Mergers Reported under HSR Act Down Slightly in FY 2012

This posting was written by Tobias J. Gillett, Contributor to Wolters Kluwer Antitrust Law Daily.

The number of mergers reported under the Hart-Scott-Rodino (HSR) Premerger Notification Program between October 1, 2011 and September 30, 2012 decreased approximately 1.4% from the previous fiscal year, according to the Hart-Scott-Rodino Annual Report for fiscal year 2012, issued on April 31 by the FTC and Department of Justice Antitrust Division.

The report states that 1,429 transactions were reported under the HSR Act during FY 2012, down from the 1,450 reported in FY 2011, but still significantly more than the 1,166 reported in FY 2010 and the 716 reported in FY 2009.

During FY 2012, the FTC brought 25 merger enforcement actions, including three in which the Commission initiated administrative litigation; 15 in which it accepted consent orders for public comment; 14 which resulted in final orders (with one still pending); and seven in which the transactions were abandoned or restructured as a result of antitrust concerns raised during the investigation.

The Antitrust Division also challenged 19 merger transactions that it concluded might have substantially lessened competition if allowed to proceed as proposed. These challenges resulted in seven consent decrees, seven abandoned transactions, two restructured transactions, and three transactions in which the parties changed their conduct to resolve Justice Department concerns. In addition, the agencies brought two actions against parties for failing to comply with the HSR notification requirements, resulting in a total of $1.35 million in civil penalties.

Other highlights of the report include a 10.9% decline from FY 2011 in the number of merger investigations in which second requests were issued, from 55 in FY 2011 to 49 in FY 2012. The number of transactions in which early termination was requested decreased from 82% (1,157) of reported transactions to 78% (1,094) of such transactions, while the number of requests granted out of the total requested increased from 77% in fiscal year 2011 to 82% in fiscal year 2012.

The report also discusses recent developments in HSR enforcement, including the FTC’s August 2012 issuance of a Notice of Proposed Rulemaking proposing changes to the premerger notification rules. The changes would revise the rules to provide a framework for determining when a transaction involving the transfer of rights to a patent in the pharmaceutical industry is reportable under the HSR Act. The FTC also published adjustments to its reporting thresholds, as required by the 2000 amendments to Section 7A of the Clayton Act, that increase the threshold from $66 million to $68.2 million.

The report contains descriptions of various FTC and Antitrust Division enforcement actions and includes appendices with tables of statistics summarizing transactions from fiscal years 2003-2012, as well as tables regarding the number of transactions reported and filings received by month during that period and data profiling Hart-Scott-Rodino premerger notification filings and enforcement interests. The report concludes that the HSR Act continues to do "what Congress intended, giving the government the opportunity to investigate and challenge those relatively large mergers that are likely to harm consumers before injury can arise."

The HSR Act requires certain proposed acquisitions of voting securities or assets to be reported to the FTC and the Antitrust Division prior to consummation. It imposes a waiting period, usually of 30 days (15 days in the case of a cash tender offer or a bankruptcy sale), before the parties may complete the transaction. The FTC and DOJ can issue second requests for more information, which will extend the waiting period for 30 days (10 days in the case of a cash tender offer or a bankruptcy sale) after compliance with the request. The FTC and DOJ may challenge the transaction in federal district court or in administrative proceedings.

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.

Associates

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.

FTC Would Accept Premerger Notification Filings During Government Shutdown

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

The Federal Trade Commission released a plan for dealing with a government shutdown that would occur if Congress fails to enact appropriations by a midnight deadline. A shutdown looked likely as budget talks appeared to have broken down early Friday morning.

As part of the FTC’s plan, the Commission’s Premerger Notification Office would remain open with very limited staff to accept new filings under the Hart-Scott-Rodino Antitrust Improvements Act (HSR Act).

The Justice Department Antitrust Division’s Premerger Notification Unit will also remain open with limited staff to accept filings.

According to the plan, the Commission will continue certain HSR investigations during the pendency of a shutdown. These investigations would be undertaken “to the extent the circumstances of a reported merger or acquisition indicate that a failure by the government to challenge the transaction before it is consummated will result in a substantial impairment of the government’s ability to secure effective relief at a later time.”

Non-Merger Investigations

Elsewhere in the FTC’s Bureau of Competition, all non-merger investigations would be suspended during the pendency of a shutdown. Staff may need to continue working on litigated matters in order to meet upcoming deadlines and protect the Commission’s interests in the litigation pending court action on motions for stays, according to the agency.

The FTC estimates that it would require up to 88 employees to staff excepted competition matters during a shutdown. That number would include staff to accept and review HSR filings, as well as the Bureau of Competition Director and three front office supervisors.

Consumer Protection Matters

In the event of a shutdown, the Commission intends to seek continuances in all Bureau of Consumer Protection (BCP) cases in which preliminary relief has been obtained.

Attorneys in those cases, or where there is no plan to seek preliminary relief, will notify opposing parties and courts of the government shutdown and request suspensions of dates for hearings and filings, according to the Commission. The Commission intends not to pursue the vast bulk of its consumer protection investigations, it was noted.

Employees “Excepted” from Furlough

The Commission estimates that it may need to except up to 120 employees from the furlough to meet upcoming deadlines and protect the Commission’s interests in consumer protection cases.

The BCP Director and three front office employees will be excepted from furlough to supervise the work. Currently, BCP staff is actively litigating approximately 65-75 cases in federal district courts throughout the country and one or two cases in administrative litigation, according to the agency.

Because Presidential appointees are excepted from furlough as a result of a shutdown, the Commission’s Chairman and its Commissioners can continue to work.

The FTC’s plan also excepts from furlough the Bureau of Economics Director, the FTC General Counsel, the Executive Director, and other high-level personnel, as well as lawyers, economists and support staff necessary to continue law enforcement actions.

FTC Revises Thresholds for Merger Filings, Interlocking Directorates

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

The FTC has announced its annual revisions to the thresholds for notifying the antitrust agencies of a proposed acquisition and merger pursuant to the report-and-wait requirements of the Hart-Scott-Rodino (HSR) Act.

The thresholds, which were increased based on the change in the Gross National Product (GNP), will become effective February 24, 2011.

Disclosure Requirements

Pursuant to the HSR Act, plans for large acquisitions and mergers must be disclosed to the Department of Justice and the FTC to enable the federal antitrust enforcement authorities to examine their competitive effects and have an opportunity to challenge them under the antitrust laws prior to consummation. Only the transactions that exceed the jurisdictional thresholds need to be reported on the Notification and Report Form.

However, in light of the recent increase in the number of federal enforcement actions challenging consummated mergers, it must be understood that the antitrust agencies can challenge a merger or acquisition that does not meet the HSR thresholds.

Under the revised thresholds, acquisitions that result in an acquirer holding an aggregate total amount of the voting securities and assets of the acquired party meeting or exceeding $263.8 million will be reportable (up from the current $253.7 million), unless otherwise exempted.

“Size of Person” Test

No transaction resulting in an acquiring person holding $66 million or less (up from $63.4 million or less) of assets or voting securities of an acquired person will need to be reported. The reportability of transactions falling between these boundaries is based on the “size of person” test.

Under the “size of person” test, transactions valued at $66 million or more but less than $263.8 million will be reportable if one party has sales or assets in excess of $131.9 million and the other $13.2 million (up from $126.9 million and $12.7 million, respectively).

Filing Fees

Along with notifying the agencies, parties must pay premerger filing fees. The fees are based on the size of the transaction. Under the revised thresholds, a $45,000 filing fee will be required for reportable transactions valued at less than $131.9 million (up from $126.9 million); a $125,000 filing fee will be required for reportable transactions valued at least $131.9 million but less than $659.5 million (up from $634.4 million); and a $280,000 filing fee will be assessed on the largest transactions.

Interlocking Directorates

The FTC has also released its annual recalculation of profits and sales thresholds applicable in determining whether an individual can serve as an officer or director of two or more competing corporations. Under Sec. 8 of the Clayton Act, the FTC is required to recalculate the figures annually based on changes in the GNP.

Under the new threshold amounts, effective January 25, 2011, interlocking management is prohibited if each of the companies has capital, surplus, and undivided profits in excess of $26,867,000 and the competitive sales of each corporation exceed $2,686,700. These figures are up from last year’s thresholds—$25,841,000 for Clayton Act, Section 8(a)(1), and $2,584,100 for Clayton Act, Section 8(a)(2)(A).

The FTC notice appears here at 76 Federal Register 4349, January 25, 2011.

FTC Seeks Comments on Proposed Changes to HSR Form, Instructions

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

The FTC has proposed modifications to the Hart-Scott-Rodino premerger notification form and related rules and instructions.

The agency is seeking public comments, through October 18, on the proposed changes, which are intended to streamline the form and focus on the information most needed by the agencies in their initial merger review.

Among the changes would be the addition of a new Item 4(d), which would require filing parties to submit certain documents that merging parties might already be including with their Item4(c) documents. Item 4(d) documents would include:

• Offering memoranda laying out the details of a company for prospective buyers;

• Certain studies and reports prepared by investment bankers, consultants, or other third- party advisors prepared for an officer or director for the purpose of evaluating or analyzing competition and other market issues; and

• Documents discussing synergies and/or efficiencies likely to result from a transaction.

In addition, the Commission has proposed the deletion of items that do not provide helpful information. Cited as examples are Item 3(c)—which requires filing parties to provide overly-detailed information regarding the number and classes of voting securities to be acquired—and Item 5(a)—which requires the reporting of 2002 revenues.
The Commission also has proposed the elimination of Item 4(b)’s requirement to submit a company’s most recent regularly prepared balance sheet.

The proposed revised form and instructions appear here and will be reported at CCH Trade Regulation Reporter ¶50,255.

Comments about the proposed modifications should refer to “HSR Forms Changes.” They can be filed in electronic form here.

A comment may also be filed in paper form. It should include the “HSR Forms Changes” reference both in the text and on the envelope and should be mailed or delivered to: Federal Trade Commission, Office of the Secretary, Room H-135 (Annex Q), 600 Pennsylvania Avenue, NW, Washington, DC 20580.

Premerger Notification Thresholds Adjusted Downward for 2010

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

The FTC has revised its thresholds for acquisitions and mergers subject to the report-and-wait requirements of the Hart-Scott-Rodino (HSR) Act. These thresholds, which will become effective February 22, 2010, were adjusted downward for the first time based on the change in the Gross National Product (GNP).

Pursuant to the HSR Act, plans for large acquisitions and mergers must be disclosed to the Department of Justice and the FTC to enable the federal antitrust enforcement authorities to examine their competitive effects and have an opportunity to challenge them under the antitrust laws prior to consummation. Only the transactions that exceed the jurisdictional thresholds need to be reported on the Notification and Report Form.

Revised Thresholds

Under the revised thresholds, acquisitions that result in an acquirer holding an aggregate total amount of the voting securities and assets of the acquired party in excess of $253.7 million will be reportable (down from the current $260.7 million), unless otherwise exempted. No transaction resulting in an acquiring person holding $63.4 million or less (down from $65.2 million or less) of assets or voting securities of an acquired person will need to be reported.

The reportability of transactions falling between these boundaries is based on the “size of person” test. Under the “size of person” test, transactions valued at more than $63.4 million but less than $253.7 million will be reportable if one party has sales or assets in excess of $126.9 million and the other $12.7 million (down from $130.3 million and $13 million, respectively).

Filing Fees

Along with notifying the agencies, parties must pay premerger filing fees. The fees are based on the size of the transaction. Under the revised thresholds, a $45,000 filing fee will be required for reportable transactions valued at less than $126.9 million (down from $130.3 million); a $125,000 filing fee will be required for reportable transactions valued at least $126.9 million but less than $634.4 million (down from $651.7 million); and a $280,000 filing fee will be assessed on the largest transactions.

Interlocking Directorates

The FTC has also released its annual recalculation of profits and sales thresholds applicable in determining whether an individual can serve as an officer or director of two or more competing corporations.

Under the new threshold amounts, effective January 21, 2010, interlocking management is prohibited if each of the companies has capital, surplus, and undivided profits in excess of $25,841,000 and the competitive sales of each corporation exceed $2,584,100. These figures were also adjusted downward. Under Sec. 8 of the Clayton Act, the FTC is required to recalculate the figures annually based on changes in the GNP.

Further information regarding the HSR thresholds will appear at CCH Trade Regulation Reporter ¶ 4231. An explanation of the rules for interlocking directorates will appear at CCH Trade Regulation Reporter ¶ 4575.

Details are available here at the FTC website.

After U.S. Clearance, EC Questions Oracle’s Acquisition of Sun

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

Oracle Corporation announced on November 9 that the European Commission (EC) has issued a statement of objections (SO) concerning the company’s proposed acquisition of Sun Microsystems Inc.

The SO follows a decision by the U.S. Department of Justice not to challenge the transaction. The Justice Department terminated the waiting period under the Hart-Scott-Rodino Act in August.

“Oracle plans to vigorously oppose the [European] Commission’s Statement of Objections as the evidence against the Commission’s position is overwhelming,” according to a company statement. “Given the lack of any credible theory or evidence of competitive harm, we are confident we will ultimately obtain unconditional clearance of the transaction.”

At the time of Oracle’s disclosure, the EC had not made the SO public. However, the EC announced in September that it had opened an in-depth investigation into Oracle’s acquisition of Sun.

Competition Concerns in Databases Market

According to the EC, its initial market investigation indicated that the combination of the U.S. technology companies would raise serious competition concerns in the market for databases—a key element of company IT systems.

EC Competition Commissioner Neelie Kroes said the transaction would combine “the world’s leading proprietary database company” and “the world’s leading open source database company.”

In its November 9 statement, Oracle said that “the database market is intensely competitive with at least eight strong players, including IBM, Microsoft, Sybase and three distinct open source vendors.”

According to Oracle, “there is no basis in European law for objecting to a merger of two among eight firms selling differentiated products. Mergers like this occur regularly and have not been prohibited by United States or European regulators in decades.”

Justice Department Reaction

In response to the EC’s action, Deputy Assistant Attorney General Molly Boast of the Department of Justice Antitrust Division issued a statement on November 9, reiterating the Antitrust Division’s earlier determination that “the merger is unlikely to be anticompetitive.”

Boast pointed to the number of open-source and proprietary database competitors to justify the U.S. position. “We remain hopeful that the parties and the EC will reach a speedy resolution that benefits consumers in the Commission’s jurisdiction,” Boast said.

The Department of Justice statement appears here on the DOJ website.

Justice Department Forces Transistor Maker to Divest Acquired Assets . . .

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

The Department of Justice announced on August 20 that it has reached a proposed settlement with California-based semiconductor device maker Microsemi Corporation, requiring the company to divest all of the assets it acquired from rival Semicoa Inc. in July 2008.

The Department challenged the deal in December 2008, alleging that it eliminated or reduced competition in the development, manufacture, and sale of certain semiconductor devices used in critical military and space programs, thereby resulting in increased prices and slower delivery of components essential to the security of the United States.

The devices at issue—small signal transistors and ultrafast recovery rectifier diodes—are used to control the flow of electric current. Both are used in critical military and civil applications, ranging from satellites to nuclear missile systems.

Prior to the acquisition, Microsemi and Semicoa were the only manufacturers of small signal transistors qualified for these applications and were each poised to become qualified for their ultrafast recovery rectifier diodes, which were in short supply, according to the Department.

The proposed settlement—which has been filed but not yet approved by the federal district court in Santa Ana, California—would resolve the lawsuit.

The action is U.S. v. Microsemi Corp. A news release on the settlement appears here. Other documents can be found here on the Department of Justice Antitrust Division website.

. . . While Approving Oracle’s Takeover of Sun Microsystems

Oracle Corporation and Sun Microsystems Inc. announced on August 20 that the Department of Justice has approved their proposed combination and terminated the waiting period under the Hart-Scott-Rodino Act.

The deal—valued at approximately $7.4 billion, or $5.6 billion net of Sun’s cash and debt—was approved by Sun’s shareholders on July 16. Closure awaits certain other conditions, including clearance by the European Commission, which has until September 3 to decide whether to allow the acquisition or launch an investigation into its legality.

Sun and Oracle initially announced the proposed acquisition in April. According to company statements, the deal is aimed at combining “best-in-class enterprise software and mission-critical computing systems” so that Oracle could engineer and deliver an integrated system—applications to disk—to its customers.

A press release on the Department of Justice’s approval of the deal appears here on the Oracle website.