On August 18, 2011, significant changes to the Hart Scott Rodino (HSR) pre-merger notification requirements took effect. Parties to HSR-reportable transactions have a legal obligation to submit Notification and Report Forms (HSR Forms) to both the Federal Trade Commission (FTC) and the Department of Justice (DOJ), thereby triggering a waiting period during which the transaction cannot close while the antitrust agencies review the transaction for potential competitive issues. The HSR Form requires the submission of information and data regarding the transaction and the parties, together with various documents.
The stated purposes of the new rules are to make it easier for filers to prepare their HSR Forms and to require the parties to make additional disclosures of information that the FTC and the DOJ consider necessary to conduct a more accurate review of the competitive impact of reported transactions. Some of the new rules will simplify some aspects of the reporting process, while others are likely to make it more complicated, time-consuming and costly.
Certain Information No Longer Required
With the intention of reducing the burden on the filer, the new rules have eliminated the need to provide certain information in connection with HSR filings:
- Certain details about the assets and non-corporate interests that are being acquired are no longer to be submitted.
- Filers need not include copies of SEC filings.
- Regularly prepared balance sheets no longer need to be submitted.
- So-called “base year” revenue information (i.e. revenues for 2002) are no longer required. Instead, only the most recent year’s revenue (by NAICS codes) is required.
- Less detail is now required regarding persons that hold more than 5 percent of the voting shares of the acquiring person.
- The acquiring person’s minority holdings of entities whose operations are outside the acquired person’s industries do not have to be reported.
Additional Information Required by the Changes
However, the HSR changes also add significant new reporting requirements, which are likely to have particular impact on businesses such as private equity funds, investment funds, master limited partnerships and companies that engage in manufacturing operations outside the United States. The major classes of additional information that will have to be submitted include:
- Confidential information memoranda created in the previous 12 months that specifically relate to the sale of the acquired entity or assets, even if they do not relate to the transaction at issue. If none exists, the parties must produce any document that served the same function.
- Studies, surveys, analyses and reports prepared by investment bankers, consultants or other third-party advisors during (or for purposes of obtaining) an engagement that contain competitively significant information specifically relating to the sale of the acquired entity or assets. This includes materials prepared up to one year before the HSR filing.
- Documents evaluating or analyzing synergies or efficiencies prepared by or for any officers or directors for the purpose of evaluating or analyzing the acquisition at issue.
- Revenue data for manufactured products for the most recent year will need to be reported, not in broad seven-digit product classes as before, but instead using the more-detailed 10-digit NAICS product codes.
- Revenue in the United States from products manufactured abroad will now have to be reported at the more detailed 10-digit NAICS product-code level.
In addition to the above changes, the rules now define a new category of entities called “associates.” An associate of the acquiring person is an entity that is not controlled by the ultimate parent entity of the acquiring person, but: (a) has the right, directly or indirectly, to manage the operations or investment decisions of an acquiring entity (a Managing Entity); (b) has its operations or investment decisions, directly or indirectly, managed by the acquiring person; (c) directly or indirectly controls, is controlled by, or is under common control with a Managing Entity; or (d) directly or indirectly manages, is managed by, or is under common operational or investment decision management with a Managing Entity. “Associates” will include, e.g., general partners of a limited partner, partnerships with the same general partner, and funds with investments managed by a common entity. Under the new rules, the acquiring person must identify information about the holdings and operations of its “associates” that report revenues in the acquired person’s NAICS codes.
Although the amended HSR rules purport to significantly reduce the burden for filers, in reality, the changes may require parties to engage in greater analysis to determine what documents and information must be provided to the government. Especially burdensome for some parties will be the identification of, and reporting about, “associates.” Accordingly, given the new filing requirements, parties should allow extra time (and probably anticipate greater expense) to complete their HSR filings, and should contact their corporate counsel as soon as they are aware of a potentially reportable transaction.