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In the largest civil penalty ever for violating the pre-merger notification law, the Hearst Corp. agreed Thursday to pay $4 million to partially resolve Federal Trade Commission charges that it failed to disclose key documents relating to its 1998 acquisition of Medi-Span Inc. The case is the latest in a series of enforcement actions by the regulatory agencies against companies that have violated the Hart-Scott-Rodino Antitrust Improvements Act of 1976. It also may not be the last. “To be effective, the review process requires companies filing HSR notices to fulfill their obligations with candor and completeness,” said Susan Creighton, deputy director of the FTC’s competition bureau. “The commission will continue to enforce the HSR Act when companies fail to do so.” The settlement does not affect separate charges filed in April against Hearst for failing to disclose the Medi-Span-related documents. In that case, the FTC seeks disgorgement of profits and a divestiture of the acquired company, which provides pharmaceutical data. Hearst is close to settling this second case, which is pending before Judge Thomas Penfield Jackson of the U.S. District Court for the District of Columbia, a source close to the situation said. The deal will include the sale of pharmaceutical database assets to a new competitor and the return of at least some profits, though an exact amount is still under negotiation. Hearst’s First DataBank unit absorbed Medi-Span in 1998. David Manin, a spokesman for the unit, did not return calls for comment. Antitrust lawyers said the settlement reaffirms their advice that corporations need to adhere to Hart-Scott-Rodino Act compliance, including the requirement that they give the government all studies, analyses and surveys prepared in connection with a deal. These are known as 4(c) documents. “This is part of a pattern,” said Robert Schlossberg, a partner at Morgan Lewis & Bockius in Washington, D.C. “The agencies are showing their ever increasing determination to enforce their right [to request] 4(c) documents.” Schlossberg said some companies still do not take HSR compliance seriously, despite past enforcement actions such as the $2.78 million penalty paid by Blackstone Capital Partners II in 1999, the $2.89 million paid by Loewen Group Inc. in 1998 and the $3.1 million paid by Sara Lee Corp. in 1996. “This may not be the only investigation the agency has,” he said. The FTC bears some of the blame for the compliance problems, said Neil Imus, a partner at Vinson & Elkins in Washington, D.C. “It would be helpful for the agency to give more guidance on what is a 4(c) document,” he said. “It is not always clear.” The Hearst case stems from the New York media giant’s December 1997 notification to the FTC of its intent to buy Medi-Span for $38 million. Included with the filing was a single 4(c) document. The FTC did not object to the deal, which closed Jan. 15, 1998. During the next two years the FTC received customer complaints charging that First DataBank had dramatically raised prices immediately after the merger. As part of a subsequent investigation, the agency uncovered at least five documents it maintains Hearst should have disclosed with the HSR filing. These included a September 1997 proposal to the Hearst board of directors describing the deal and handwritten notes from an April 1997 presentation to the board describing the businesses of First DataBank and Medi-Span. This information helped persuade the FTC that First DataBase and Medi-Span were the only companies providing software and data detailing drug prices, descriptions, dosages and interactions. That effectively meant the merger gave First DataBank a monopoly. Hearst submitted a new HSR filing in August 2000 that included three documents not previously submitted and a list of six it believed need not be disclosed because of attorney-client privilege. The FTC, however, said the violation extended until Nov. 22 of that year. That could mean the FTC issued a request for more details based on the deal. In turn, the clock would continue to tick until Hearst gave the FTC the requested materials. The Department of Justice brought the case on behalf of the FTC. The government could have sought as much as $11,000 per day in penalties, which would have amounted to more than $10 million. When the HSR Act was passed 25 years ago, it required companies to notify the FTC 30 days before closing any deal valued at more than $15 million. The notice needed to include enough details so the agency could decide whether to open an antitrust investigation 30 days before closing. In February, Congress raised the filing threshold to $50 million. Copyright �2001 TDD, LLC. All rights reserved.

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