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Notification

Is the notification process voluntary or mandatory?

Notification under the Hart-Scott-Rodino (HSR) Act is mandatory for transactions that meet the jurisdictional thresholds and do not qualify for an exemption.

What timing requirements apply when filing a notification?

If the parties meet the HSR Act thresholds, all acquiring and acquired persons must file a notification and report form with the Federal Trade Commission (FTC) and the Antitrust Division of the Department of Justice. There is no deadline for filing. However, the HSR Act imposes a 30-day waiting period (or 15 days in the case of cash tender offers and acquisitions in bankruptcy) after filing before a notified transaction can be consummated, unless early termination of the waiting period is granted.

If either agency requests additional information (in what is known as a ‘second request’), the initial waiting period is extended to 30 days (or 10 days in the case of cash tender offers and bankruptcy matters) after the date on which the parties comply with the second request.

The waiting periods generally begin when all parties have filed and complied with second requests, but in the case of a cash tender offer they run from when the acquiring party files and complies with the second request.

Can a merger be implemented before clearance is obtained?

No. If notification under the HSR Act is required, the act prohibits the closure of the transaction until the expiration or early termination of the HSR waiting period.

What guidance is available from the authorities?

As noted above, the parties may anonymously seek informal guidance from the FTC’s Pre-merger Notification Office (PNO) to determine whether a filing is required under the HSR Act. The PNO is responsive to such inquiries and answers most within one or two days.

Additional sources of information available to parties assessing whether their transaction requires a filing – and what analysis may be relevant in assessing the competitive impact of their transaction – include published informal interpretations available on the FTC website, as well as the 2010 Horizontal Merger Guidelines, published jointly by the Antitrust Division and FTC and available on their websites. The Horizontal Merger Guidelines provide details regarding the analytical framework employed by the federal antitrust agencies. Also useful are the press releases, complaints and consent orders relating to transactions previously challenged by the antitrust agencies and speeches by senior agency officials, available on their respective websites.

What fees are payable to the authority for filing a notification?

Unless the parties agree otherwise, the acquiring person is responsible for paying the HSR filing fee, which is based on the value of the transaction (generally the acquisition price or fair market value, whichever is greater). There are three fee levels. While the fees remain the same, the transaction value associated with each fee level is adjusted annually for changes in gross national product. The current fee levels are:

  • $45,000 if the transaction value is more than $84.4 million but less than $168.8 million;
  • $125,000 if the transaction value is between $168.8 million and $843.9 million; and
  • $280,000 if the transaction value is $843.9 million or more.

What form should the notification take? What content is required?

The notification and report form which the parties must submit and the instructions regarding its completion are available on the FTC’s website. The form requires the disclosure of specified information by each party and the production of certain types of document.

Information requested in the form includes:

  • the identity of the specific entities or persons that are making the acquisition or being acquired;
  • the identity of the acquiring and acquired persons’ ultimate parent entities;
  • the identity of the parties’ subsidiaries;
  • the identity of the shareholders or interest holders holding 5% or more of the party or its subsidiaries;
  • revenue information for each party for its most recent fiscal year, broken down by the North American Industry Classification System (NAICS) code; and
  • a general description of the transaction.

Further, if the buyer and seller derive revenue from the same NAICS code, the parties must provide additional geographical information relating to the location where the revenues were generated and additional information regarding their minority holdings.

Among the documents that the parties must provide are a copy of the executed agreement or letter of intent – including any non-competes and side letters that relate to competition – and the parties’ most recent annual reports or annual audit reports.

The most challenging and time-consuming part of the HSR filing tends to be the collection and review of the so-called Item 4(c) and 4(d) documents, named after the portions of the form that require their submission.

Item 4(c) requires copies of documents prepared by or for an officer or director (or persons exercising similar functions in an unincorporated entity) analysing the transaction with respect to competition-related issues (ie, markets, market shares, competitors, competition and the potential for expansion into product or geographic markets). Item 4(d) requires the submission of a confidential information memoranda (or the equivalent, if none exists). It also requires the production of studies, surveys, analyses and reports similar to those required under 4(c), prepared by third-party advisers (eg, investment bankers or consultants) if they were for any officer or director of the acquiring or acquired entity or its ultimate parent for the purpose of analysing market shares, competition, competitors, markets, potential for sales growth or expansion into product or geographic markets. Item 4(d) further requires certain material evaluating or analysing synergies or efficiencies prepared by or for any officer or director (or persons exercising similar functions in unincorporated entities) for the purpose of evaluating or analysing the acquisition.

Is there a pre-notification process before formal notification, and if so, what does this involve?

There is no pre-notification process.

What provisions apply regarding publicity and confidentiality?

By law, the FTC and the Antitrust Division may not disclose HSR filings or confidential information provided in an investigation, nor may they disclose that a filing has been made. However, the reviewing agency may contact customers and competitors in conducting its investigation, and there is no restriction on such persons disclosing such contact.

Transactions for which early termination of the initial waiting period has been requested and granted are published in the Federal Register and on the FTC’s website. Only the names of the parties and the date the waiting period was terminated, however, are released.

HSR forms, their contents and accompanying attachments are protected against disclosure and are exempt from the Freedom of Information Act. They may be disclosed at the request of Congress or in administrative or judicial proceedings.

Are there any penalties for failing to notify a merger?

Yes. Failure to file the HSR form, provide all required documents and observe the waiting period before closing a transaction exposes the parties to a fine of up to $41,484 for each day for which they are not in compliance. In practice, the federal antitrust agencies will not impose penalties the first time that a person fails to submit a HSR filing, provided that the failure was inadvertent.

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