The Federal Trade Commission (FTC) recently published proposed amendments to the Hart-Scott-Rodino (HSR) rules, form, and instructions. Some of the proposed amendments are designed to streamline the HSR form and make completion of an HSR filing less burdensome by eliminating requests for information that the agencies have not found useful in their antitrust review of reportable transactions. However, other proposed amendments are designed to capture information not currently requested in the HSR form which the FTC believes will help the U.S. antitrust agencies in their initial review of HSR reportable transactions, but which may increase the burden for certain filing parties. Comments to the proposed amendments are due to the FTC by 18 October 2010.
There are three significant substantive proposed changes to the HSR form. The first would have an impact on HSR filings made by entities managed by third parties such as partnerships and investment funds that are under common management with other partnerships or funds. The second applies to new types of documents that must be included with an HSR filing and could impact all types of filers. The third reduces the burden of providing revenue information in the HSR form by deleting the requirement for parties to provide base year (currently 2002) U.S. revenues broken down by NAICS Codes.
First, the FTC has expressed concern that the current form does not provide information disclosing the full overlap between the parties, especially in cases in which the acquiring person is part of a family of investment funds. This is because the current form only requests the parties to identify whether the acquiring person (including all entities under common HSR control with the acquiring person) and the acquired entity or acquired assets derived U.S. revenues in one or more common NAICS codes. The form does not require the parties to determine if the acquired entity or acquired assets derived U.S. revenues in a common NAICS code with entities that may be affiliated with the acquiring person, but are not under common HSR control with such person.
To address this issue, the FTC has defined a new term – associate – and has proposed requiring this concept be applied in response to Items 6(c) and 7 of the HSR form. The term associate would apply to entities that are not under common HSR control with an acquiring person, but are under common management with an acquiring person. Thus, for example, associates would include, among other things, general partners (GPs) of a partnership, partnerships with the same GP, and entities managed by a common entity. Under the proposed amendments, with respect to Item 6(c), the FTC has proposed that acquiring persons report their associates' holdings of at least 5%, but less than 50%, of entities who derived revenues in any NAICS Codes in which the acquired entity or acquired assets also derived revenues. Item 7 of the HSR form would require identification of any 6-digit NAICS codes in which the acquiring person, including any associate of the acquiring person and the acquired entity derived revenues in the most recent year (hereafter Overlapping NAICS Codes). The acquiring person would also be required to disclose the names of any of its top level associates that derived revenues in any Overlapping NAICS Codes and certain information about the geographic markets in which the associates of the acquiring person derived revenues in Overlapping NAICS Codes.
Second, the FTC has proposed requiring new types of documentary attachments be included with the HSR form as part of new Item 4(d). Specifically, new Item 4(d)(i) would require the parties to file confidential offering memoranda that reference the acquired entities or acquired assets so long as such documents were produced in the two years prior to the HSR filing, regardless of whether such documents would technically qualify as Item 4(c) documents because they were created by or for an officer or director to evaluate or analyze the acquisition with respect to competition, competitors, markets, market shares, or potential for sales expansion into new markets. An ordinary course document prepared by a seller and provided to a purchaser would also be required if the document was provided to the purchaser to provide an overview of the entity or assets being sold to the purchaser. New Item 4(d)(ii) would require the parties to include with their HSR forms all documents prepared by third parties, including investment bankers and consultants, for officers or directors of the parties to a transaction to evaluate or analyze competition, competitors, markets, market shares, or expansion into new markets if such documents reference the acquired entities or acquired assets and were produced in the two years prior to the HSR filing. New Item 4(d)(iii) would require the parties to submit all documents that discuss synergies and/or efficiencies likely to result from the transaction if such documents were prepared by or for an officer or director for the purpose of evaluating the transaction. This goes beyond what is currently required under Item 4(c) of the form because it would require documents that discuss synergies or efficiencies related only to cost savings, something that alone is not responsive to current Item 4(c).
Third, under the proposed amendments, Item 5 of the HSR form would no longer require U.S. revenues for a base year (currently 2002). Instead, Item 5 would only require the filing parties' revenues broken down by NAICS Codes in their most recent year. All manufacturing revenues, however, would need to be reported at the 10-digit NAICS Code level. If a filing person manufactures products outside of the U.S. and sells such products into the U.S. at retail or wholesale, that person would report manufacturing revenues for such products (transfer price) broken down by 10-digit NAICS Codes and wholesale or retail revenues for such products (sales price) broken down by 6-digit NAICS Codes.
Other key changes to the HSR form
In addition, to the substantive changes described above, the FTC has also proposed the following key changes to the HSR form.
Item 3(b), which requires a description of assets (i) being acquired, (ii) previously acquired from the acquired person and still held by the acquiring person, and/or (iii) held by an unincorporated entity being acquired, would be deleted.
Item 3(c), which requires certain information on voting securities being acquired, would be deleted.
Item 3(d), which currently requires a copy of the executed agreement, would also require all non-compete agreements related to the transaction, whether executed or not, and would be re-numbered as item 3(b).
Item 4(a) would no longer require a listing of responsive SEC filings. However, filers would have to list all entities under common HSR control with the filing person that file annual reports with the SEC and provide Central Index Key (CIK) numbers for each such entity.
Item 4(b) would no longer require a copy of the filer's most recent regularly prepared balance sheet, but would continue to require the annual reports and/or audit reports of the filing person and of all unconsolidated U.S. entities. Natural persons would no longer need to submit personal regularly prepared balance sheets, but would be required to produce the most recent annual report and/or audit report for the highest level entity he or she controls under HSR rules.
Item 6(a) would no longer require a listing of all entities under the HSR control of the acquiring person or the acquired entity (in a non-asset transaction). Instead, only those entities located in the U.S. and those foreign entities that have sales in or into the U.S. would be listed. Street addresses would no longer be required for any entities.
Item 6(b) currently requires certain information about third parties who hold at least 5% of the voting securities of corporations under the HSR control of the acquiring person or the acquired entity (in a non-asset transaction). Under the proposed amendments, this item would be limited to information about third parties who hold at least 5% of the acquired entity or the acquiring entity and its ultimate parent entity (UPE). This item would be extended, however, to request such information even if the acquired entity, acquiring entity, or relevant UPE is not a corporation. In the case of partnerships, this item would be extended to request information about the GPs, regardless of the percentage each holds in the relevant partnership.
Item 6(c), in addition to the above noted changes regarding "associates," would be extended to require filers to report information about their holdings of at least 5%, but less than 50%, of corporations and unincorporated entities. However, the acquiring person would only have to provide such information for the entities that derive revenues in a 6-digit NAICS Code in which the acquired entity or acquired assets derived revenues, and the acquired entity would only have to provide such information for an entity that derives revenues in the same 6-digit NAICS Code as the acquiring person.
Item 8, which requires the acquiring person to provide information on certain of its prior acquisitions in each 6-digit NAICS Code identified in Item 7, would be extended to apply to acquisitions not only of voting securities but also of interests in unincorporated entities.
We have not attempted to describe all of the proposed amendments to the HSR rules and form, but only to highlight the major changes. The proposed amendments to the form are significant. Some of the amendments will certainly reduce the burden of completing an HSR form. Other amendments – particularly the addition of information related to "associates" in Items 6 and 7 and the inclusion of new types of documentary attachments in new Item 4(d) – would significantly add to the burden of many filers.