Publications

8 Jul 2011

Antitrust agencies issue revised premerger notification and report form required for HSR filings

Antitrust Alert

Paolo Morante
Kenneth G. Starling
Laura M. Kam

While some revisions have lightened the burden on filing parties by eliminating items that the agencies consider outdated or unnecessary to the substantive antitrust analysis, the new form also imposes two new reporting requirements that are likely to make the filing process more difficult for some filers.  Below we summarize the most significant revisions.

New information required concerning “associates”

The new form requires the submission of information pertaining to “associates” of the acquirer that may not be included in the “acquiring person” and that therefore, under prior rules, would not have been required to provide such information.  The acquirer will be required to submit information concerning its associates’ minority investment holdings in entities that derive revenues in the same NAICS codes or industries as the target entity or assets, and will also be required to provide information about the geographical location of an associate’s operations when those operations derive revenues under the same NAICS codes as the target entity or assets.  An “associate” is defined as an entity that (A) has the right, directly or indirectly, to manage the operations or investment decisions of the acquiring party; (B) has its operations or investment decisions managed, directly or indirectly, by the acquiring party; (C) directly or indirectly controls, is controlled by, or is under common control with an acquiring entity; or (D) directly or indirectly manages, is managed by, or is under common management with an acquiring entity.  This new requirement may impose significant reporting burdens for acquiring non-passive investment funds and may, for example, require reporting concerning portfolio companies of other funds within the same fund family.

New requirement for production of “4(d) documents”

In addition to requiring the production of certain documents analyzing the contemplated transaction from the standpoint of competition, competitors, market shares, markets, potential for sales growth or expansion into product or geographic markets – commonly known as “Item 4(c)” documents – the new HSR form requires filers to submit “Item 4(d)” documents covering the following categories:

• Offering memoranda.  Filers must submit all confidential information memoranda (or documents serving a similar function) that relate to the acquired entities or assets (regardless of whether they have Item 4(c) content) and created up to one year before the date of the filing.  Thus, Item 4(d) will now capture confidential information memoranda that were sent to potential buyers other than the acquiring party and that may never have been seen by the acquiring party, and will also capture confidential information memoranda created within the one-year period concerning any offers for sale of the acquired entities or assets that were abandoned before the transaction under scrutiny.
• Investment advisor documents:  Item 4(d) also requires production of all materials developed by investment bankers, consultants, or third party advisors during an engagement, or for the purpose of seeking an engagement, that contain Item 4(c) content, relate to the sale of the acquired entity or assets, and were prepared for a party’s officers or directors within one year of the filing.  This requirement extends the existing Item 4(c) requirement by covering, for example, materials prepared by advisors of an acquired person in anticipation of a potential sale of the target entity or assets.  The term “third party advisors” also raises the prospect that privileged documents may be responsive, in which case the documents would need to be listed on a privilege log produced with the HSR filing.
• Documents concerning synergies and efficiencies:  Finally, Item 4(d) also requires the production of all documents analyzing the transaction’s synergies or efficiencies and prepared by or for an officer or director for the purpose of evaluating the transaction.  Thus, contrary to current practice, Item 4(d) will now capture and require production of a wide variety of cost synergy documents (as opposed to revenue synergy documents only), including financial models that assume one or more synergistic scenarios without any underlying analysis.

Elimination of 2002 “base year” revenue reporting and modification of foreign revenues reporting

One universally welcome change in the new HSR form is the elimination of revenue reporting for the so-called “base year” (currently 2002).  The revision will lighten the burden on the many filers who had found it difficult to retrieve base-year data for entities acquired after the base year.  The new rules also require filers to report revenues derived from all sales in or into the US, which, contrary to the prior requirements, cover sales into the US from operations located abroad.

More information

The revisions also made a number of largely administrative modifications to the HSR form and rules and streamlined the filing process in a number of additional ways.  The revisions’ announcement, including a link to the new HSR form and final rules, can be found here. 

For more information on the topic covered by this publication please contact Paolo Morante, Kenneth Starling, or Laura Kam.