Proposed Rule Could Have Impact on Hostile Transactions, Tender Offers and Other Transactions
The Federal Trade Commission (“FTC”) has announced proposed rulemaking to amend the Hart-Scott-Rodino Act (“HSR”) rules in two respects: (1) to formalize the existing procedures whereby an acquiring person may voluntarily withdraw a pending HSR filing and resubmit within two business days without paying an additional HSR filing fee, and (2) to establish a “bright line” trigger for the automatic withdrawal of an HSR filing that is tied to the disclosure requirements of the Securities and Exchange Commission (“SEC”). While the former merely seeks to formalize existing procedures, the latter is an entirely new mechanism that may have negative repercussions for certain filing parties.
Withdraw and Resubmit (“Pull and Refile”)
For many years, the FTC has informally sanctioned a process that permits an acquiring person to voluntarily withdraw a pending HSR filing and resubmit it within two business days without paying an additional HSR filing fee. The purpose of this process is to re-start the initial HSR waiting period (30 days for most transaction, or 15 days for cash tender offers and certain bankruptcy transactions). This procedure allows parties to provide the reviewing agency with additional time to review a transaction before the agency is required to issue a Second Request – potentially a lengthy and costly process for parties. Electing to “pull and refile” can be effective in deals that require slightly more time to resolve questions raised by the agencies but do not merit a Second Request.
Under the proposed rules, a party may resubmit its filing after it is voluntarily withdrawn only where: (1) the proposed transaction has not materially changed, (2) the resubmitted HSR filing is updated with respect to Item 41 and is re-certified, and (3) the resubmitted HSR filing is received within two business days following the withdrawal. In addition, though not required under the existing informal procedures, the resubmitted HSR filing will require a new executed §803.5 affidavit attesting to the party’s good faith intention to consummate the proposed transaction. This additional affidavit requirement, already required for the initial filing, should not be burdensome and is intended merely to assure the agencies that a transaction is not hypothetical (particularly in the case of an automatic withdrawal, as discussed below). Consistent with the current informal process, the proposed rule will permit parties to withdraw and refile without paying a new filing fee one time.
The proposed new rule on automatic withdrawal – §803.12(b) – seeks to link HSR filings with required SEC disclosures under the Securities Exchange Act of 1934, and create a trigger that will render a pending HSR filing as automatically withdrawn where the factual basis for the §803.5 affidavit (discussed above) no longer exists. For example, under SEC disclosure requirements, when a tender offer has expired, is terminated or otherwise has been withdrawn, the offeror must file an amendment to its Schedule TO filing that brings the current tender offer to an end. Similarly, for other transactions subject to SEC disclosure requirements, if the parties terminate a definitive material agreement (e.g., a merger agreement), they must so disclose in a Form 8-K filing. In both cases, under the new rules, the HSR filing would be automatically withdrawn on the date of the SEC filing.
According to the FTC, the proposed automatic withdrawal mechanism is to ensure that the antitrust agencies “do not expend scarce resources on hypothetical transactions.”2 The proposed rule may have been prompted, at least in part, by the Hertz-Dollar Thrifty transaction, which was more than two years in the making and was investigated by the FTC. At the time, both Hertz and Avis were in pursuit of Dollar Thrifty. Hertz withdrew its tender offer in October 2011, but publicly maintained that it was still interested in acquiring Dollar Thrifty pending FTC approval of the transaction, which was ultimately achieved more than a year later in November 2012. Some were critical of the FTC process continuing in this manner.
However, in a concurring statement, recently appointed FTC Commissioner Joshua Wright, the newest member of the Commission sworn in on January 11, 2013, has questioned the need for a new automatic withdrawal procedure – “a solution in search of a problem.” According to Commissioner Wright, “I have not to date been presented with evidence that any of the over 68,000 transactions notified under the HSR rules have required Commission resources to be allocated to a truly hypothetical transaction. Indeed, it would be surprising to see firms incurring the costs and devoting the time and effort associated with antitrust review in the absence of a good faith intent to proceed with their transaction.” Commissioner Wright explains that the proposed rule could result in the following negative consequences: (1) costs of corporate takeovers could increase and distort the market; (2) firms may be incentivized to structure their transactions less efficiently and the use of tender offers may be discouraged; and (3) U.S. public companies will be disproportionately burdened. Many parties are likely to agree.
The proposed rules are subject to public comment through April 15, 2013, and will not be made final until some months following the close of the public comment period. The automatic withdrawal mechanism is likely to draw significant criticism, as outlined already by Commissioner Wright. It remains to be seen whether this portion of the proposed rulemaking will in fact make it to the final rules.