A fundamental element of pre-merger review in the United States is the ability for antitrust agencies—the Antitrust Division of the Department of Justice (DOJ) and the Federal Trade Commission (FTC)—to make a “Request for Additional Information and Documentary Materials,” or the so-called Second Request to determine the potential for anticompetitive effects of the proposed merger. Yet, few antitrust procedures trigger as much dismay for private parties as receiving a Second Request regarding their proposed transaction. These requests can be expensive, time-consuming, disruptive, and have the significant potential to undermine even the most solidly grounded deals.
A Prelude to Litigation
Practitioners often view Second Requests as a prelude to an agency commencing litigation to block or lead parties to scuttle proposed transactions. “[R]epercussions appear in at least two cases: First, when beneficial mergers that push the envelope on permissibility are not proposed, and second, when beneficial proposed transactions are abandoned or scuttled in the face of agency concern.” Andrew G. Howell, Why Premerger Review Needed Reform—And Still Does, 43 Wm. & Mary L. Rev. 1703, 1727 (2002).
In 2020, 3 percent of transactions reported to the FTC under the Hart-Scott-Rodino Act (HSR) were subject to Second Requests, the same as in 2019, pre-pandemic. The FTC reported that in the fiscal year 2020, it brought 28 merger enforcement challenges, the highest in a single year since 2001, and indicated that increasing enforcement could lead to even more Second Requests being filed in 2022. Accordingly, businesses, antitrust practitioners, and mergers and acquisitions (M&As) attorneys have an interest in understanding what comprises a Second Request and how to comply with one.
What Is in a Second Request?
Under the HSR, parties to proposed mergers or acquisitions exceeding certain threshold levels must provide advanced notice, with the first waiting period lasting 30 days (or 15 days in certain cash tender offers or bankruptcy sales), during which the FTC and DOJ pursue an initial investigation and conduct a preliminary antitrust analysis of the proposed transaction. Following the first notification, either agency may determine that it needs additional information and documentary materials from any parties to the transaction who were required to file the pre-transaction notification. This request for information—or the so-called Second Request—extends the waiting period for a specified period (typically 30 days, but 10 days in certain cash tender offers or bankruptcy filing) so that the reviewing agency can determine the potential effects of the proposed transaction on competition.
Examples of Information Sought in the Requests
- Transacting parties’ organizational charts and personnel directory
- Detailed relevant product or service descriptions, including the locations of facilities for such product or service; sales data by unit, dollar amount, and relevant geography; and capacity and utilization details for each facility
- Documents concerning competition in the relevant product or service and geographic markets, e.g., pricing plans, policies, lists, forecasts, strategies, structures, sales, pricing, market share information for overlapping products, and other financial data
- Short- and long-term business plans, strategies, and objectives, including synergy analyses, budget and financial projections, research and development efforts, and related presentations
- Communications concerning the proposed transaction
- Any other document regarding the proposed transaction that the agency deems necessary
Complying with a Second Request
Parties are obligated to provide the information sought in the specifications within a “reasonable time” and often within the period set by the agency to “substantially comply” with a Second Request. As a result, a Second Request can considerably delay a transaction’s closing. Part of the process may include a Second Request conference with the FTC, during which the Bureau of Competition (BC) staff will “discuss the competitive issues raised by the proposed transaction if known, and consider which information and documents may be obtained relating to the competitive issues raised.” Fed. Trade Comm’n, Premerger Notification Office, Introductory Guide III, “Model Request for Additional Information and Documentary Material (Second Request)” at 2 (Oct. 2021).
Practitioners often see Second Requests as a precursor to an agency’s decision to initiate litigation to block a deal, or at the very least, functionally slow down the review process through a massive data requirement. This pre-litigation perception creates apprehension for private parties around the Second Request process, which, at the margin, likely leads some parties to abandon their deals prematurely.
In short, a Second Request is an additional information-gathering tool when the FTC and DOJ investigate proposed transactions above certain threshold levels that have the potential to be anticompetitive. Receiving such a request does not indicate whether the reviewing agency will certainly seek to litigate the transaction. Even without the threat of a future agency enforcement action, the lengthy delay (five months or more), financial costs, and expenditures may be enough to dissuade certain parties and their advisors from consummating the proposed transaction.