Wednesday, July 13, 2011

Changes to Premerger Notification Rules, Form Announced

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

The Federal Trade Commission and Department of Justice Antitrust Division have announced revisions to the form that parties must file when seeking antitrust clearance of proposed mergers and acquisitions under the Hart-Scott-Rodino (HSR) Act Premerger Notification Rules.

The final rules and report form will take effect 30 days after publication in the Federal Register. Text of the Federal Register Notice appears here. Text of the Amended Premerger Notification and Report Form appears here. Further information appears at CCH Trade Regulation Reporter ¶50,271.

The revisions and additions take into account feedback received from antitrust practitioners. Last August, the agency sought public comment on updates to the rules and report form. The notice of proposed rulemaking was published at 75 Federal Register 57110, September 17, 2010.

At that time, the FTC said that the proposed changes were intended to “eliminate the least helpful information requests in the Form and add requests for information that will greatly enhance the Agencies’ review.”

Deletion of Categories of Information

The revised HSR form deletes several categories of information that over time have proven unnecessary in a preliminary merger review. HSR filers will no longer be required to provide copies of documents—whether in hard copy or via electronic link—filed with the Securities and Exchange Commission (Item 4(a)), report economic code “base year” data (Item 5(a)), or give a detailed breakdown of all the voting securities to be acquired (Item 3(c)).

Filers, however, will have to provide the agencies “with narrowly focused additional documents that will help expedite the merger review process,” according to the announcement.

Submission of Documents

New Item 4(d) requires the submission of certain documents that have not been submitted with regularity as Item 4(c) documents, because of differing interpretations as to whether they were called for under current Item 4(c). Generally, Item 4(c) documents include studies and reports prepared by or for officers or directors—or individuals exercising similar functions in the case of unincorporated entities—for the purpose of evaluating or analyzing the competitive effects of an acquisition.

Under Item 4(d), filers will be required to include: “Confidential Information Memoranda” prepared by or for officers or directors and specifically related to the sale of the acquired entity or assets (Item 4(d)(i)); materials prepared by investment bankers, consultants, or other third party advisors for officers or directors during an engagement or for the purpose of seeking an engagement that specifically relate to the sale of the acquired entity or assets (Item 4(d)(ii)); and materials evaluating or analyzing synergies and/or efficiencies prepared by or for officers or directors for the purpose of evaluating or analyzing the acquisition (Item 4(d)(iii). Only Confidential Information Memoranda and third party materials created within one year of filing need be filed.


The required inclusion of information regarding “associates” with filings is intended to address agency concerns over the sufficiency of information about ties between acquiring investment funds and other entities that are associated with these acquiring entities, which have holdings in the same line of business as the target.

Associates are entities that are under common management with the acquiring person, but are not under the acquirer’s control within the meaning of the HSR rules. Examples include general partners of a limited partnership and other investment funds whose investments are managed by a common entity or under a common investment management agreement.

The FTC rejected a suggestion that the definition of associate be limited to master limited partnerships and private equity funds, since new types of entities that raise similar concerns may emerge in the future. The FTC estimates that this change will increase the filing burden for acquiring persons that are private equity funds and master limited partnerships.

North American Industry Classification System Codes

The agencies have made changes to Item 5 to require the reporting of North American Industry Classification System (NAICS) product code information for products manufactured outside of the United States and sold into the United States. Filing parties will need to include 10- digit NAICS product codes and revenues for such foreign manufactured products only for the most recent year.

While foreign manufacturers might experience an additional burden because of their unfamiliarity with NAICS manufacturing codes, this burden is outweighed by the usefulness of the information to the agencies, according to the FTC.

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