Antitrust and Trade Regulation Alert
August 23, 2010
Authors:
Brian K. McCalmon
brian.mccalmon@klgates.com
+1.202.661.6230
Scott M. Mendel
scott.mendel@klgates.com
+1.312.807.4252
K&L Gates includes lawyers practicing out
of 36 offices located in North America,
Europe, Asia and the Middle East, and
represents numerous GLOBAL 500,
FORTUNE 100, and FTSE 100
corporations, in addition to growth and
middle market companies, entrepreneurs,
capital market participants and public
sector entities. For more information,
visit www.klgates.com.
FTC Proposes Extensive Changes to
HSR Premerger Notification and Report
In a sweeping revision to the Premerger Notification and Report filed under the HartScott-Rodino Antitrust Improvements Act of 1976, as amended (“HSR Act”), the
Federal Trade Commission (“FTC”) has proposed significant changes in the
information required to be submitted to the antitrust agencies by acquiring and
acquired persons. If adopted, the changes would significantly alter the reporting
requirements of parties to a reportable transaction, adding some burdens while easing
others. Coming close on the heels of the antitrust agencies’ joint effort to rewrite the
1992 Merger Guidelines, the FTC’s effort appears similarly designed to align the
information required by the parties with the analysis the FTC and the Department of
Justice use to evaluate an acquisition’s effect on competition.
The proposed changes include:
•
the elimination of certain items on the Form that have proven not to yield useful
information;
•
the requirement to provide specific categories of documents with the Form that
up to now some parties have viewed as not required;
•
the requirement to provide information with respect to entities under common
management with, but not technically part of, the acquiring person (newly
defined as “associates”); and
•
further harmonization of the treatment of acquisitions of corporate and noncorporate interests.
Comments are invited until October 18, 2010. If adopted as proposed, companies
can expect the following:
Document searches will become more burdensome. Parties are by now familiar with
the requirement under Items 3(d) and 4(c) of the Premerger Notification Report Form
to provide the agencies with the acquisition agreement and all documents prepared
by or for an officer or director that analyze the acquisition with respect to certain
competitive factors. FTC proposes to revise Item 3(d) and add Item 4(d) to expand
the scope of the documents the parties must produce with their initial premerger
report form. These revisions will in some instances impose significant additional
burdens on the parties. Documents that would have to be produced under the
proposed revisions include:
•
All agreements not to compete related to the transaction.
•
All offering memoranda if they contain some reference to the acquired entity or
assets and were created within two years of the date of filing.
Antitrust and Trade Regulation Alert
•
All investment banker or other third-party
adviser documents if they reference the acquired
entity or assets, were prepared within two years
of the filing, and were prepared for officers or
directors to evaluate or analyze markets, market
shares, competition, competitors, or the potential
for sales growth or expansion into other product
or geographic markets.
•
Documents discussing synergies or efficiencies
likely to result from the transaction if they were
prepared by or for an officer or director for the
purpose of analyzing or evaluating the
transaction and were created within two years of
filing.
Of the four new categories of documents required
under the proposed rules, the latter two will impose
the heaviest burden on filing parties. Companies
seeking to sell one or more of their businesses often
engage in discussions with several potential bidders.
Currently, only documents that discuss the
acquisition being reported must be submitted, not
those relating to prior iterations of an acquisition or
discussions with other potential buyers. Proposed
Item 4(d) would capture all offering memoranda and
many analysis documents generated within two
years of filing. In addition, parties often save a great
deal of time in conducting document searches in
transactions that raise little competitive concern by
excluding from close review some types of synergies
and efficiencies documents. Even though financial
models without stated assumptions will be excluded,
new Item 4(d) will still require parties to spend
much more time on a detailed review of a larger
volume of documents than has been the case.
The requirement that offering memoranda,
investment banker analyses, and synergies
documents be produced also increases the
importance of engaging antitrust counsel at the
earliest stages of the consideration of a potential
transaction. Doing so can prevent misleading and
problematic language from being inserted into
routinely created deal documents without a clear
understanding of the antitrust risk.
Gathering financial and operations information for
the Premerger Notification Report Form will remain
about as burdensome as it is now. The proposals
contain welcome concessions to experience and
discard some information requirements that are
unnecessary for the initial review process. For
example, in the section of the Form concerning
revenues (Item 5), parties will only have to provide
current-year revenues, as the proposals discard the
requirement to provide historical revenues
(currently revenues from 2002). This item will thus
consist of only one reporting section, a welcome
change. On the other hand, parties may no longer
exclude NAICS codes where revenues amounted to
$1 million or less and must report manufacturing
revenues under the full ten-digit NAICS code for
the most recent year and revenues from products
manufactured outside the U.S. but sold into the U.S.
Overall, however, filing parties will welcome the
changes to Item 5.
The subsidiary listing required by Item 6(a) would
be similarly streamlined to require the filing party to
list only its U.S. subsidiaries, or those with sales in
or into the U.S.; to the consternation of CFOs and
in-house counsel everywhere, the Form currently
requires a list of all of the filing person’s
subsidiaries, anywhere in the world. But a new
requirement will mandate that the acquiring person
attempt to identify the NAICS codes of entities in
which it or its associates hold a minority interest,
and list certain information for those entities that
derive revenues in the same NAICS codes as the
acquired person. This new requirement presents
numerous challenges and will certainly be the
subject of sharp comment.
There will be no distinction between corporate and
non-corporate interests in the Form or the review
process. Although the notification rules were
amended in 2005 to harmonize the treatment of
acquisitions of corporate and non-corporate interests
(e.g., LLCs), distinctions in the form and filing
process remain (e.g., in Items 6, 8, and 16 CFR §
801.30). The proposed rule would eliminate nearly
all of the distinctions between the various types of
legal entities, except for the distinction between
acquiring a minority interest in a corporation and a
minority interest in a non-corporate entity (the
former may be reportable if the size thresholds are
met, whereas the latter is not reportable regardless
of size). In new Items 6 and 8, parties will have to
respond with respect to their holdings in any type of
legal entity, not just corporations. Similarly, the
rule covering corporate tender offers and openAugust 23, 2010
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Antitrust and Trade Regulation Alert
market purchases (16 C.F.R. §801.30), which starts
the waiting period upon the filing of the acquiring
person only, would be amended to cover similar
acquisitions of non-corporate entities. This would
prevent non-corporate acquired persons in a hostile
takeover from blocking the acquisition by refusing
to file HSR. This change also removes the risk that
acquisitions of publicly traded master limited
partnership interests would violate the HSR Act.
Similarly, the current exemption for acquisitions by
or from a foreign governmental corporation would
be expanded to exempt acquisitions involving noncorporate entities controlled by a foreign
government.
The proposed rules would implement welcome
changes but, as is usually the case, the devil will
remain in the details. Clients and counsel should
remain alert to the additional burdens imposed and
should be on the lookout for effects and changes to
existing practice.
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K&L Gates includes lawyers practicing out of 36 offices located in North America, Europe, Asia and the Middle East, and represents numerous
GLOBAL 500, FORTUNE 100, and FTSE 100 corporations, in addition to growth and middle market companies, entrepreneurs, capital market
participants and public sector entities. For more information, visit www.klgates.com.
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This publication is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon
in regard to any particular facts or circumstances without first consulting a lawyer.
©2010 K&L Gates LLP. All Rights Reserved.
August 23, 2010
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