Mergers and acquisitions above a certain threshold (presently $66 million) in the United States must be reported to the Federal Trade Commission and the Department of Justice under the Hart-Scott-Rodino Antitrust Improvement Act. Those federal agencies recently announced comprehensive changes to the rules and form used for reporting transactions subject to the HSR Act. Those changes, which will be effective August 18, simplify certain aspects of filing, but will make filing more burdensome for a number of filers, including private equity funds and multinational manufacturers. The changes can be summarized into three categories:
Reporting of Information on “Associates” In an attempt to collect information on entities that are under common management, but not necessarily control, of the acquiring party, the new rules will require reporting of certain information by an acquiring party on its “associates.” Generally, an “associate” is an entity that is part of a group of entities under common management. This change is intended primarily to reach families of private equity funds under common management and master limited partnerships (used primarily in the energy industry). The new form requires the reporting of certain information on the revenues of associates using North American Industry Classification System (NAICS) codes and the geographic markets in which the associates operate if there is any overlap in the business of the associate and the entity or assets being acquired.
Requirement to Produce Additional Documents The current rules require both parties to file documents (1) created by or for officers or directors, (2) evaluating or analyzing the transaction, (3) with respect to market shares, competition, competitors, markets, potential for sales growth, or expansion to new products or geographic markets (so-called “4(c)” documents). In addition to those documents, the new rules will require the provision of (1) all confidential information memoranda (or documents with the same function) that relate to the transaction and that were prepared by or for any officer or director less than one year prior to the date of filing; (2) documents prepared less than one year before the date of filing by investment bankers, consultants or other third party advisors for any officer or director for the purpose of analyzing market shares, competition, competitors, markets, potential sales growth or expansion into product or geographic markets and that specifically relate to the sale of the acquired entity or assets; and (3) documents prepared by or for any officer or director that evaluate or analyze synergies and/or efficiencies in the proposed acquisition.
Changes in Reporting Revenues The current form requires the reporting of revenues using NAICS codes for 2002 and the most recent year. The new form removes the requirement for reporting 2002 revenues. However, in a change that may prove burdensome for multinational companies, the new form will require the reporting, by 10-digit NAICS codes, of all products manufactured outside the U.S., but sold in the U.S., by the filing party or by any entity that it controls. The current form only requires reporting of products manufactured outside the U.S. if the products pass through the party’s U.S. operations, and then are only reported by 6-digit NAICS wholesaling codes.
For more information on the new rules and how they may impact any planned acquisition, please contact one of the attorneys listed on this bulletin or your primary Taft attorney.