M&A Investigative Tools : A Synopsis 13 August 2005 By JEONG, Joong-weon

1. Training Workshop on M&A M&A Investigative Tools :A Synopsis 13 August 2005 By JEONG, Joong-weon Korea Fair Trade Commission

2. 3 Conclusion 2 1 Policy Considerations Various Tools for Merger Investigation C O N T E N T S Acknowledgement – This Presentation is Based on the ICN Merger Working Group’s Work

3. Various Tools for Merger Investigation • Notification/Filing • Compulsory Request for Information • Voluntary Request for Information • Telephone Interview • Oral Evidence (Deposition, Testimony, Affidavit…) • On-site Visit or Inspection • Outside Experts • Public Data • Economic Analysis

4. Notification/Filing • Most basic, and widely used • Starting point for a merger investigation process • Should not be too burdensome, but should provide the agency with sufficient information to see if the case merits further investigation < ICN Recommended Practice > "initial notification should be limited to the information needed to verify that the transaction exceeds jurisdictional thresholds, to determine whether the transaction raises competitive issues meriting further investigation, and to take steps necessary to terminate the review of transactions that do not merit further investigation."

5. Compulsory Request for Internal Document • Internal documents are asked to the merging parties to complement initial filing • Advantage - Un-filtered, in original state • Disadvantage Time-consuming, too much information Tip :Remember to “frame” the request

6. Compulsory Request for Written Documents • The investigator asks the merging parties or competitors to fill in question sheet or data tables • Advantage - Less burdensome to merging parties and investigator • Disadvantage - The answer may be subjective or information might be manipulated

7. Voluntary Request for Information • Often used during early phase of investigation • Also used by jurisdictions without compulsory request powers Example : Explanation of relevant market, business and strategic plans, market studies, Lit of competitors, suppliers, customers

8. Oral Evidence : Telephone Interview • Very useful for obtaining quick answer for a small but an important question • Also, a good way of approaching someone who is ”shy” to come forward in open setting • Drawbacks: • Hard to get in touch with the right person • Interviewees are less prepared than in formal meetings Tip :Remember to make a transcript of conversation

9. Oral Evidence : Sworn Statements • Prepared Statements - Affidavits, declaration are prepared under assistance by the investigators and submitted by the merging parties or third parties • Un-prepared Statements - Sworn testimony or deposition are taken through investigation hearings, transcribed during the hearings

10. Use of Publicly Available Data • Second most widely used tool for investigation • Not burdensome to the merging parties • Shows some idea about the company, its strengths and weaknesses, product, sector, market share, cost, developments and challenges • But must be careful for biased information Example : Sector publication, financial report, Brochures, corporate and trade association reports, Web Sites, Regulatory Agency’s report or Web Site

11. Economic Analysis • Used for complex cases • Used to predict economic impact of merger and to define relevant market • Must be careful to use correct data to gain correct economic analysis • Can be time-consuming

12. Use of Outside Experts/Studies • Used for complex cases only • Use of experts and commissioned studies are costly • Be cautious that they are not competition experts Tip :Remember to monitor the work and make advance planning to make best use of the experts

13. On-site Visits/Inspections • Surprise Inspection • Used to obtain evidence if the merging party is not complying with the request • Very seldom used because it’s burdensome to both agency and company • Scheduled Visit • Good opportunity to meet actual business people • Gives good insight into how industry and company works in practice

14. Confidentiality • Merger investigation involves collection of information which might be confidential • Jurisdiction needs safeguards in place to protect confidentiality < ICN Recommended Practice > "Public disclosure of business secrets and other confidential information received by competition agencies in connection with the merger review process may prejudice important commercial interests and may have adverse effects on competition. The prospect of potential disclosure may also discourage parties from submitting all relevant information to and fully cooperating with the reviewing agency. Confidential information that merging parties and third parties submit in connection with the merger review process should therefore be subject to appropriate confidentiality protections."

15. Enforcement Powers • Investigation tools will be ineffective without some kind of sanction • Failure to submit or submitting false or misleading information must be punished • Sanction must be significant so as to act as a deterrence • Sanction should be imposed until the compliance has been made • Criminal prosecution can be an option

16. How the Survey Shows According to the ICN Merger Working Group Survey(2002)… In a simple case, • Notification/Filing and public data were often used in most jurisdictions • Surprise inspection or outside experts were almost never used In a complex case, • Notification/Filing, public data, and request for information were often used in most jurisdictions • Surprise inspection or sworn testimony were almost never used

17. Further Study on this Topic • For further information on this topic, visit : www.internationalcompetitionnetwork.org (Downloadable reports are available) • Keep on the lookout for technical assistance projects by the RCC in Seoul - Get in touch with the KFTC for more information on RCC