On July 7, 2011, the Federal Trade Commission (“FTC”) announced that it had finalized changes proposed in August 2010 to the Hart-Scott Rodino Antitrust Improvements Act (“HSR”) and to the Premerger Notification and Report Form (“Form”) required to be filed by companies with the FTC and Antitrust Division of the U.S. Department of Justice (collectively, the “Agencies”) in connection with certain acquisitions that meet the requisite thresholds and are not exempt. The changes to the Form and the Rules will become effective thirty (30) days after the final rules are published in the Federal Register, which we anticipate will occur shortly.
Most of the proposed rules were adopted as proposed. Set forth below is a summary of new disclosures that must be made as well as some disclosures that have been eliminated.
New Disclosure Requirements
The final rules require the following new disclosures:
- Acquiring persons must disclose information regarding “associate” entities pursuant to a new definition of associate. The FTC noted in its press release that in the past, competitive overlaps among limited partnerships with the same general partner had gone undetected, especially in the energy industry.
- Item 4(d) has been added to the Form and will expand the information already required to be filed pursuant to Item 4(c). For example, Item 4(d) will expressly require confidential offering memoranda prepared within one year of a filing that specifically relate to the sale, certain materials created by third party advisors, including investment bankers, and certain studies and analyses relating to synergies and efficiencies that may be created by the transaction.
- Under Item 5, U.S. revenues for products manufactured outside of the U.S. but sold in or into the U.S. must now be disclosed. This new disclosure will increase the reporting burden of entities that manufacture goods outside the U.S.
- Item 6(c)(ii) requires the acquiring person to disclose to its knowledge and belief, with respect to each of its associates, non-controlling interests in entities that derived dollar revenues within any 6-digit NAICS code that overlaps with the acquired entity or assets. The FTC noted in its press release that this requirement is intended to provide disclosure in connection with certain master limited partnerships. The acquiring person may rely on regularly prepared financial statements if they are no more than three (3) months old.
- Item 7 now requires additional overlap disclosure relating to the activities of associates of the acquiring person.
Eliminated Disclosure Requirements
The final rules eliminated a number of reporting requirements. Such changes include:
- The requirement to disclose historical base year “2002” revenues in Item 5 has been eliminated.
- A detailed breakdown of all the voting securities to be acquired is no longer required under Item 3.
- Filing parties will no longer be required to provide documents, whether in hard copy or via electronic link, filed with the Securities Exchange Commission.
These changes are part of an ongoing effort by the Agencies to review their regulations, ensure that the rules are necessary and up-to-date, and eliminate unnecessary or overly burdensome reporting requirements for businesses. The Agencies believe that such changes will make the Form easier to complete and make the premerger notification review program more effective for the Agencies.
Despite the Agencies’ efforts to streamline the premerger review process, these changes will likely present an increased burden and cost for most filing parties. In particular, such changes will significantly affect private equity funds, hedge funds, other investors who use multiple investment funds as acquisition vehicles and employ common managers for those funds, foreign companies who sell into the U.S. but manufacture outside the U.S. and conglomerate companies.
A complete copy of the changes to the HSR Act and the Form can be found here.