactions in which requests for early termination of the waiting period were received, granted, and not granted. Appendix A also shows for fiscal years 1989 through 1998 the number of transactions in which second requests could have been issued (see Footnote 2, Appendix A), as well as the percentage of transactions in which second requests were issued. Appendix B provides a month-by-month comparison of the number of transactions reported (Table 1) and the number of filings received (Table 2) for fiscal years 1989 through 1998.
The statistics set out in these appendices show that the number of transactions reported in 1998 increased approximately 27.7 percent from the number of transactions reported in 1997 (4728 transactions were reported in 1998, while 3702 were reported in 1997). (See Figure 1 supra.) The statistics in Appendix A also show that the number of merger investigations in which second requests were issued in 1998 increased approximately 2.0 percent from the number of merger investigations in which second requests were issued in 1997 (second requests were issued in 125 merger investigations in 1998, while second requests were issued in 122 merger investigations in 1997). However, these numbers indicate a decrease in the number of second requests issued as a percentage of reported transactions from 1997 to 1998 (from 3.5 percent in 1997 to 2.7 percent in 1998). (See Figure 2 below.)
The statistics in Appendix A also show that in recent years, early termination was requested for most transactions. In 1998, early termination was requested in 91.4 percent (4323) of the transactions reported while in 1997 it was requested in 90.8 percent (3363) of the transactions reported. The percentage of requests granted out of the total requested increased slightly (from 74.7 percent in 1997 to 74.8 percent in 1998).
Statistical tables (Tables I - XI) in Exhibit A contain information about the agencies' enforcement interest in transactions reported in fiscal year 1998. The tables provide, for various statistical breakdowns, the number and percentage of transactions in which clearances to investigate were granted by one antitrust agency to the other and the number of merger investigations in which second requests were issued. The tables in Exhibit A show that, in 1998, clearance was granted to one or the other of the agencies for the purpose of conducting an initial investigation in 9.9 percent of the total number of transactions in which a second request could have been issued. The tables also indicate, for example, that 31.9 percent of all clearances granted involved transactions valued at $50 million or less.
Tables I - XI also provide the number of transactions based on the dollar value of transactions reported and the reporting threshold indicated in the notification report. The total dollar value of reported transactions has risen 600 percent during the last six fiscal years from less than $200 billion to over a trillion dollars. (See Figure 3 below.)
Tables X-XI provide the number of transactions based on the industry group 2-digit SIC code in which the acquiring person or the acquired entity derived revenue. Figure 4 illustrates the percentage of reportable transactions within industry groups for fiscal year 1998 based on the acquired entity's operations.(13)
DEVELOPMENTS IN FISCAL YEAR 1998 RELATING TO COMPLIANCE WITH THE PREMERGER NOTIFICATION RULES AND PROCEDURES
The Commission and the Department of Justice continue to monitor compliance with the premerger notification program's filing requirements and initiated a number of compliance investigations in fiscal year 1998. The agencies monitor compliance through a variety of methods, including the review of newspapers and industry publications for announcements of transactions that may not have been reported in accordance with the requirements of the Act. In addition, industry sources, such as competitors, customers and suppliers, and interested members of the public, often provide the agencies with information about transactions and possible violations of the filing requirements.
Under Section 7A(g)(1) of the Act, any person that fails to comply with the Act's notification and waiting period requirements is liable for a civil penalty of up to $11,000 for each day the violation continues.(14) The antitrust agencies examine the circumstances of each unlawful failure to file to determine whether penalties should be sought. During fiscal year 1998, 30 corrective filings for violations of the Act were received and one enforcement action for civil penalties was brought.
In United States v. Loewen Group, Inc. and Loewen Group International, Inc.,(15) the complaint alleged that defendants violated the Act in August 1996 by acquiring voting securities of a competitor, Prime Succession Inc., an Indiana-based owner and operator of funeral homes and cemeteries. Loewen's acquisition of voting securities of Prime was part of a leveraged buyout of Prime. As originally structured, the leveraged buyout involved Loewen acquiring $10 million of Prime voting securities, but the structure was changed so that Loewen acquired $16 million of Prime voting stock, exceeding the Act's $15 million threshold. According to the complaint, by consummating the acquisition prior to submitting a notification form and observing the mandatory waiting period, Loewen avoided the risk of losing a $20 million downpayment which could have been forfeited if the transaction had been delayed for antitrust review. Under the terms of the final judgment, Loewen agreed to pay a $500,000 civil penalty to settle the charges.
2. Amendments to the Rules
In fiscal year 1998, the Commission, with the concurrence of the Assistant Attorney General, amended Premerger Notification Rule 802.70.(16) This rule exempts from the reporting requirements acquisitions of assets or voting securities required to be divested by an order of the Commission or of any federal court in an action brought by the Commission or the Department of Justice. As amended, the rule also exempts divestitures pursuant to consent agreements that have been accepted for public comment, or have been filed with a court and are subject to public comment, but are not yet final orders. These transactions are adequately reviewed for potential antitrust issues during the approval process under the consent agreement and, thus, are unlikely to raise antitrust concerns.
MERGER ENFORCEMENT ACTIVITY DURING FISCAL YEAR 1998(17)
The Antitrust Division challenged 51 merger transactions that it concluded could lessen competition if allowed to proceed as proposed during fiscal year 1998. In 15 of these instances the Antitrust Division filed a complaint in U.S. District Court.(18) Ten of these cases have been settled by consent decree, one was abandoned pursuant to a consent decree, and four others were abandoned after filing of the complaints.
In the other 36 challenges during fiscal year 1998, the Antitrust Division informed the parties to a proposed transaction that it would file suit challenging the transaction unless the parties restructured the proposal to avoid competitive problems or abandoned the proposal altogether.(19) In 24 instances, the parties restructured the proposed transactions, and in 12 instances, the parties abandoned the proposed transactions.
In United States v. Raytheon Company, General Motors Corporation and HE Holdings, Inc., the Division challenged Raytheon's $5.1 billion acquisition of General Motors' Hughes Aircraft subsidiary. The complaint alleged that the acquisition would have lessened competition substantially in infrared sensors used in both ground and aviation weapons systems, and in electro-optical systems for ground vehicles. A proposed consent decree was filed simultaneously settling the suit. The decree required divestiture of two defense electronics businesses in order to preserve competition in sophisticated technology for United States weapons systems, resulting at that time in the largest divestiture since the end of the Cold War. Raytheon was also required to establish "firewalls" prohibiting two competing teams--employees from Raytheon and Hughes--from disclosing information to each other and to Raytheon's senior management concerning the development and production of a new antitank missile for the Army. The complaint and proposed decree were filed after Raytheon reached an agreement with the Air Force setting firm prices for the AMRAAM air-to-air missile. Although Raytheon and Hughes had been competing bidders for the AMRAAM missile, the parties expected to achieve substantial efficiencies by combining production, and the setting of a firm price will pass along to the Air Force savings of $180 million over four years. The decree was entered by the court on January 27, 1998.
In United States v. Chancellor Media Corporation and SFX Broadcasting, Inc., the Division challenged Chancellor's acquisition of SFX Broadcasting, Inc.'s four Long Island, New York, radio stations, alleging that the acquisition would result in local businesses paying higher radio advertising prices. Chancellor and SFX were the two largest radio groups on Long Island, and the merger would have created a dominant Long Island radio group with more than 65 percent of the market. The suit, which was the first contested court challenge to a radio station merger since passage of the Telecommunications Act of 1996, was resolved when Chancellor agreed to a final judgment requiring it to abandon its plan to acquire SFX's Long Island stations. The judgment also required Chancellor and SFX to terminate a local marketing agreement under which Chancellor had been operating SFX's Long Island radio stations in anticipation of the acquisition. The judgment was entered by the court on June 15, 1998.
In United States v. Aluminum Company of America and Reynolds Metals Company, the Division challenged Alcoa's acquisition of Reynolds' aluminum rolling mill and other related assets in Muscle Shoals, Alabama. As part of the acquisition, Alcoa planned on closing the Reynolds facility. The complaint alleged that the acquisition would have resulted in higher prices for aluminum used to produce cans and higher prices to consumers who purchase canned beverages. Alcoa and Reynolds were respectively the largest and third largest makers of aluminum can stock in the United States. The two firms together had more than 60 percent of U.S. aluminum can stock capacity, in a business which had only two other major players and U.S. sales exceeding $4.5 billion in 1996. On December 30, 1997, Alcoa abandoned the transaction.
In United States v. ENOVA Corporation, the Division challenged the proposed $6 billion merger of Pacific Enterprises, a California natural gas utility, and Enova Corporation, a California electric utility company. This was the Department's first challenge to a merger between a gas and electric utility. The complaint alleged that as a result of the merger of Pacific's natural gas pipeline with Enova's electric power business, the combined company would have both the incentive and the ability to lessen competition in the market for electricity in California and that the merger likely would have resulted in consumers in California paying higher prices for electricity. The complaint further stated that in early 1998, the California electric market experienced significant changes as a result of legislatively mandated restructuring. In this new competitive electric market, gas-fired plants, which are the most costly generating plants to operate, set the price that all sellers receive for electricity in California in peak demand periods. Thus, if a firm could increase the cost of gas-fired plants by raising fuel prices, it could raise the price all sellers of electricity receive, and increase the profits of owners of lower cost sources of electricity. In this way, the acquisition of Enova's low cost electric generating plants gave Pacific a means to benefit from any increase in electric prices. A proposed consent decree was filed simultaneously settling the suit. The decree requires Enova to sell off its two largest low-cost electric power plants in order to complete its merger with Pacific. The decree is awaiting entry by the court.
In United States v. Lockheed Martin Corporation and Northrop Grumman Corporation, the Division challenged the proposed acquisition of Northrop Grumman by Lockheed Martin, an $11.6 billion merger that was the single largest ever challenged by federal officials. The complaint alleged that the merger would have resulted in unprecedented vertical and horizontal concentration in the defense industry, which would substantially lessen, and in several cases eliminate, competition in major product markets critical to the national defense. The merger would have resulted in Lockheed Martin obtaining a monopoly position in airborne early warning radar, electro-optical missile warning systems, directed infrared countermeasures systems, the SQQ-89 antisubmarine warfare combat system, and fiber-optic towed decoys, which would likely have led to higher costs, higher prices, and less innovation for systems required by the U.S. military. More generally, the merger would have reduced competition in the sale of advanced tactical and strategic aircraft, airborne early warning radar systems, sonar systems, and several types of countermeasure systems that are designed to alert aircraft pilots to threats and help them respond to those threats. On July 16, 1998, the parties abandoned the transaction.
In United States v. Lehman Brothers Holdings Inc. and L-3 Communications Holdings, Inc., the Division challenged L-3 Communications' ("L-3") proposed acquisition of Allied Signal's Ocean Systems Business, and Allied Signal ELAC Nautik GmbH ("Ocean Systems") and simultaneously filed a proposed consent decree requiring L-3 to put in place procedures to ensure Ocean Systems' independence as a competitor for future submarine detector contracts. Ocean Systems and Lockheed Martin Corporation ("Lockheed Martin") were the leading providers of submarine detectors used on United States Navy surface combat vessels and submarines, known as towed sonar arrays. Lockheed Martin owned 34 percent of the common stock of L-3 and controlled three of 10 seats on L-3's Board of Directors. The complaint alleged that the proposed acquisition would have lessened competition substantially because there was a strong likelihood that competitively sensitive information concerning L-3's design, production, and bid plans for towed arrays would be shared with Lockheed Martin. The consent decree required L-3 to establish a "firewall" prohibiting employees of L-3 and Lockheed Martin from disclosing information to each other on the development and production of towed arrays. The decree also ensured that the Department of Defense will have both competitors for its future programs by preventing them from teaming on upcoming bids for towed array contracts. The decree was entered by the court on July 13, 1998.
In United States v. CBS Corporation and American Radio Systems Corporation, the Division challenged the $1.6 billion acquisition of American Radio Systems ("ARS") by CBS. The complaint alleged that the acquisition would likely have resulted in higher radio advertising prices in Boston, Massachusetts, St. Louis, Missouri, and Baltimore, Maryland. The acquisition would have resulted in CBS having 59 percent of Boston's radio advertising revenues, 49 percent in St. Louis and 46 percent in Baltimore. A proposed consent decree was filed simultaneously settling the suit. The decree required CBS to divest seven radio stations -- four in Boston (WEEI-AM, WAAF-FM, WEGQ-FM, WRKO-AM), two in St. Louis (KSD-FM, KLOU-FM) and one in Baltimore (WOCT-FM) -- reducing CBS's share of radio advertising revenue in each of the three cities to no more than 40 percent. The decree was entered by the court on June 30, 1998.
In United States v. Hicks, Muse, Tate & Furst Incorporated, Capstar Broadcasting Partners, Inc. and SFX Broadcasting, Inc., the Division challenged the $2.1 billion acquisition of SFX Broadcasting by Capstar Broadcasting Partners, Inc. The complaint alleged that the acquisition would likely have resulted in higher radio advertising prices in Greenville, South Carolina, Houston, Texas, Pittsburgh, Pennsylvania, Jackson, Mississippi and Suffolk County, New York. The acquisition would have resulted in Capstar and its related entities -- Hicks, Muse, Tate & Furst Incorporated and Chancellor Media Corporation -- having 74 percent of radio advertising revenues in Greenville, 43 percent in Houston, 44 percent in Pittsburgh, 57 percent in Jackson and 65 percent in Suffolk County, New York. A proposed consent decree was filed simultaneously settling the suit. The decree required Capstar to divest 11 radio stations -- four in Greenville (WESC-FM and AM, WJMZ-FM, WTPT-FM), one in Houston (KKPN-FM), one in Pittsburgh (WTAE-AM), one in Jackson (WJDX-FM) and four SFX stations in Long Island, New York (WBLI-FM, WBAB-FM, WHFM-FM, WGBB-AM). The consent decree was entered by the court on August 17, 1998.
In United States and State of New York and State of Illinois v. Sony Corporation of America, LTM Holdings, Inc. d/b/a Loews Theatres Cineplex Odeon Corporation and J.E. Seagram, the Division challenged the proposed merger between Loews Theatres, a subsidiary of Sony Corporation, and Cineplex Odeon Corporation. The complaint alleged that the merger of these two movie theater chains would lessen competition substantially in the Manhattan and metro Chicago markets, leading to higher ticket prices and reduced theater quality for first-run movies. The merged firm would have had market shares, by revenue, of 67 percent in Manhattan and 77 percent in Chicago. A proposed consent decree was filed simultaneously settling the suit. The decree requires the divestiture of 14 theaters in Manhattan and 11 theaters in the Chicago area. In both Manhattan and Chicago, the divestitures represent slightly more than the leading firm would be acquiring in terms of both number of screens and revenue. The decree was entered by the court on November 16, 1998.
In United States v. Primestar, Inc., Tele-Communications, Inc., TCI Satellite Entertainment, Inc., Time Warner Entertainment Company, L.P., MediaOne Group, Comcast Corporation, Cox Communications, Inc., GE American Communications, Inc., Newhouse Broadcasting Corporation, The News Corporation Limited, MCI Communications Corporation and Keith Rupert Murdoch, the Division challenged Primestar's acquisition of the direct broadcast satellite ("DBS") assets of News Corporation Limited and MCI, alleging that it would allow five of the largest cable companies in the United States, which control Primestar, to protect their monopolies and keep out new competitors. The complaint alleged that the proposed $1.1 billion acquisition would lessen competition substantially and enhance monopoly power in multichannel video programming distribution, which includes cable, DBS and a few other types of video programming distribution, denying consumers the benefits of competition, including lower prices, higher quality, greater choice, and increased innovation. The proposed transaction called for News Corp./ MCI to transfer authorization to operate 28 satellite transponders at the 110 west longitude orbital slot and two high-power DBS satellites under construction to Primestar. The 110 slot is one of three that can be used to provide high-power DBS service -- which customers can receive using dishes as small as 18 inches in diameter -- to the entire continental U.S., and is the last position available for use or expansion by independent DBS firms. The complaint alleged that the transaction would prevent an independent firm from using the assets to compete directly and vigorously with the Primestar owners' cable systems and would eliminate the cable companies' most significant potential competitor, News Corp.'s ASkyB satellite venture. On October 14, 1998, Primestar abandoned its acquisition of News Corporation's and MCI's direct broadcast satellite assets.
In United States v. Aluminum Company of America and Alumax Inc., the Division challenged the proposed $3.8 billion acquisition of Alumax Inc. by Alcoa. The complaint alleged that the acquisition likely would have resulted in higher prices for customers of aluminum cast plate. Alcoa and Alumax are the two largest producers of aluminum cast plate and together control approximately 90 percent of the worldwide market for cast plate. Cast plate is a flat aluminum product that resists warping and is used in machinery that makes products for packaging frozen foods and aircraft and automotive parts. A proposed consent decree was filed simultaneously settling the suit. The decree requires Alcoa to sell its cast plate operations, including its Vernon, California plant that makes cast plate, to a firm that will continue to manufacture and sell cast plate. The decree was entered by the court on October 29, 1998.
In United States v. General Electric Company and InnoServ Technologies, Inc., the Division challenged the acquisition of InnoServ by GE. The complaint alleged that the acquisition would lessen competition substantially in the markets for servicing certain models of GE medical imaging equipment and in the markets for multi-vendor service (in which some hospitals contract with a single provider to service most or all of a hospital's equipment) in local areas throughout the United States. GE is the world's largest manufacturer of medical imaging equipment and a leading provider of service for all types and brands of medical equipment, and InnoServ's PREVU software is one of very few programs available, besides that offered by GE, to service some models of imaging equipment. A proposed consent decree was filed simultaneously settling the suit. The decree requires GE to sell InnoServ's PREVU software to a third party. The decree was entered by the court on December 16, 1998.
In United States and States of Ohio, Arizona, California, Colorado, Florida, Commonwealth of Kentucky, States of Maryland, Michigan, New York, Commonwealth of Pennsylvania, States of Texas, Washington and Wisconsin v. USA Waste Services, Inc., Dome Merger Subsidiary and Waste Management, Inc., the Division and 13 states challenged the $13.5 billion acquisition of Waste Management Inc. ("WMI") by USA Waste Services Inc. ("USA Waste"). WMI and USA Waste were two of the nation's largest waste collection and disposal companies. The complaint alleged that the acquisition would lessen competition substantially for waste collection and disposal services in 21 geographic areas across the United States. A proposed consent decree was filed simultaneously settling the suit. The decree requires USA Waste to divest waste collection and/or disposal operations in thirteen states, covering 21 metropolitan areas: Tucson, Arizona; Los Angeles, California; Denver, Colorado; Gainesville and Miami, Florida; Louisville, Kentucky; Baltimore, Maryland; Detroit, Flint and Northeast, Michigan; New York, New York; Akron, Cleveland, Canton and Columbus, Ohio; Portland, Oregon; Allentown, Philadelphia and Pittsburgh, Pennsylvania; Houston, Texas; and Milwaukee, Wisconsin. The decree is awaiting entry by the court.
In United States v. Citicorp, Inc., Citicorp Services, Inc., GTECH Holdings Corporation and Transactive Corporation, the Division challenged the acquisition of the electronic benefit transfer ("EBT") system business of Transactive Corporation ("Transactive"), a subsidiary of GTECH Holdings Corporation, by Citicorp Services, Inc. ("Citicorp"), a subsidiary of Citicorp, Inc. The complaint alleged that the acquisition would lessen competition substantially in the provision of EBT services to state and local governments. EBT services are used by state and local agencies to provide food stamps and cash benefits to Americans who qualify for welfare payments. Federal law requires all states to use EBT systems to deliver food stamp benefits by the year 2002. In the challenged transaction, Citicorp would acquire from Transactive the contracts to deliver EBT services to the states of Texas, Illinois, and Indiana and Sacramento County in California, as well as certain computer hardware and software used to provide processing services in these states. In addition to the acquisition of these contracts, there is also a non-compete provision in their agreement that would prevent Transactive from competing with Citicorp for new EBT contracts or licensing its processing system to another vendor for use in delivering EBT systems. The complaint alleged that the acquisition would eliminate competition for EBT contracts, resulting in higher prices and lower quality services for state and local agencies and lower quality services for recipients of welfare benefits. On January 29, 1999, the parties abandoned the transaction.
In United States v. Halliburton Company and Dresser Industries, Inc., the Division challenged the proposed merger of Halliburton and Dresser. The complaint alleged that the merger would result in increased prices and decreased quality for logging-while-drilling ("LWD") tools and services for oil and natural gas drilling projects, as well as decreased competition in the development and improvement of LWD tools. LWD services provide information to oil and gas companies about the formations through which the companies are drilling, whether there is oil in the formation, and the ease with which oil can be extracted. Total worldwide revenues for LWD services in 1997 exceeded $500 million. A proposed consent decree was filed simultaneously settling the suit. The decree requires Halliburton to divest its entire LWD business, including its manufacturing, research and development, sales and service capabilities. Before the suit and proposed decree were filed, Halliburton sold its 36 percent interest in M-I Drilling to Smith International, Inc. Without that divestiture, the merger would have caused Halliburton to own both this 36 percent stake in M-I and one of M-I's principal competitors, Dresser's Baroid Division. M-I and Baroid are the two largest drilling fluids competitors in a $3 billion business. Drilling fluids, a combination of chemical compounds and minerals, are the second largest cost -- after rental of the rig -- of drilling for oil and natural gas, and are critical for cooling and lubricating the drill bit and controlling downhole pressure. The decree is awaiting entry by the court.
During fiscal year 1998, the Division investigated 16 bank merger transactions for which divestiture was required prior to or concurrently with the acquisition. A "not significantly adverse" letter conditioned upon a letter agreement between the parties and the Division was sent to the appropriate bank regulatory agency in all instances.(20)
2. Federal Trade Commission
The Commission challenged 33 transactions that it concluded would lessen competition if allowed to proceed as proposed during fiscal year 1998, leading to 23 consent orders, one administrative complaint and six abandoned transactions. The Commission authorized its staff to seek injunctive relief in three of the 33 matters. The parties abandoned the transactions in two of these cases following the court decision; in one of these cases, an administrative complaint was issued.
In Cardinal Health, Inc., and Bergen Brunswig Corp.,(21) the Commission filed for a preliminary injunction in March 1998 alleging that the proposed $2.5 billion acquisition by Cardinal Health, Inc. ("Cardinal") of Bergen Brunswig Corp. ("Bergen") would lessen competition substantially in the wholesale distribution of prescription drugs.(22) Cardinal was the nation's third largest wholesale distributor of prescription drugs, over-the-counter pharmaceutical products and health and beauty aids. Bergen was the country's largest supplier of pharmaceuticals to the managed care market and the second largest wholesale distributor of pharmaceuticals. The court granted the Commission's motion blocking the proposed acquisition on July 31, 1998. Subsequently, the parties abandoned the transaction.
In McKesson Corp., and AmeriSource Health Corp.,(23) the Commission filed for a preliminary injunction in March 1998 alleging that the proposed $2.25 billion acquisition by McKesson of AmeriSource Health Corp. ("AmeriSource") would lessen competition substantially in the wholesale distribution of prescription drugs. McKesson was the largest full-service wholesale distributor of prescription drugs in the United States and Canada. AmeriSource was the fourth largest wholesale distributor of pharmaceutical products and related health care services in the country. The court granted the Commission's motion blocking the proposed acquisition on July 31, 1998. Subsequently, the parties abandoned the transaction.
In Tenet Healthcare Corporation,(24) the Commission, joined by the State of Missouri, filed for a preliminary injunction in April 1998 alleging that the proposed acquisition by Tenet Healthcare Corporation ("Tenet") of Poplar Bluff Physicians Group, Inc., d/b/a/ Doctors Regional Medical Center ("DRMC") would lessen competition substantially in the provision of general acute care inpatient hospital services in Butler County, Missouri, and seven surrounding counties. DRMC and Tenet's Lucy Lee Hospital were the two principal general hospitals in the relevant area. On July 30, 1998, the court granted the Commission's and Missouri's motions blocking the transaction pending the outcome of an administrative trial. Subsequently, the parties filed a notice of appeal of the court's decision. The Commission issued an administrative complaint in August 1998. Both the appeal and complaint are pending.
The Commission also issued an administrative complaint in Monier Lifetile LLC, Boral Ltd., and Lafarge S.A.,(25) alleging that the formation of Monier Lifetile LLC, a joint venture limited liability corporation between Boral Ltd. and a subsidiary of Lafarge S.A., would lessen competition substantially in the market for standard-weight concrete roofing tile in the Southwestern United States (consisting of California, Arizona and Nevada) and Florida. According to the complaint, the parties were the two largest producers of concrete roofing tile in the United States prior to formation of the joint venture. The administrative proceeding is pending.
The Commission also accepted consent agreements for public comment in 23 merger cases in fiscal year 1998. A complaint and decision and order were issued in 14 of those matters during the fiscal year, and a consent agreement in eight of these cases became final after September 30, 1998. One of the transactions subsequently was abandoned.
In The Dow Chemical Company,(26) the complaint alleged that the proposed $425 million acquisition by The Dow Chemical Company ("Dow") of Sentrachem Limited would lessen competition substantially in the research, development, manufacture and sale of chelants in the United States. Aminopolycarboxylic chelating agents, also known as chelants, are chemicals used in cleaners, pulp and paper, water treatment, photography, agriculture, and food and pharmaceutical applications to neutralize and inactivate metal ions. According to the complaint, Dow and Sentrachem's subsidiary, Hampshire Chemical Corporation ("Hampshire"), are the two leading of only three producers of chelants, with a combined market share of over 70 percent. Under the order, the parties were required to divest Hampshire's chelant business to Akzo Nobel N.V., a Dutch chemical company that is a leading European producer of chelants. The order also provided for the expansion of the Hampshire's Lima, Ohio, facility by setting certain "milestones" that must be met to accomplish the construction of additional capacity.
In Guinness plc, Grand Metropolitan plc, and Diageo plc,(27) the complaint alleged that the proposed merger of Guinness plc and Grand Metropolitan plc ("Grand Met") would lessen competition substantially in the production of premium Scotch and premium gin in the United States. According to the complaint, the combined entity, known as Diageo plc, would control approximately 92 percent and 73 percent of all U.S. premium Scotch and premium gin sales, respectively. The order required divestiture of Guinness' assets used in the manufacture of "Dewar's" Scotch whisky, as well as the assets used by Grand Met in the production of "Bombay" gin.(28)
In CUC International Inc., and HFS Incorporated,(29) the complaint alleged that the proposed merger of CUC International Inc. ("CUC") and HFS Incorporated ("HFS") would lessen competition substantially in the worldwide sale of timeshare exchange services to timeshare developers and owners. According to the complaint, the parties operated competing worldwide, full-service networks enabling timeshare owners to trade the temporary use of their vacation property for a different time period and/or another resort. Under the order, CUC and HFS were required to divest CUC's Interval International Inc., to a company controlled by Willis Stein & Partners, L.P., a venture capital firm; or to divest HFS' Resort Condominiums International, Inc., to a Commission-approved purchaser.
In Shell Oil Company, and Texaco Inc.,(30) the complaint alleged that proposed joint ventures between Shell and Texaco, which were valued at more than $10 billion, would lessen competition substantially in (1) the refining of conventional gasoline and kerosene jet fuel in the Puget Sound area of Washington State; (2) the refining of conventional gasoline and kerosene jet fuel in the Pacific Northwest; (3) the refining of CARB gasoline (specially formulated gasoline) in California; (4) the refining of asphalt in the northern portion of California; (5) the transportation of undiluted heavy crude oil to the San Francisco Bay area; (6) the transportation of refined light petroleum products to the inland portions of Mississippi, Alabama, Georgia, South Carolina, North Carolina, Virginia and Tennessee; (7) the wholesaling and retailing of CARB gasoline in San Diego County, California; and (8) the terminaling, wholesaling and retailing of conventional gasoline and diesel fuel on the island of Oahu, Hawaii. Under the order, the parties were required to divest (1) Shell's Anacortes, Washington, refinery; (2) either Texaco's interest in the Colonial pipeline or Shell's interest in the Plantation pipeline; (3) gasoline stations in San Diego county; and (4) the terminal and retail operations of either Shell or Texaco on Oahu.(31)
In TRW Inc.,(32) the complaint alleged that TRW's proposed $945 million acquisition of BDM International Inc. ("BDM") would lessen competition substantially in (1) the research, development, manufacture and sale of a ballistic missile defense system ("BMD system") for the United States Department of Defense ("DoD"), and (2) the provision of systems engineering and technical assistance services ("SETA Services") to the United States Ballistic Missile Defense Organization ("BMDO") of DoD. TRW was a member of one of only two teams vying to supply a BMD system to DoD and BDM was the only provider of SETA Services. According to the complaint, the proposed acquisition would position TRW as both a competitor for the BMD system, and the contractor responsible for assessing the proposals submitted by the two teams. The order required TRW to divest BDM's SETA Services contract with the BMDO, and all of BDM's assets associated with the performance of the contract.
In Cablevision Systems Corporation,(33) the complaint alleged that the proposed acquisition by Cablevision Systems Corporation ("CVS") of certain cable television systems owned by Tele-Communications, Inc. ("TCI") would lessen competition substantially in the distribution of multichannel video programming by cable television in the Boroughs of Paramus and Hillsdale, in Bergen County, New Jersey. According to the complaint, the parties were the only two cable television providers in the relevant geographic areas. Under the order, CVS was required to divest TCI's Paramus and Hillsdale cable systems.(34)
In S.C. Johnson & Son, Inc.,(35) the complaint alleged that the proposed $1.125 billion acquisition by S.C. Johnson & Son, Inc. ("S.C. Johnson") of the home care and home food management businesses of DowBrands Inc. would lessen competition substantially in the research, development, manufacture and sale of soil and stain remover products and glass cleaner products in the United States. According to the complaint, the parties were the two leading suppliers of the relevant products. Under the order, S.C. Johnson was required to divest DowBrands' "Spray `n Wash," "Spray `n Starch," and "Glass Plus" businesses to Reckitt & Colman, Inc.
In PacifiCorp, The Energy Group PLC, Peabody Holding Company, Inc., and Peabody Western Coal Company,(36) the complaint alleged that the proposed $10.7 billion acquisition by PacifiCorp of The Energy Group PLC ("TEG") would lessen competition substantially in the mining, production and sale of coal, and in wholesale electricity sales in the western United States. The acquisition involved two different but largely vertically-related forms of energy -- coal and electricity. TEG's Peabody Western Coal Company ("Peabody") was the only viable source of coal to Navajo and Mohave, two large coal-fired power plants in Arizona and Nevada. PacifiCorp provided retail electric service in seven western states, and competed with Navajo and Mohave. According to the complaint, a merged PacifiCorp/Peabody, because of its substantial electricity generation assets, would be able to increase its rivals' fuel costs and, consequently, the wholesale price of electricity in that part of the country. The proposed order required the divestiture of TEG's coal mines. Subsequently, the parties abandoned the transaction, and the Commission closed the investigation.
In LandAmerica Financial Group, Inc., (37) the complaint alleged that the acquisition by LandAmerica Financial Group, Inc., formerly known as Lawyers Title Corporation ("LTC"), of Reliance Group Holdings, Inc. ("Reliance") would lessen competition substantially in the production and/or sale of title plant services in certain Florida, Michigan and Missouri counties, and in the District of Columbia. Title plants are privately owned collections of records and/or indices that are used by abstractors, title insurers, title insurance agents and others to determine ownership of and interests in real property in connection with the underwriting and issuance of title insurance policies. Because of the county-specific way in which title information is generated and the local character of the real estate markets in which the title plant services are used, geographic markets for title plant services are highly localized. Under the order, LTC was required to divest its title plants or those of Reliance in the counties of Brevard, Broward, Clay, Indian River, Pasco, St. Johns and St. Lucie, Florida; Ingham, Oakland and Wayne, Michigan; St. Louis, Missouri; and in the District of Columbia.(38)
In Federal-Mogul Corporation and T&N plc,(39) the complaint alleged that the proposed $2.4 billion acquisition by Federal-Mogul of T&N would lessen competition substantially in the worldwide markets for the development, manufacture and sale to original equipment manufacturers of (1) fluid film or "plain" thinwall bearings; (2) thinwall bearings for use in automobile and light truck engines; and (3) thinwall bearings for use in heavy truck engines and heavy equipment engines. The complaint also alleged that the acquisition would lessen competition substantially in the worldwide market for the manufacture and sale of light duty engine bearings and heavy duty engine bearings that are sold to the automotive and truck aftermarket. Thinwall bearings do not have roller or ball elements, but have a surface coating of oil which reduces friction. Each automobile and light truck engine, as well as every heavy truck and heavy equipment engine, must have thinwall bearings that are specifically designed and engineered for that engine. According to the complaint, the parties are the largest competitors in the relevant markets. The order required Federal-Mogul to divest the thinwall bearing business of T&N, as well as certain assets related to dry bearings or polymer bearings that are produced at the same facilities. In addition, the order prohibits Federal-Mogul from entering into any technology exchange or production arrangement with Daido Metal Co. Ltd., a joint venture partner of T&N.(40)
In Roche Holding Ltd,(41) the complaint alleged that the proposed $11 billion acquisition by Roche Holding Ltd ("Roche") of Corange Limited ("Corange") would lessen competition substantially in the United States market for the research, development, manufacture and sale of cardiac thrombolytic agents and DAT reagents used in workplace testing. According to the complaint, Roche and Corange were the leading suppliers of cardiac thromoblytic agents, which are used to treat heart attacks by dissolving blood clots in the blood vessels of the heart; and two of only four suppliers of DAT reagents used in workplace testing, which detect the presence of illegal drugs. Under the order, Roche was required to divest Corange's United States and Canadian cardiac thrombolytic agent businesses to Centocor, Inc., and Corange's worldwide workplace DAT reagents business to a Commission-approved purchaser.(42)
In The Williams Companies, Inc.,(43) the complaint alleged that the proposed $2.7 billion acquisition by The Williams Companies ("Williams") of MAPCO Inc. ("MAPCO") would lessen competition substantially for the transportation by pipeline and terminaling of propane in certain areas of Illinois, Iowa, Minnesota and Wisconsin; and the transportation by pipeline of raw mix, a mixture of natural gas liquids, from southern Wyoming to Kansas, New Mexico, Oklahoma and Texas. Williams and MAPCO were the only source of pipeline transportation to terminals in central Iowa, including Des Moines and Ogden; northern Iowa and southern Minnesota, including Clear Lake and Sanborn, Iowa, and Mankato, Minnesota; eastern Iowa, including Iowa City; southern Wisconsin and northern Illinois, including Janesville, Wisconsin and Rockford, Illinois; and north central Illinois, including Tampico and Farmington. MAPCO owned terminals, and Williams' pipelines supplied propane to terminals owned by Kinder Morgan Operating L.P. ("Kinder"), in these areas. Under the order, Williams was required to comply with an existing agreement under which propane from Kinder's customers is shipped to its terminals. The order also required Williams to connect its Wyoming gas processing plants to any proposed raw mix pipeline that requests such a connection.
In Degussa Aktiengesellschaft and Degussa Corporation,(44) the complaint alleged that the proposed acquisition by Degussa Aktiengesellschaft ("Degussa") of certain assets of E.I. du Pont de Nemours & Co. ("DuPont") would lessen competition substantially in the manufacture of hydrogen peroxide in North America. Hydrogen peroxide is used in disparate applications as an oxidizing agent to encourage different chemical reactions. According to the complaint, the transaction would rest control over approximately 81 percent of production capacity with the three largest manufacturers. The order limited Degussa's acquisition to DuPont's production facility in Gibbons, Alberta.
In Digital Equipment Corporation,(45) the complaint alleged that the proposed acquisition by Intel Corporation ("Intel") of certain assets of Digital Equipment Corporation ("Digital") would lessen competition substantially in the worldwide (1) manufacture and sale of high-performance, general-purpose microprocessors capable of running the Windows NT operating system; (2) manufacture and sale of all general-purpose microprocessors; and (3) design and development of high-performance, general-purpose microprocessors. According to the complaint, Intel's "Pentium" and Digital's "Alpha" microprocessors are the two closest substitutes. In addition, the parties are two of a very few competitors developing next-generation, high-performance microprocessors. Under the order, Digital was required to license Alpha technology to Advanced Micro Devices, Inc., a developer and producer of high performance microprocessors, and to Samsung Electronics Co., Ltd., a developer and producer of semiconductors, or to two other Commission-approved companies. The order also required Digital to begin the process of certifying International Business Machines, Inc., as an alternative production source for Alpha products.
In Global Industrial Technologies, Inc.,(46) the complaint alleged that the proposed merger between Global Industrial Technologies, Inc. ("Global") and AP Green Industries, Inc. ("AP Green") would lessen competition substantially in the United States market for glass-furnace silica refractories. Glass-furnace silica refractories are used by glass manufacturers to build the roofs and several other areas of the glass-melting furnaces in which they melt raw materials into a homogeneous mass of molten glass. According to the complaint, Global and AP Green are the only two domestic producers of the relevant product. Under the order, Global was required to divest AP Green's silica refractories business to Robert R. Worthen and Dennis R. Williams.
In Gerald W. Schwartz, Onex Corporation, SC International Services, Inc., and Sky Chefs, Inc.,(47) the complaint alleged that the proposed acquisition by Gerald W. Schwartz, through Sky Chefs, Inc., of Ogden Aviation Food Services, Inc., would lessen competition substantially in the sale of in-flight catering services to airlines at the McCarran International Airport, Las Vegas, Nevada. In-flight catering services include the preparation of meals, stocking of beverage carts, delivery of meals and carts to the aircraft, the loading of the galley, the unloading of incoming carts, utensils and trash, and cleaning and storage of carts and utensils. According to the complaint, the parties were the only two firms that sold in-flight catering services to airlines departing or landing at Las Vegas' McCarran Airport. As originally proposed, Schwartz intended to acquire all of Ogden's airline catering business in the United States. Under the order, the purchase agreement was modified to exclude Ogden's Las Vegas in-flight catering business and kitchen.
In Nortek, Inc.,(48) the complaint alleged that the proposed acquisition by Nortek, Inc., of NuTone Inc. would lessen competition substantially in the manufacture, production and sale of hard-wired residential intercoms in the United States. According to the complaint, the parties were the two leading producers of electrical devices installed in homes to provide audio-only room-to-room or room-to-entrance communication or monitoring functions through in-the-wall low voltage wiring, with a combined market share of approximately 87 percent. The order required Nortek to divest its M & S Systems LP subsidiary.(49)
In Exxon Corporation, The Shell Petroleum Company Limited, and Shell Oil Company,(50) the complaint alleged that the proposed joint venture between Exxon and Shell, which was valued at $1.5 billion, would lessen competition substantially in the manufacture of viscosity index improver or viscosity modifiers for motor oil used in automobiles and trucks ("VI improver") in North America. VI improvers are synthetic rubber compounds, either polymers or styrenics, that are blended with refined oil to enhance the viscosity properties of motor oil. According to the complaint, there are no economic substitutes for VI improvers. The complaint alleged that the parties collectively accounted for over one-half of the sales of VI improver in the North American market. The order required the sale of Exxon's VI improver business to Chevron Chemical Company LLC, or another Commission-approved purchaser.
In Merck & Co., Inc., and Merck-Medco Managed Care, L.L.C.,(51) the complaint alleged that the acquisition by Merck of Medco Containment Services, Inc. ("Medco"), would lessen competition substantially in the markets for the provision of pharmacy benefit management ("PBM") services and the manufacture of HMG-CoA reductase inhibitors and angiotension converting enzyme inhibitors in the United States. Merck was engaged in the production of "Mevacor" and "Zocor," which are used for the treatment of high cholesterol, and "Prinivil" and "Vasotec," which are used for the treatment of hypertension, high blood pressure and heart disease. Medco provided PBM services to insurance companies and third-party payors that include the maintenance of a drug formulary,(52) claims processing, drug utilization review and pharmacy network administration. According to the complaint, Medco negotiated with pharmaceutical manufacturers, including Merck, concerning placement on the formulary, as well as rebates, discounts and product prices. The complaint alleged that the transaction resulted in the foreclosure of products of manufacturers other than Merck, as well as an increase in pharmaceutical prices. Under the order, Merck, through Medco, was required to maintain an open formulary, and appoint an independent committee of healthcare professionals to determine the inclusion of drugs on the formulary. In addition, Merck was required to ensure that Medco accepts all discounts, rebates or other concessions offered by any pharmaceutical manufacturer. The order also prohibited Merck and Medco from exchanging non-public information.
In Albertson's, Inc., Locomotive Acquisition Corporation, Buttrey Food and Drug Store Company, and FS Equity Partners II, L.P., (53) the complaint alleged that Albertson's proposed acquisition of Buttrey would lessen competition substantially in the retail sale of food and grocery products in supermarkets in Billings, Bozeman, Butte, Great Falls, Helena and Missoula, Montana; and Casper, Cheyenne, Cody, Gillette and Laramie, Wyoming. According to the complaint, the parties had a combined market share of more than 35 percent in each of these geographic markets. Under the order, Albertson's and Buttrey were required to divest thirteen supermarkets to Smith's Food & Drug Center, Inc., and two supermarkets to Supervalu Holdings, Inc.(54)
In Shell Oil Co., and Tejas Energy, LLC,(55) the complaint alleged that the proposed acquisition by Shell's subsidiary, Tejas Energy, of certain assets of ANR Field Services Company and ANR Production Company (collectively "ANR") from The Coastal Corporation would lessen competition substantially in the provision of natural gas gathering services in Roger Mills, Beckham, Custer, Washita, Caddo and Grady Counties, Oklahoma, and in Wheeler County, Texas. Gas gathering involves the pipeline transportation of natural gas from a wellhead or central delivery point to a gas transmission pipeline or gas processing plant. Tejas was the largest gas gatherer in those areas, and ANR was a substantial competitor in gas gathering. The order required Shell to divest certain portions of ANR's pipeline system in the relevant markets.(56)
In Commonwealth Land Title Insurance Company,(57) the complaint alleged that the consolidation of the operations of Commonwealth Land Title Insurance Company ("Commonwealth") and First American Title Insurance company ("First American") would lessen competition substantially in the production and sale of title plant services in the District of Columbia. According to the complaint, the parties were direct competitors. Prior to the formation of a planned joint venture entity, Commonwealth relocated its operations to the premises of First American. At that time, customers of both parties were required to execute new agreements setting prices, terms and conditions for title plant services that would be provided jointly by the companies. According to the complaint, these actions resulted in increased prices and restricted output. The order required Commonwealth and First American to separate their operations. The order also required Commonwealth to provide refunds to customers who were charged more under the new agreements than under their previous contracts.
In Medtronic, Inc.,(58) the complaint alleged that Medtronic's proposed $530 million acquisition of Physio-Control International Corporation would lessen competition substantially in the research, development, manufacture and sale of automated external defibrillators in the United States. Automated external defibrillators are portable, automated devices used in emergency situations by persons with limited or no medical training, such as police officers, firefighters, and lifeguards, to diagnose and treat persons suffering from sudden cardiac arrest. According to the complaint, Medtronic, through its minority ownership interest in SurVivaLink Corporation, and Physio-Control were direct competitors. The complaint alleged that SurVivaLink and Physio-Control were two of only three significant suppliers of the relevant product. Pursuant to an investment agreement, Medtronic, which held less than 10 percent of SurVivaLink's voting securities, was given the explicit right to name a member to the company's board of directors and to receive certain non-public, competitively sensitive information. Under the order, Medtronic was prohibited from exercising any right to name a member to SurVivaLink's Board of Directors, participating in any business decisions of the company or proposing any corporate action. The order also limited Medtronic's ability to vote on any matter that requires the approval of SurVivaLink's shareholders by requiring Medtronic to delegate its voting rights to be voted in a manner proportional to the votes of all other shareholders. In addition, the order prohibited Medtronic from receiving non-public, competitively sensitive information relating to SurVivaLink, and required it to return any documents that contained any trade secrets, commercial information or financial information. Further, the order prevented Medtronic from increasing its ownership interest in SurVivaLink without Commission approval.
ONGOING REASSESSMENT OF THE EFFECTS OF THE PREMERGER NOTIFICATION PROGRAM
Although a complete assessment of the impact of the premerger notification program on the business community and on antitrust enforcement is not possible in this limited report, a few observations can be made.
As indicated in past annual reports, the HSR program ensures that virtually all significant mergers or acquisitions occurring in the United States will be reviewed by the antitrust agencies prior to consummation. The agencies generally have the opportunity to challenge unlawful transactions before they occur, thus avoiding the problem of constructing effective post-acquisition relief. Thus, HSR is doing what Congress intended -- giving the government the opportunity to investigate and challenge mergers that are likely to harm consumers before injury can occur. Prior to the premerger notification program, businesses could, and frequently did, consummate transactions that raised significant antitrust concerns, before the antitrust agencies had the opportunity to consider adequately their competitive effects. The enforcement agencies were forced to pursue lengthy post-acquisition litigation, during the course of which harm from the consummated transaction continued in place (and afterwards as well, where achievement of effective post-acquisition relief was not practicable). Because the premerger notification program requires reporting before consummation, this problem has been significantly reduced.
Although highly effective, the HSR program has periodically prompted criticism from the business and legal communities that the program is overreaching, that the reporting thresholds may be too low, or that the process may cause delay. Cognizant of these concerns, the enforcement agencies continue to seek ways to speed up the review process and reduce burdens for companies. Following on the adoption of five new exemptions in 1996 that eliminated approximately 10 percent of filings, the agencies are examining additional means to exempt from the filing requirements transactions that are not likely to be problematic. The agencies will continue ongoing review of the HSR program in order to make it as minimally burdensome as possible without compromising the prompt and effective relief intended to result from the HSR program.
The Assistant Attorney General in charge of the Antitrust Division concurs with this annual report.
Summary of Transactions
Number of Transactions Reported
Filings Received by Month;
Fiscal Year 1998
1. See Figure 3.
2. See Appendix A.
3. See pp. 20-30 infra.
4. See pp. 10-19 infra.
5. See p. 9 infra.
6. See Appendix A; see Figure 2 infra.
7. 43 Fed. Reg. 33450 (1978). The rules also appear in 16 C.F.R. Parts 801 through 803. For more information concerning the development of the rules and operating procedures of the premerger notification program, see the second, third and seventh annual reports covering the years 1978, 1979 and 1983, respectively.
8. 48 Fed. Reg. 34427 (1983) (codified at 16 C.F.R. Parts 801 through 803).
9. 52 Fed. Reg. 7066 (1987) (codified at 16 C.F.R. Parts 801 through 803).
10. 52 Fed. Reg. 20058 (1987) (codified at 16 C.F.R. Parts 801 through 803).
11. 61 Fed. Reg. 13666 (1996) (codified at 16 C.F.R. Parts 801 through 803).
12. The term "transactions", as used in Appendices A and B, and Exhibit A to this report, does not refer to separate mergers or acquisitions; rather, it refers to types of structures such as cash tender offers, options to acquire voting securities from the issuer, options to acquire voting securities from someone other than the issuer, and multiple acquiring or acquired persons that necessitate separate HSR identification numbers to track the filing parties and waiting periods. A particular merger, joint venture or acquisition may involve more than one transaction. Indeed, some have involved as many as four or five separate transactions.
13. As reflected in Figure 4, any increase in defense/manufacturing-related or decrease in consumer goods-related transactions during fiscal year 1998 compared to other fiscal years may be accounted for, in part, by a change in attribution methodology (see Annual Report to Congress for Fiscal Year 1997).
14. Effective November 20, 1996, dollar amounts specified in civil monetary penalty provisions within the Commission's jurisdiction were adjusted for inflation in accordance with the Debt Collection Improvement Act of 1996, Pub. L. No. 104-134 (April 26, 1996). The adjustments included, in part, an increase from $10,000 to $11,000 for each day during which a person is in violation under Section 7A(g)(1), 15 U.S.C. 18a(g)(1). 61 Fed. Reg. 54548 (October 21, 1996), corrected at 61 Fed. Reg. 55840 (October 29, 1996).
15. United States v. Loewen Group, Inc. and Loewen Group International, Inc., Cv. No. 1:98CV00815 (D.D.C. complaint filed March 31, 1998); 1998-1 Trade Cas. (CCH) ¶ 72,151.
16. 63 Fed. Reg. 34592 (June 25, 1998).
17. The cases in this report were not necessarily reportable under the premerger notification program. Because of provisions regarding the confidentiality of the information obtained pursuant to the Act, it would be inappropriate to identify which cases were initiated under the program.
18. United States v. Raytheon Company, General Motors Corporation and HE Holdings, Inc., Cv. No. 1:97CV02397 (D.D.C. filed 10/16/97); United States v. Chancellor Media Corporation and SFX Broadcasting, Inc., Cv. No. 97-6497 (E.D.N.Y. filed 11/6/97); United States v. Aluminum Company of America and Reynolds Metals Company, Cv. No. CV-97-RRA-3324-NW (N.D. Ala. filed 12/29/97); United States v. ENOVA Corporation, Cv. No. 1:98CV00583 (D.D.C. filed 3/3/98); United States v. Lockheed Martin Corporation and Northrop Grumman Corporation, Cv. No. 1:98CV00731 (D.D.C. filed 3/23/98); United States v. Lehman Brothers Holdings Inc. and L-3 Communications Holdings, Inc., Cv. No. 1:98CV00796 (D.D.C. filed 3/27/98); United States v. CBS Corporation and American Radio System Corporation, Cv. No. 98CV00819 (D.D.C. filed 3/31/98); United States v. Hicks, Muse, Tate & Furst Incorporated, Capstar Broadcasting Partners and SFX Broadcasting, Inc., Cv. No. CV982422 (E.D.N.Y. filed 3/31/98); United States and State of New York and State of Illinois v. Sony Corporation of America, LTM Holdings, Inc. d/b/a/ Loews Theatres Cineplex Odeon Corporation and J.E. Seagram, Cv.No. 98-CIV-2716 (S.D.N.Y. filed 4/16/98); United States v. Primestar, Inc., Tele-Communications, Inc., TCI Satellite Entertainment, Inc., Time Warner Entertainment Company, L.P., MediaOne Group, Comcast Corporation, Cox Communications, Inc., GE American Communications, Inc., Newhouse Broadcasting Corporation, The News Corporation Limited, MCI Communications Corporation and Keith Rupert Murdoch, Cv. No. 1:98-CV-1497 (D.D.C. filed 5/12/98); United States v. Aluminum Company of America and Alumax Inc., Cv. No 1:98-CV-1497 (D.D.C. filed 6/15/98); United States v. General Electric Company and Innoserv Technologies, Inc., Cv. No. 1:98CV01744RCL (D.D.C. filed 7/14/98); United States and States of Ohio, Arizona, California, Colorado, Florida, Commonwealth of Kentucky, States of Maryland, Michigan, New York, Commonwealth of Pennsylvania, States of Texas, Washington and Wisconsin v. USA Waste Services, Inc., Dome Merger Subsidiary and Waste Management, Inc., Cv. No. 1:98CV1616 (N.D. Ohio filed 7/16/98); United States v. Citicorp, Inc., Citicorp Services, Inc., GTECH Holdings Corporation and Transactive Corporation, Cv. No. 98-436 (D.Del. filed 7/27/98); and United States v. Halliburton Company and Dresser Industries, Inc., Cv. No. 98-CV-2340 (D.D.C. filed 9/29/98).
19. In 23 instances noted below, the Department of Justice issued press releases: . October 17, 1997--Wachovia Corporation merger with Central Fidelity Banks Inc. (banking service business in three Virginia markets); October 23, 1997--Connoisseur Communications acquisition of two radio stations from the Lincoln Group L.P. (Youngstown, Ohio, radio market); November 19, 1997--American Information Systems and Business Records Corporation merger (voting machines); December 9, 1997--NationsBank Corporation merger with Barnett Banks (banking service business in fifteen Florida markets); December 30, 1997--General Electric Corporation's acquisition of Stewart & Stevenson Services, Inc.'s Gas Turbine Division (maintenance and overhall of GE engines); January 15, 1998--Perkin-Elmer Corporation's acquisition of PerSeptive BioSystems, Inc. (DNA Synthesis patent rights); January 29, 1998--Capstar Broadcast Partners' acquisition of Patterson Broadcasting (Allentown, PA, radio market); March 3, 1998--acquisition by Blackstone Capital Partners II Merchant Banking Fund L.P. and Haynes Holdings, Inc. of Inco Alloys International (nickel alloy); March 9, 1998--Peoples Heritage Financial Group Inc.'s purchase of CFX Corporation (banking service business in New Hampshire); April 1, 1998--Clear Channel Communications Inc.'s acquisition of Universal Outdoor Holdings Inc. (billboards in Wisconsin and Florida); April 10, 1998--First Union Corporation merger with CoreStates Financial Corporation (banking service business in Pennsylvania); May 4, 1998--First Commerce Corporation merger with BancOne Corporation (banking service business in Louisiana); May 28, 1998--Sinclair Broadcast Group Inc.'s acquisition of five radio stations from Heritage Media Corporation and Phase II Broadcasting, Inc., (Louisiana radio market); June 8, 1998--Capstar Acquisition Company, Inc.'s acquisition of a radio station from KRNA, Inc. (Iowa radio market); June 11, 1998--Thermo Environmental Instruments, Inc.'s acquisition of Graseby Specac Limited, an affiliate of Graseby Anderson, Inc. (environmental monitoring equipment); July 8, 1998--American Airlines' acquisition of Aerolineas Argentinas (airlines); July 15, 1998-- WorldCom Inc.'s acquisition of MCI Communications Corporation (MCI to divest its internet business); August 10, 1998--Jacor Communications' acquisition of Nationwide Communications, Inc. (California and Ohio radio markets); August 11, 1998--Dean Foods Company's acquisition of Barber Dairies Inc. (milk); August 14, 1998--NationsBank Corporation merger with BankAmerica Corporation (banking service business in New Mexico); September 2, 1998--Capstar Broadcasting Partners' acquisition of KATQ Radio (Texas radio market); September 8, 1998--BancOne Corporation merger with First Chicago NBD Corporation (banking service business in Indiana); and September 24, 1998--Talleyrand Broadcasting's acquisition of radio stations from Citadel Communications (Pennsylvania radio market).
In addition to the 23 in which it issued press releases, the Department in 13 instances informed the parties that their proposed acquisition was likely to have anticompetitive effects: KPMG Peat Marwick and Ernst & Young merger (accounting firms); Reed Elsevier Business Information merger with Wolters Kluwer NV (scientific and business information publishers); Andrew Taitz' acquisition of Utilimaster Division of Harley Davidson (vans); Sungard Data Systems, Inc.'s acquisition of Rolfe & Nolan plc (computer software); Star Bank, N.A.'s acquisition of Bank One, N.A. and Bank One Wheeling (banking service business in Ohio); Bangor Savings Bank's acquisition of Fleet Bank of Maine (banking service business in Maine); National City Corporation's acquisition of First of America Bank Corporation (banking service business in Indiana); Capstar Broadcasting Partners' acquisition of Paxson Communications (Florida radio markets); Specialty Teleconstructors, Inc.'s acquisition of Stainless, Inc. (television broadcast towers); Capstar Broadcasting Partners' acquisition of Big Chief Broadcasting Company (Fort Smith, Arkansas, radio market); merger between Cape Fear Broadcasting and Sea Communications, Inc. (North Carolina radio market); West Virginia Radio Corporation's acquisition of Fantasia Broadcasting (West Virginia radio market); and Meredith Corporation's acquisition of First Media Television, L.P. (Florida television stations).
20. October 15, 1997 letter to the Board of Governors regarding the application by Wachovia Corporation, Winston-Salem, North Carolina, to acquire Central Fidelity Banks, Inc., Richmond, Virginia; October 10, 1997 letter to the Board of Governors and October 10, 1997 letter to the Comptroller of the Currency regarding the application by First Union Corporation, Charlotte, North Carolina, to acquire Signet Banking Corporation, Richmond, Virginia; December 12, 1997 letter to the Board of Governors regarding the application by NationsBank Corporation, Charlotte, North Carolina, to acquire Barnett Banks, Inc., Jacksonville, Florida; December 31, 1997 letter to the Comptroller of the Currency regarding the application by Hibernia National Bank, New Orleans, Louisiana, to merge with Argent Bank, Thibodaux, Louisiana; December 17, 1997 letter to the Board of Governors regarding the application by Union Bankshares Corporation, Bowling Green, Virginia, to acquire seven branch offices of Signet Banking Corporation, Richmond, Virginia; February 9, 1998 letter to the Board of Governors regarding the application by National City Corporation, Cleveland, Ohio, to acquire First of America Bank Corporation, Kalamazoo, Michigan; February 26, 1998 letter to the Board of Governors regarding the application by Wesbanco, Inc., Wheeling, West Virginia, to acquire Commercial Bancshares, Inc., Parkersburg, West Virginia; March 9, 1998 letter to the Board of Governors and the Boston Regional Office of the Federal Deposit Insurance Corporation regarding the application by Peoples Heritage Financial Corporation, Inc., Portland, Maine, to acquire CFX Corporation, Keene, New Hampshire; April 10, 1998 letters to the Board of Governors and to the Comptroller of the Currency regarding the application by First Union Corporation, Charlotte, North Carolina, to acquire CoreStates Financial Corporation, Philadelphia, Pennsylvania; May 4, 1998 letter to the Board of Governors regarding the application by Banc One Corporation, Columbus, Ohio, to acquire First Commerce Corporation, New Orleans, Louisiana; April 15, 1998 letter to the Central District Office of the Comptroller of the Currency regarding the application by Star Bank, N.A., Cincinnati, Ohio, to purchase the assets and assume the liabilities of 53 Ohio branches of Banc One subsidiaries in Ohio (48 branches of Bank One, N.A., Columbus, Ohio, and five Ohio branches of Bank One Wheeling-Steubenville, N.A., Wheeling, West Virginia); June 10, 1998 letter to the Federal Deposit Insurance Corporation regarding the application by Bangor Savings Bank to acquire 31 branches from Fleet Bank of Maine: August 6, 1998 letter to the Federal Deposit Insurance Corporation regarding First City Bank and Trust Company, Hopkinsville, Kentucky, application to acquire NationsBank of Kentucky, N.A., Hopkinsville, Kentucky; August 13, 1998 letter to the Board of Governors regarding the application by NationsBank Corporation, Charlotte, North Carolina, to acquire Bank of America Corporation, San Francisco, California; August 28, 1998 letter to the Office of Thrift Supervison regarding the application by Washington Mutual Inc., Seattle, Washington, to acquire H. F. Ahmanson & Co., Irwindale, California, and thereby indirectly acquire Home Savings of America, Irwindale, California; September 8, 1998 letter to the Board of Governors regarding the application by Banc One Corporation, Columbus, Ohio, to acquire First Chicago NBD Corporation, Chicago, Illinois.
21. 12 F. Supp. 2d 34 (D.D.C. 1998).
22. Drug wholesaling services consist of the purchase of both branded and generic prescription drugs from hundreds of manufacturers, the inventorying of a full line of those drugs, and the sale and overnight delivery of those drugs to hospitals, nursing homes and drugstores.
23. 12 F. Supp. 2d 34 (D.D.C. 1998).
24. 1998-2 Trade Cas. (CCH) ¶ 72,227 (E.D. Mo. 1998).
25. Monier Lifetile LLC, Boral Ltd., and Lafarge S.A., Docket No. 9290 (complaint issued September 23, 1998).
26. The Dow Chemical Company, Docket No. C-3785 (issued February 20, 1998).
27. Guinness plc, Grand Metropolitan plc, and Diageo plc, Docket No. C-3801 (issued April 17, 1998).
28. In June 1998, the Commission approved Diageo plc's divestiture of the assets to Bacardi & Company Ltd.
29. CUC International Inc., and HFS Incorporated, Docket No. C-3805 (issued May 4, 1998).
30. Shell Oil Company, and Texaco Inc., Docket No. C-3803 (issued April 21, 1998).
31. In August 1998, the Commission approved Shell's application to divest the Anacortes Refining Company in Anacortes, Washington, to Tesoro Petroleum Corporation. The Commission approved the divestiture of Shell's interest in Plantation Pipe Line company to Kinder Morgan Energy Partners, L.P., in September 1998. In October, the Commission approved the parties' application to divest 29 service stations in San Diego, California, to New West Petroleum, Inc., and 27 gas stations and Texaco's interest in a terminal in Oahu, Hawaii, to U.S. Restaurant Properties, Inc.
32. TRW Inc., Docket No. C-3790 (issued April 6, 1998).
33. Cablevision Systems Corporation, Docket No. C-3804 (issued April 27, 1998).
34. In July 1998, the Commission approved the application of CVS to divest its TCI Paramus and Hillsdale cable systems to US Cable of Paramus-Hillsdale, LLC.
35. S.C. Johnson & Son, Inc., Docket No. C-3802 (issued April 20, 1998).
36. PacifiCorp, The Energy Group PLC, Peabody Holding Company, Inc., and Peabody Western Coal Company, File No. 9710091 (consent agreement accepted for comment February 17, 1998).
37. LandAmerica Financial Group, Inc., Docket No. C-3808 (issued May 20, 1998).
38. In August 1998, LandAmerica Financial Group, Inc., was granted approval to divest seven title plants in the District of Columbia, Florida and Michigan.
39. Federal-Mogul Corporation, and T&N plc, Docket No. C-3836 (issued December 4, 1998).
40. In December 1998, the Commission approved Federal-Mogul's application to divest Glacier Vandervell Bearings Group to Dana Corporation.
41. Roche Holding Ltd, Docket No. C-3809 (issued May 22, 1998).
42. In September 1998, the Commission approved Roche's application to divest its DAT reagents business to Microgenics Corporation.
43. The Williams Companies, Inc., Docket No. C-3817 (issued June 17, 1998).
44. Degussa Aktiengesellschaft and Degussa Corporation, Docket No. C-3813 (issued June 10, 1998).
45. Digital Equipment Corporation, Docket No. C-3818 (issued July 14, 1998).
46. Global Industrial Technologies, Inc., Docket No. C-3825 (issued September 10, 1998).
47. Gerald W. Schwartz, Onex Corporation, SC International Services, Inc., and Sky Chefs, Inc., Docket No. C-3828 (issued September 17, 1998).
48. Nortek, Inc., Docket No. C-3831 (issued October 8, 1998).
49. In January 1999, the Commission approved Nortek's application to divest M & S to The Chamberlain Group, Inc.
50. Exxon Corporation, The Shell Petroleum Company Limited and Shell Oil Company, Docket No. C-3836 (issued October 30, 1998).
51. Merck and Co., Inc., Docket No. C-3853 (issued February 18, 1999).
52. A formulary is a listing, by therapeutic category, of FDA-approved ambulatory drug products used to assist pharmacies, physicians and third-party payers in prescribing and dispensing pharmaceuticals. An "open formulary" is a formulary that allows the inclusion of any FDA-approved ambulatory prescription drug product that a group of healthcare professionals determines is appropriate for inclusion in the formulary.
53. Albertson's, Inc., Locomotive Acquisition Corporation, Buttrey Food and Drug Store company, and FS Equity Partners II, L.P., Docket No. C-3838 (issued December 8, 1998).
54. Eight of the supermarkets to be divested are located in Montana, including two in Billings, two in Butte, and one each in Bozeman, Great Falls, Helena and Missoula; seven are located in Wyoming, including two in Casper, two in Cheyenne, and one each in Cody, Gillette, and Laramie.
In December 1998, the Commission approved Supervalu's application to divest two stores in Casper, Wyoming, to Tidyman's LLC.
55. Shell Oil Company, and Tejas Energy, LLC, Docket No. C-3843 (issued December 21, 1998).
56. In February 1999, the Commission approved the divestiture of approximately 170 miles of the ANR pipeline system in Oklahoma and Texas to NorAm Field Services Corp.
57. Commonwealth Land Title Insurance Company, Docket No. C-3835 (issued November 10, 1998).
58. Medtronic, Inc., Docket No. C-3842 (issued December 21, 1998).
59. Usually, two filings are received, one from the acquiring person and one from the acquired person when a transaction is reported. Only one filing is received when an acquiring person files for a transaction that is exempt under Sections 7A(c)(6) and (c)(8) of the Clayton Act.