On July 7, 2011, the Federal Trade Commission (FTC) and U.S. Department of Justice, Antitrust Division (DOJ) announced final revisions to the Premerger Notification  Rules, the Premerger Notification and Report Form (the "Form" or "Notification Form"), and associated Instructions.  The new rules will apply to HSR filings submitted on or after August 18, 2011.  The final version of the HSR rules and regulations closely follow the agencies' proposed revisions (which were the subject of an August 2010 Gibson Dunn Client Alert) with some modifications made in response to public comments.

Generally, M&A transactions may be reportable under HSR if, as a result of the transaction, (i) the buyer will hold stock, non-corporate interests, and/or assets of the seller valued at more than $66 million as a result of the deal (the "size-of-transaction" test) and (ii) one party to the deal has assets or annual sales of $131.9 million or more and the other party has assets or annual sales of $13.2 million or more (the "size-of-person" test).  The size-of-person test does not apply if the transaction is valued at more than $263.8 million.  Certain exemptions and additional thresholds may apply. 

The new rules do not affect these filing thresholds or other rules relating to whether a transaction must be reported under HSR.  Instead, the new rules and Form Instructions will affect the information and documents that must be supplied initially to the FTC and DOJ in connection with transactions reported under HSR.     

Expansion of "Item 4(c)" Documents

Item 4(c) of the HSR Form currently requires the filing party to provide copies of all documents that (a) were prepared by or for an officer or director of either party, (b) for the purposes of analyzing or evaluating the proposed transaction, (c) with respect to competition, competitors, markets, market shares, or opportunities for sales growth or expansion into new product or geographic markets (these topics are often referred to collectively as "Item 4(c) content"). 

The new rules leave the existing Item 4(c) requirements unchanged but add a new "Item 4(d)" that identifies additional materials to be provided with the HSR form.  Specifically:

  • Item 4(d)(i): This provision requires that the parties produce any confidential information memorandum or its "equivalent" (1) prepared by or for any officers or directors of the transacting parties or the ultimate parent entities of the transacting parties, (2) specifically relating to the sale of the target company or the to-be-acquired assets, and (3) prepared within a year prior to the HSR filing date.[1] 
  • Item 4(d)(ii): This provision requires that the parties produce documents prepared by investment bankers, consultants or other third party advisors if they were (1) prepared for any officers or directors of the transacting parties or the ultimate parent entities of the transacting parties, (2) provided they contain content relating to Item 4(c) subjects, (3) specifically relate to the sale of the acquired entity or assets, and (4) prepared within a year prior to the HSR filing date. 
  • Item 4(d)(iii): This provision requires the parties to submit documents "evaluating or analyzing synergies and/or efficiencies" if they were prepared "by or for any officers or directors" for the purpose of evaluating or analyzing the acquisition.  The terms "synergies" and "efficiencies" are not defined in the new rules.[2]  Notably, this particular item does not have the one-year time limitation that the other provisions of Item 4(d) include.

Reporting Information Relating to "Associates"

The antitrust enforcement agencies have, in recent merger investigations, increasingly focused on the potential competitive implications of relationships between the target company (or assets) and entities that, while not owned by the acquiror, may be under common investment management with the acquiror.  The typical example is a "family" of limited partnerships separately organized by a common manager and funded by investors, where the manager makes investment and other business decisions on behalf of the entire family of funds and their portfolio companies.  Existing HSR rules generally require that the filing party produce information on the "ultimate parent entity" of the acquiror, along with entities in which it holds a controlling bloc of stock (in the case of a corporation) or a majority equity investment (in the case of a non-corporate entity).  An entity outside that control "chain" is generally ignored when the ultimate parent prepares and files its Notification Form.

Item 7 of the current HSR Form requires filing parties to identify any overlaps between the activities of the acquiring person and any of its controlled affiliates, on the one hand, and the target company (or the assets to be acquired), on the other. [3]

The new rules seek to fill the gap in the existing rules by requiring the acquiring person to also separately identify any overlaps between any "associates" of the acquiring person, on the one hand, and the target company (or to-be-acquired assets) on the other.  An "associate" of the acquiring person is defined as any person or entity: (i) that manages the affairs or investments of the acquiring person; (ii) whose affairs or investments are managed by the acquiring person; or (iii) whose affairs or investments are under common management with the acquiring person.[4]   

As a practical matter, this change will require any acquiring person in preparation for filing first to identify all of its associates and then to determine the applicable NAICS codes for the most recent year's revenues for each associate.  In coordination with HSR counsel for the acquired person, the acquiror then has to determine any overlaps between any of its controlled entities or its associates, on the one hand, and the target company or to-be-acquired assets on the other. 

Changes in Item 5 Revenue Reporting

The new rules do away with all revenue reporting applicable to the "base" year (currently 2002), and replace it with a requirement that filing parties provide revenues for the most recent year, categorized by 6-digit NAICS codes for non-manufacturing activities (as required under the current form) and by 10-digit NAICS codes for manufacturing activities (only a 7-digit breakdown is currently required).  The new rules also require revenues derived from a filing party's manufacturing operations outside the United States to be included to the extent that such operations result in sales in or into the United States.[5]  For most filers, responding to the revised Item 5 should be substantially easier.

Addition of References to Non-Corporate Entities

A number of items on the Notification Form currently refer only to corporations, and not to non-corporate entities.  The new rules expand the Form's reporting requirements, with certain limitations, to include non-corporate entities.  Additional references to non-corporate entities have been inserted at various places in the rules, to codify the more or less equal treatment that corporate and non-corporate entities currently receive under established agency practice.

The other minor changes to the Form do not warrant detailed discussion here and did not change from the August 2010 proposal.  However, firms planning transactions should consult experienced antitrust and HSR counsel in advance to consider the potential impact these rule changes have on HSR reporting requirements.