|August 23, 2011|
Previously published on August 18, 2011
Today marks the beginning of a new reporting regime for firms that must submit premerger notification filings pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (HSR Act).1 Firms now must comply with new and revised rules that substantially alter a number of requirements to the notification form. While the changes will affect all filing parties, the impact of these changes will vary for each notifying party. The first time that an HSR filing is submitted under the new rules, it may take most filing parties, including frequent HSR filers, more time than usual to collect the required information and documents.
For companies that are contemplating or negotiating proposed transactions that will be reportable under the HSR Act, we suggest each company:
(1) undertake an internal assessment of what the current rules require;
(2) determine how the required material can be compiled or collected efficiently and cost-effectively; and
(3) begin to compile and collect the required materials.
For companies that do not have any specific transactions under consideration but are likely to make an HSR filing in the future, we suggest each company:
(1) begin now to make an internal assessment of what the new rules will require;
(2) determine an efficient and cost-effective protocol for required compiling or collecting all required material, particularly the new or revised requirements; and
(3) implement a system for collecting the required material before the exigencies of a transaction require a rushed process so that a baseline of material is collected, even if it needs updating later for an actual transaction.
Many of the new rules are neutral or helpful. For example, filing parties are no longer required to collect and submit balance sheets or provide information pertaining to certain SEC filings, “base year” revenues, added and deleted product lines, details on the acquired interests or assets, worldwide subsidiaries, minority shareholders and minority investments. A number of the changes, however, will require filing parties to provide new and additional information and documents, which could prove to be burdensome, expensive and time-consuming for some filing parties. For example, for the first time, all filing parties must search for and identify additional documents that are responsive to new Item 4(d), many filing parties will be required to report their U.S., and certain international, manufacturing revenue data in response to revised Item 5, and additional information concerning “associates” will be required in response to revised Items 6 and 7.
Just as learning to ride a bicycle for the first time can include starts, stops, and occasional falls and scratched knees, filing parties, even those that have routinely filed HSR Act notifications, may experience some difficulties and delays in collecting the requested material the first time that they submit an HSR Act notification under the new rules. Accordingly, as a precaution, filing parties should prepare for a longer time period than usual to file their first HSR Act notifications under the new rules. For example, five or 10 business days after the execution of an acquisition agreement to draft and prepare an HSR Act filing may not provide sufficient time to collect the responsive material and prepare the HSR Act filings.
Even if work is done in advance of a proposed transaction, it may still take longer to complete a filing because many of the responses are connected to product overlaps between the parties to a transaction and therefore cannot be prepared in advance. Accordingly, it will be particularly helpful to gather revenue information first, so that overlaps can be determined early in the process and further information about the holdings of an acquiring party’s “associates” can then be identified. Companies with foreign manufacturing operations should begin to collect and categorize revenues from their foreign manufactured products that are sold into the U.S. as soon as possible. Private equity funds, investment managers and master limited partnerships should be encouraged to begin identifying their associates and those associates’ portfolio companies and minority holdings. The Skadden HSR group is available to assist with this process.
1 The final rule changes that take effect today were announced by the Federal Trade Commission (FTC) last month. The implementation of the rules marks the end of a long process that began more than one year ago, when the FTC and the Antitrust Division of the Department of Justice (DOJ) announced their proposed rule changes. After considering the comments that were submitted by several law firms, including comments from Skadden, Arps, several trade associations and business advocacy groups, the FTC and DOJ revised the rules and published the final rules in the Federal Register on July 19, 2011.