- Significant Amendments Proposed to HSR Form
- August 31, 2010 | Author: Mitchell P. Portnoy
- Law Firms: Troutman Sanders LLP - New York Office ; Troutman Sanders LLP - Washington Office
The Hart-Scott-Rodino Antitrust Improvements Act of 1976 (“HSR”) requires parties to certain acquisitions meeting HSR’s jurisdictional tests (and not otherwise exempted) to provide the Federal Trade Commission (“FTC”) and Department of Justice with information for use in evaluating whether to raise antitrust objections to the proposed transaction. The required information is set forth in the HSR Notification and Report Form (“HSR Form”). The FTC recently proposed what may be the most significant revision to the HSR Form since its introduction more than 30 years ago. We refer to this proposal as the “Proposed Amendment.”
For many filers, the Proposed Amendment should reduce the overall burden of complying with HSR. For example, Item 5 of the HSR Form currently requires the filing person to provide detailed revenue information, by applicable NAICS codes, for a so-called “base year” (currently, calendar year 2002), in addition to the filing person’s most recently completed full fiscal year, for all companies now part of that filing person -- even for companies acquired after the base year. In certain situations, further reconciliation for the intervening years also is required. Determining base year information proves to be a frustrating and burdensome experience for many filers. The FTC now concedes that base year information is of limited utility in the antitrust review. Eliminating base year information should simplify most HSR filings significantly.
On the other hand, three aspects of the Proposed Amendment could increase the overall HSR burden for some filers dramatically. First, the Proposed Amendment would require production of a new category of documents, so-called “4(d) Documents,” that would complement and expand the existing requirements applicable to so-called “4(c) Documents.” For the first time, the search to identify responsive documents would not be limited to materials prepared in connection with the pending transaction itself. Second, the Proposed Amendment would introduce a new concept to HSR, that of an “associate” of a filing person, to pick up information about entities that are not technically part of the filing person but are under direct or indirect common management with it. Third, also for the first time, a filing person would be required to provide detailed NAICS code information for all products manufactured by the filing person outside the United States where those products are sold in or into the United States.
Current Item 4(c) of the HSR Form requires the filing person to search for and furnish any existing “study, survey, analysis or report” that contains certain competition-related information (“4(c) Content”), but only if such material had been prepared by or for any officer or director of the filing person for the purpose of evaluating or analyzing the pending transaction with regard to that 4(c) Content. The Proposed Amendment continues this requirement regarding 4(c) Documents, and supplements it with the requirement to search for and furnish 4(d) Documents, including materials not necessarily prepared by or for any officer or director of the filing person or in connection with the pending acquisition. This is a de-linkage concept the FTC had considered, but rejected, when promulgating the original HSR rules. 4(d) Documents would include:
- Offering Materials: formal and informal offering materials (or other documents that serve that function), whether or not prepared in connection with the pending transaction and whether or not containing any 4(c) Content, as long as the material contains “some reference” to the company that is the target of the pending transaction (or to the assets of that company). Currently, only formal offering memoranda prepared by or for the target company (or its filing person) and relating to the actual pending transaction are furnished as 4(c) Documents.
- 4(c) Content Materials Prepared by Outside Advisors: studies, surveys, analyses and reports prepared by investment bankers, consultants or other third party advisors, whether or not prepared in connection with the pending transaction, as long as such material contains any 4(c) Content and also contains “some reference” to the company that is the target of the pending transaction (or to the assets of that company). Currently, only materials prepared in connection with the actual pending transaction are furnished as 4(c) Documents.
- Synergies and/or Efficiencies Materials: studies, surveys, analyses and reports prepared by or for any officer or director of the filing person, whether or not containing any 4(c) Content, as long as that material was prepared for the purpose of evaluating or analyzing the synergies and/or efficiencies of the actual pending transaction. This material is not currently required unless it contains 4(c) Content.
Recognizing the burden that filing persons may face in their 4(d) Document search, particularly as to the first two types of 4(d) Documents (which are not linked to the pending transaction), the FTC would permit filers to limit their search for those first two types to materials prepared within two years preceding the HSR filing. Even so, in most cases this two-year look-back will be considerably longer than the existing requirement encompassing only the actual pending transaction; and the scope of the search will need to be significantly broader than for 4(c) Document searches.
The following briefly summarizes the 4(d) Document parameters:
Must Be Prepared “By or For Any Officer or Director”?
Must Be Prepared in Connection with Pending Transaction?
Must Contain “Some Reference” to Target (or its Assets)
Must Contain 4(c) Content?
Must Be Prepared Within 2 Years of HSR Filing?
Outside Advisor Materials
The introduction of the concept of an “associate” dramatically expands the HSR disclosure needed for transactions involving (among others) families of investment funds or their portfolio companies. According to the FTC, “[e]xamples of ... associates include, but are not limited to, general partners of a limited partnership, other partnerships with the same general partner, other investment funds whose investments are managed by a common entity or under a common investment management agreement, and investment advisors of a fund.” Under the Proposed Amendment, a filing person who is the buyer in a transaction would be required to obtain and disclose certain information about the holdings and business of the filing person’s associates, where such associates have operations in the same industry as the target company. 
Currently, the HSR reporting requirements are quite limited as they apply to a filing person that manufactures products outside the United States for ultimate sale by such filing person in or into the United States. If the filing person first imports such products into the United States and then sells them from a United States establishment, HSR reporting would be based only on the more generalized wholesaling and retailing NAICS codes rather than on the far more detailed NAICS manufacturing codes. Moreover, if the filing person sells those products from a foreign establishment directly to customers located within the United States, the current HSR Form may not require disclosure of that information at all. The only current exception to this limited reporting pertains to maquiladora manufacturing activities, which the FTC’s Premerger Notification Office requires be treated as though it were domestic manufacturing.  The Proposed Amendment would capture this detailed NAICS manufacturing information for products manufactured by the filing person anywhere in the world for sale in or into the United States.
The full text of the Proposed Amendment, including the FTC’s proposing release, can be found here. The FTC invites interested parties to submit written comments to the Proposed Amendment, with comments due by October 18, 2010. Historically, proposed HSR amendments have taken months, or years, before finally becoming effective (if at all), and we anticipate a similar process regarding aspects of the Proposed Amendment.
For more information about the Proposed Amendment, or for assistance in responding to the FTC’s request for comments, please contact Mitch Portnoy in New York or June Ann Sauntry in Atlanta.
 NAICS refers to the North American Industry Classification System, a classification system administered by the United States Census Bureau. NAICS is the successor to the old Standard Industrial Classification (“SIC”) codes.
 Although the Proposed Amendment emphasizes that the concept of “associate” applies only for certain disclosure purposes within the HSR Form, we believe that the underlying rationale (that holdings and activities by affiliated entities are relevant, according to the FTC, “to get a complete picture of potential antitrust ramifications of an acquisition” even when those entities are not currently aggregated for HSR jurisdictional purposes) eventually could lead the antitrust agencies to re-examine those jurisdictional requirements.
 The current HSR Form requires detailed NAICS manufacturing codes for domestic manufacturing activities (including maquiladora activities) only when reporting base year information. Broader NAICS manufacturing codes are used for the most recently completed full fiscal year. As the Proposed Amendment would eliminate base year information entirely, it would require that the more detailed NAICS manufacturing codes be used to report most recent year information.