On July 7, 2011, the Federal Trade Commission (FTC) and the Antitrust Division of the US Department of Justice (DOJ), announced substantial modifications to the Hart-Scott-Rodino (HSR) Premerger Notification Rules and Form. The FTC’s rule modifications, which become effective 30 days after publication in the Federal Register, expand the type of information that companies must submit to the antitrust agencies relating to proposed transactions. According to the FTC, the revisions are intended to “streamline the form and capture new information” to assist the agencies in their initial review of a transaction. The bottom line impact of the rule changes for companies is that, for certain filers, preparation of HSR filings will become more burdensome and will need to be factored into transaction planning.

Among the more significant changes are:

• Acquirers must now provide information on “associate” entities that they commonly manage, but do not control. This rule is directed at the investment fund community.
• Parties must include certain information not specifically tied to the transaction, in addition to transaction-specific efficiencies and synergies analyses.
• Parties engaged in offshore manufacturing must report additional revenue classification information on foreign manufactured products.
• Parties are no longer required to submit 2002 “base year” revenue data as part of the form.

While the new rules require some information that transacting parties likely were already submitting to the antitrust agencies, and reduce the burden in other areas (such as elimination of the 2002 revenue requirement), the overall scope of information that parties must now compile and report as part of the HSR process has expanded. For many filers, these changes will lead to increases in the cost and time necessary to gather, prepare and submit an HSR pre-merger notification package.  

“Associates”

In addition to information regarding entities directly or indirectly controlled by the acquiring party, information is now required regarding “Associates.” Associates include entities that are commonly managed, but not controlled, by the acquiring party. The acquiring party must disclose investments by its Associates in companies that compete with the target company. This new Associate reporting requirement most directly impacts private equity funds, as well as Master Limited Partnerships, common in the oil and gas industry.

New “4(d)” Documents

In addition to requiring the parties to submit the commonly known “4(c)” documents prepared by the parties in analyzing specified competition-related aspects of the proposed transaction, the new Form requires the submission of three specific types of “4(d)” documents. These include:

• Confidential Information Memoranda.The parties must submit documents such as offering memoranda, which relate to the sale of the acquired entity or assets and were produced within one year prior to the HSR filing.
• Third Party Advisor Materials.Parties must provide materials prepared by third party advisors, such as investment bankers and consultants, during an engagement or for the purpose of seeking an engagement in the year prior to the HSR filing, and which contain competition-related information related to the entity or assets being acquired. These materials, like “pitch books,” are not transaction-specific.
• Synergies/Efficiencies Analyses. Parties are required to submit documents evaluating synergies and/or efficiencies related to the proposed transaction. The agencies believe that these materials “may carry greater weight” if received with the HSR filing, as opposed to later in the investigation.

Foreign Manufactured Products Revenues Reporting Requirements

Previously, parties were only required to submit North American Industry Classification System (NAICS) classified revenues for operations conducted in the United States. Under the amended rules, however, parties must also report NAICS manufacturing data for products manufactured overseas if those products are sold in the United States. Companies with foreign manufacturing operations potentially face a significantly increased reporting burden as a result of this change.

Takeaways

While some changes to the HSR rules do reduce the information required to be produced, the new rules discussed above will create additional compliance burdens for companies that are subject to HSR filing requirements, particularly investment funds and companies with significant foreign manufacturing operations. For those companies accustomed to filing HSR, the rules of the road have now changed and will be subject to new interpretation going forward. Companies are well-served to work with counsel to ensure that they comply with their HSR obligations.