FTC Adopts Amendments to the Hart-Scott-Rodino Notification Form
By: ADAM J. MILLER
On July 19, 2011, the Federal Trade Commission (FTC) published final rules pertaining to the Premerger Notification and Report form required by the Hart-Scott-Rodino Act for the first time since 2005. The FTC justified the changes as streamlining the merger notification process, and the revisions do in fact remove some of the more obscure and less useful requirements. The new rules, however, also expand the information required in ways that may more than offset any reduced burden for some filers.
One burden of the new rules is FTC requires the submission of more documents. The FTC was concerned that Item 4(c) of the form, which requires production of certain documents that analyze that transaction with respect to market shares, competition, competitors, markets, potential for sales growth or expansion into product or geographic markets, did not technically cover certain documents the agencies would like to see. In response, the new rules specifically require the submission of Confidential Information Memoranda or documents serving the same function, documents prepared by third-party advisors with 4(c) content, and documents analyzing synergies and/or efficiencies. Practically speaking, these items typically would be included under Item 4(c), but the changes remove any judgment in that regard. The new rules with respect to documents analyzing synergies close a gap in 4(c) coverage, as documents analyzing how the transaction will expand output, reduce prices, or enhance innovation are not currently covered but are essential to modern antitrust review of transactions.
The FTC also revised Item 5 of the form to change the financial data that needs to be included with the notification. No longer must parties reconstruct historical sales data for a seemingly arbitrary base year (currently 2002). For companies that do frequent reportable transactions, this may be a significant reduction in burden, but once again, that easing is offset by new requirements. Under the old regime, only revenue “from U.S. operations” need be reported. This led to the risk that reported revenues would understate the importance of a foreign producer to the U.S. market because sales it made into the U. S. directly, rather than through a U.S. sales subsidiary, would not be reported. The new rules resolve that anomaly, requiring the reporting of revenues resulting from U.S. sales. This could prove challenging for foreign entities who haven’t in the past had to struggle to divide their revenues into the required but somewhat artificial product and industry classifications.
A final major revision is directed at private equity groups, hedge fund investors, and other entities whose structure could sometimes obscure the full competitive impact of a transaction. Today, the notification need only describe the ultimate parent entity of the person making the acquisition and all entities it controls. The new rules add disclosures about “associates,” adding a newly defined term to the Hart-Scott-Rodino regulations to require reporting about certain entities that are commonly managed. Under the new rules, the acquiring entity will need to list associates that had revenues in the same industry as the target.
The new form and rules were effective as of August 18, 2011.
Please contact a member of our Antitrust and Trade Regulation Group for more information.