United States: FTC/DOJ Announce Significant Changes To HSR Premerger Notification Form

Last Updated: September 18 2011
Article by Ngoc Hulbig and Charles F. (Rick) Rule

Most Read Contributor in United States, December 2018

On July 7, 2011, the Federal Trade Commission ("FTC") and the Antitrust Division of the U.S. Department of Justice ("DOJ") announced significant changes to the Hart-Scott-Rodino ("HSR") Premerger Notification Rules and the Premerger Notification and Report Form ("HSR Form") that may substantially increase the burden placed on filing parties. The new HSR rules were published in the Federal Register on July 19, 2011, and will take effect on August 18, 2011. Any transactions notified to the agencies on or after that date must use the amended form.

The Hart-Scott-Rodino Antitrust Improvements Act of 1976 ("HSR Act") requires parties to transactions meeting certain thresholds to submit HSR Forms to both the FTC and DOJ, triggering a waiting period that must expire or be terminated before the parties may consummate the transaction. The changes are intended to streamline the HSR Form and capture additional information that the agencies believe will better inform and expedite their competitive review of a proposed transaction during the initial HSR waiting period. The revisions simplify the filing process by eliminating certain sections of the HSR Form; however, they also require new categories of information and documents.

The changes to the HSR Form, discussed in more detail below, could prove to be burdensome, time consuming, and expensive for certain filing parties – particularly private equity companies, hedge and other types of investment funds, master limited partnerships in the energy sector, and businesses with manufacturing operations outside the U.S. The changes with the most potential to increase a filing party's compliance burden include:

  • Requiring the disclosure of information regarding an acquiring person's "associates," which are entities that are under common operational or investment management but are not controlled by that party for HSR purposes (e.g., investment funds that have a common managing or general partner, "master limited partnerships" in the energy sector);
  • Requiring manufacturing revenues from the most recent fiscal year, including for products manufactured outside the U.S. and sold inside the U.S. (either directly to a customer or through a U.S. entity), to be reported by 10-digit NAICS manufacturing codes; and
  • Requiring the submission of additional categories of documents that may not meet the requirements of Item 4(c), including offering memoranda, bankers' books and other materials prepared by third parties, and documents describing synergies and efficiencies that may result from the proposed transaction.

New Disclosures Regarding Associates

The previous HSR rules limited reporting obligations to information about the ultimate parent entity ("UPE") of the acquiring and acquired persons and all entities controlled by each UPE.1 Thus, for example, the previous HSR Form did not require information regarding a general partner ("GP") with a one percent interest in a partnership because the GP is not deemed to control the partnership for HSR purposes, even if the GP directs the partnership's activities and/or investments. Information also was not required for other partnerships with the same GP and other entities under common management with the acquiring partnership. The revised HSR Form changes this by requiring that the acquiring person provide information regarding its "associates," which are entities that are under common operational or investment management with the acquiring person.2 These revisions particularly will be significant for businesses with complex partnership structures (e.g., private equity companies, hedge and other investment funds, master limited partnerships in the energy sector, etc.).3 The new requirements relating to associates do not affect the definition of "acquiring person" for the purposes of determining whether HSR notification is required.

Minority investments Item 6(c) currently requires filing persons to report minority investments of at least 5% (but less than 50%) in other corporations. The revised Item 6(c) expands reporting by requiring an acquiring person to identify, to its knowledge and belief, information regarding the minority investments of each of its associates that derived (or may have derived) revenues in any of the same 6-digit NAICS codes as the acquired person in the transaction during the last year, even though the acquiring person may not have detailed NAICS code information about the business operations of such minority-held firms. In order to ease the compliance burden, the new rules allow filers to rely upon regularly prepared financial statements that list their associates' investments, provided that the financials are no more than three months old at the time of filing. Filers also may elect to list entities in the same general industry as the acquired person.

Overlaps among filing parties Item 7 currently requires information regarding NAICS code overlaps among parties to the transaction. The new rules expand Item 7 to require an acquiring party to list entities controlled by its associates that derived revenues in the same 6-digit NAICS codes as the acquired person.

The disclosure requirements relating to associates likely will increase significantly the burden for GPs and investment managers or directors of investment funds, who will need to track and report holdings of each of the (potentially many) "associate" investment funds they manage, the holdings of which may change frequently. The burden is further increased given that Items 6(b) and 6(c) no longer are limited to corporations and now will require information about minority investments in or by unincorporated entities.

Increased Revenue Reporting Obligations

Item 5 of the previous HSR Form required a filing party to submit historical (i.e., "base year") and current revenues classified by NAICS code for any products or services sold through U.S. establishments. The revised HSR Form eliminates the base year requirement, as well as the requirement that parties identify the years in which manufactured products have been added or deleted since the base year. This change will lessen the burden for some filing parties (particularly those with U.S. manufacturing operations). However, manufacturing companies now must provide more detailed information regarding their current operations.

Filers previously were required to report revenues from foreign manufacturing facilities only if products were sold through their U.S. establishments (e.g., warehouses) and only by 6-digit wholesale NAICS codes. The revised HSR Form requires parties to report, by the more granular 10-digit NAICS manufacturing codes, revenues for the last fiscal year for all products manufactured in the U.S. and for products manufactured outside the U.S. that were sold into the U.S. Direct shipments to U.S. customers no longer may be excluded from Item 5. These changes will increase the burden on businesses with foreign manufacturing operations that now must report U.S. revenues by codes that those operations may not maintain in the ordinary course of business.

Production of Additional Documents

Item 4(c) always has been one of the most critical and potentially time-consuming requirements of the HSR Form. Item 4(c) requires the production of documents created by or for officers or directors of the filing party for the purpose of evaluating or analyzing the transaction with respect to "market shares, competition, competitors, markets, potential for sales growth, and the potential for expansion into new products or geographic markets" (the so-called "4(c) content"). Ordinary course business documents generally (with limited exceptions) are not responsive to Item 4(c). The requirements for Item 4(c) remain unchanged, but the revised HSR Form requires the production of a new category of "4(d) documents."

Item 4(d) calls for three additional types of documents that would not necessarily be captured by Item 4(c):

  1. Offering memoranda Item 4(d)(i) requires confidential information memoranda ("CIMs") that were prepared for officers or directors (or, with respect to unincorporated entities, those serving similar functions) within one year of the HSR filing date and that relate specifically to the sale of the acquired entity or assets but not necessarily to the specific transaction at issue. Item 4(d)(i) requires the inclusion of such CIMs regardless of whether they contain 4(c) content or whether they were shared with the buyer. If no CIM exists, the parties must submit any documents actually given to officers or directors of the buyer meant to serve the function of a CIM (e.g., a preexisting presentation containing a company or industry overview). Ordinary course documents and/or financial data shared in the course of due diligence are not responsive, except to the extent that such materials are shared with the buyer specifically to serve the purpose of a CIM in the absence of a CIM. The agencies' stated intent is to "capture materials that provide an in-depth overview or analysis" of the target.
  2. Third-party advisor documents Item 4(d)(ii) requires documents prepared for officers or directors (or, with respect to unincorporated entities, those serving similar functions) within one year of the HSR filing date by investment bankers, consultants, or other third-party advisors, during an engagement or for the purpose of seeking an engagement. Unlike Item 4(d)(i), however, Item 4(d)(ii) only requires the inclusion of such third-party advisor documents to the extent those documents contain 4(c) content specifically relating to the sale of the acquired entity or assets, but not necessarily relating to the transaction at issue. Common examples include "bankers' books" or "pitch books" or other documents that address competitive issues developed by third-party advisors during an engagement or for the purpose of an engagement.
  3. Synergy and efficiency documents Item 4(d)(iii) requires documents evaluating or analyzing synergies and/or efficiencies prepared for the purpose of evaluating or analyzing the transaction in question, regardless of whether those documents contain 4(c) content. Financial models without stated assumptions may be excluded. The agencies have indicated that documents submitted with an HSR filing may carry greater weight than materials claiming synergies created and submitted later on in an investigation.

The collection, review, and production of 4(c) documents often is a gating item that requires a substantial amount of time and resources. The addition of Item 4(d) will require parties to expand their document search and will increase the time and expense required for compliance.

Conclusion

Companies with internal processes in place to meet current HSR obligations may need to modify those processes and/or create new ones, including: (1) the collection and review of certain categories of documents; (2) the methods used to maintain and compile the required annual financial information; and (3) for acquiring persons, the methods used to collect information from "associates." Given the expanded scope of data and document collection, as well as the fact that some of the additional information required will be transaction-specific (making it more difficult for companies to have a filing "on the shelf" that is ready to be updated for a time-sensitive transaction), parties to reportable transactions should take into account the likelihood that preparing the HSR filing will be more time consuming and expensive. For example, standard contract provisions requiring the parties to file notification under the HSR Act within a short period of time may need to be revisited, particularly for parties who are filing the revised HSR Form for the first time.

Footnotes

1. "Control" generally is defined as holding 50 percent or more of the outstanding voting securities or having the present contractual right to designate 50 percent or more of the board of directors of a corporation. Control of a noncorporate entity is determined by the right to 50 percent or more of the profits or assets upon dissolution.

2. Common examples of associates include general partners of a limited partner, other partnerships with the same general partner, other investment funds whose investments are managed by a common entity or under a common investment agreement, investment managers of funds, and "master limited partnerships" in the energy sector.

3. For example, separate investment funds that share GPs or managing partners with another fund will be considered associates of one another, as well as with the GPs/managing partners. If one fund is an acquiring person, it must submit information to the best of its knowledge regarding its GP, sister funds and their portfolio companies.

www.cadwalader.com

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions