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Frequently Asked Questions - #66

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FAQ-66

Entity A’s parent company has plans to merge or to combine with another company.  This other company has a subsidiary, Entity B, which is also active in trading and marketing power in PJM.  Our understanding is that if:

a) Entities A and B become Qualified Bidders in the auction; 

b) both Entities submit a Part 2 Application in which each certifies that it is not associated with the other; and

c) the merger closes after both Entities are notified that they are registered to bid in the auction pursuant to a successful Part 2 Application but before the auction starts;

then Entities A and B become associated in violation of their certifications in the Part 2 Application and Entities A and B would then be subject to sanctions, including forfeiting the right to any further participation in the auction.  FAQ-60 mentions that Entities A and B may avoid such a situation by forming a bidding agreement and declaring such a bidding agreement (the “Arrangement”) in their Part 1 Application provided that each Entity continues to stand alone and conduct its business independently after the merger of their parents and until three days after the Board renders a decision on the auction results.   Can you please elaborate?


We reiterate that it is assumed that neither Entity A nor Entity B would legally or effectively combine with each other or with any subsidiaries of the company with which its parent has merged. 

The fact that Entities A and B could enter into an Arrangement in the Part 1 Application may contribute to ease concerns about an association forming between Entities A and B after the Part 2 Applications are submitted because the restrictions placed on the Entities participating in the Arrangement are likely to be sufficient for those that would apply to any two Qualified Bidders that are associated with one another.  However, the participation in an Arrangement does not grant an exception for the Entities to make all other certifications required of the Part 2 Application, including:  (1) certifications that the Qualified Bidder must remain the same Entity until three days after the Board renders a decision on the auction results; and (2) the certification that the Qualified Bidder will not substitute another entity in its place, transfer its rights to another entity, or otherwise assign its status as a bidder to another entity.  These certifications ensure that the Entities that submit to the qualification process, that certify agreement to the Supplier Master Agreement and the Auction Rules, and that certify compliance to the Association and Confidential Information Rules are those Entities that bid and that would sign the Supplier Master Agreement should they be successful at the auction.   

On the basis of the Part 1 and Part 2 Applications, the Auction Manager would determine whether Entities A and B comply with the Association and Confidential Information Rules and whether these Entities could be registered in the auction as a “Joint Bidder”.  This determination would rely on the details of the certifications and information disclosures, as well as the specific circumstances; a general determination cannot be made.

We emphasize in the strongest possible terms that this response does NOT purport to state that if the parent of Entity A and the parent of Entity B have plans to merge, it is legal under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (“HSR Act”) or other controlling antitrust laws for Entity A and Entity B to form a bidding agreement, joint venture for the purpose of bidding in the auction, bidding consortium, or other arrangement pertaining to bidding in the auction (“Arrangement”).  Our response discusses, under the hypothetical that Entity A and Entity B do participate in an Arrangement and have entered into such an Arrangement after seeking all relevant legal advice in their sole discretion, the possibility that these Entities may continue to participate in the auction.  Bidders should consult their own legal counsel to determine whether any such Arrangement in their particular circumstances complies with the HSR Act as well as any other regulation, law, or undertaking of the Entities and of the merging parties.  



11/15/2021, in Association and Confidential Information Rules.

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