[Federal Register Volume 76, Number 138 (Tuesday, July 19, 2011)]
[Rules and Regulations]
[Pages 42471-42502]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-17822]
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FEDERAL TRADE COMMISSION
16 CFR Parts 801, 802 and 803
RIN 3084-AA91
Premerger Notification; Reporting and Waiting Period Requirements
AGENCY: Federal Trade Commission.
ACTION: Final rule.
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SUMMARY: The Federal Trade Commission (``Commission'' or ``FTC'') is
amending the Hart-Scott-Rodino (``HSR'') Premerger Notification Rules
(the ``Rules''), the Premerger Notification and Report Form (the
``Form'') and associated Instructions in order to streamline the Form
and capture new information that will help the FTC and the Antitrust
Division, Department of Justice (together the ``Agencies'') conduct
their initial review of a proposed transaction's competitive impact.
The FTC is making substantive and ministerial revisions, deletions and
additions to streamline the Form and make it easier to prepare while
focusing the Form on those categories of information the Agencies
consider necessary for their initial review. The FTC is also amending
certain Rules and parts of the Form and Instructions, as well as adding
Items 4(d), 6(c)(ii) and 7(d), in order to capture additional
information that would significantly assist the Agencies in their
initial review. Finally, minor changes are being made to address minor
omissions from the FTC's 2005 rulemaking involving unincorporated
entities and to remove the reference to the 2001 transition period.
DATES: These final rules are effective August 18, 2011.
FOR FURTHER INFORMATION CONTACT: Robert L. Jones, Deputy Assistant
Director, Premerger Notification Office, Bureau of Competition, Room H-
303, Federal Trade Commission, Washington, DC 20580, (202) 326-3100,
[email protected].
SUPPLEMENTARY INFORMATION:
Statement of Basis and Purpose
Section 7A of the Clayton Act (the ``Act'') requires the parties to
certain mergers or acquisitions to file with the Agencies and to wait a
specified period of time before consummating such transactions. The
reporting requirement and the waiting period that it triggers are
intended to enable the Agencies to determine whether a proposed merger
or acquisition may violate the antitrust laws if consummated and, when
appropriate, to seek a preliminary injunction in federal court to
prevent consummation, pursuant to Section 7 of the Act.
On August 13, 2010, the Commission made a Notice of Proposed
Rulemaking and Request for Public Comment available on its Web site,
and it was published in the Federal Register on September 17, 2010.\1\
The comment period closed on October 18, 2010. The Proposed Rules
recommended improvements and updates to the HSR Form and associated
Instructions as well as amendments in 16 CFR parts 801, 802 and 803 of
the Rules.
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\1\ 75 FR 57110 (September 17, 2010).
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The Commission received eleven public comments addressing the
Proposed Rules. The comments are published on the FTC Web site at
http://www.ftc.gov/os/comments/hsr/index.htm.
The following submitted public comments on the Proposed Rules:
1. Caterpillar, Inc. (Howrey LLP, Paul C. Cuomo) (10/18/2010)
2. The Private Equity Growth Capital Council (10/18/2010)
3. Willkie Farr & Gallagher LLP (Theodore C. Whitehouse) (10/18/2010)
4. Cooley LLP (Francis M. Fryscak and M. Howard Morse) (10/18/2010)
5. Skadden, Arps, Slate, Meagher & Flom LLP (Neal R. Stoll, Steven C.
Sunshine and Matthew P. Hendrickson) (10/18/2010)
6. Howrey LLP (Jacqueline I. Grise, Michael W. Jahnke, Paul C. Cuomo,
Chris P. Cooper and Victor Cohen) (10/18/2010)
7. International Chamber of Commerce Commission on Competition (10/18/
2010)
8. Securities Industry and Financial Markets Association (Sean C. Davy)
(10/18/2010)
9. BUSINESSEUROPE, Grocery Manufacturers Association, National
Association of Manufacturers, The Pharmaceutical Research and
Manufacturers of America, U.S. Chamber of Commerce (10/18/2010)
10. Wachtell, Lipton, Rosen & Katz on behalf of Alcoa Inc., Bank of
America Corporation, BB&T Corporation, ConocoPhillips, Harmon
International Industries, Incorporated, IAC/Interactive Corporation,
JPMorgan Chase & Co., Nustar Energy L.P., NYSE Euronext, PPG
Industries, Inc., Qwest Communications International, Inc., Sigma-
Aldrich Corporation, The Valspar Corporation, United Rentals, Inc.,
Valero Energy Corporation, Wells Fargo & Company (10/18/2010)
[[Page 42472]]
11. Sections of Antitrust Law and International Law, American Bar
Association (10/15/10)
The Commission proposed ministerial changes in Items 1 through 3 in
order to make the Form easier to use, as well as the revision or
deletion of many items, such as Items 2(e), 3(b), 3(c), 4(a), 4(b),
5(a), 5(b)(i), 5(b)(ii), 5(d), 6(a), and 6(b), which currently ask for
information that the Agencies no longer consider necessary for their
initial review. There were no adverse comments received on these
amendments, therefore, the Commission adopts the changes as proposed.
The Commission also proposed amending certain Rules and parts of the
Form and Instructions, such as Items 2(d), 5(c) and 8 in order to
capture additional information (such as current year revenues by 10
digit NAICS product code) that would significantly assist the Agencies
in their review. There were also no adverse comments received on these
revisions and they are adopted as proposed. In addition, there were no
adverse comments received on the proposed minor changes to Sec. Sec.
801.1,\2\ 801.15, 801.30, 802.4, 802.21, 802.52, 803.2 and 803.5, and
these changes are also adopted as proposed.
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\2\ These minor changes to Sec. 801.1 do not relate to the
definition of associate.
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The Commission did, however, receive substantive objections or
criticisms regarding three proposed changes that commenters found to be
overly burdensome additions: Item 4(d), which requires the submission
of certain documents separate from those required by Item 4(c); changes
to Item 5 requiring the reporting of North American Industry
Classification System (``NAICS'') product code information for products
manufactured outside of the U.S. and sold into the U.S.; and changes to
Items 6(c) and 7 to require the submission of information on the
holdings of associates that overlap with the entity(s) or assets that
are being acquired. These comments and the Commission's response to
them are discussed more fully below.
Part 801--Coverage Rules
801.1(d)(2) Associate
An acquiring person is required to provide information in its
notification with respect to all entities included within it at the
time of filing. In some instances, particularly with families of
investment funds, entities that are commonly managed with the acquiring
person are not included because these ``associated'' entities are not
controlled, as defined in Sec. 801.1(b) of the Rules, by the acquiring
Ultimate Parent Entity (``UPE''). As a result, the Agencies do not
receive the information they need to get a complete picture of
potential antitrust ramifications of an acquisition. This scenario
arises frequently in the energy industry with Master Limited
Partnerships, where competitive overlaps among limited partnerships
(``LPs'') with the same general partner may go undetected.
To capture information on overlaps between entities commonly
managed with the acquirer and the target, the Commission proposed three
changes: introducing and defining the term associate, creating Item
6(c)(ii), and revising Item 7 to require the submission of information
on minority and controlling interests of associates that overlap with
the entity(s) or assets that are being acquired.
The Commission received six comments regarding the proposed
definition of associate and its application to proposed Items 6(c)(ii)
and 7. The comments generally focused on two concerns: the definition
of associate as too vague and overly broad, and the burden of compiling
the information required by Items 6(c)(ii) and 7 regarding the holdings
of associates that overlap with the target, particularly minority
holdings. Both will be discussed below.
Section 801.1(d)(2): Definition of Associate
The Commission proposed the term ``associate'' in new Sec.
801.1(d)(2) to define entities under common management with the
acquiring person, but not controlled by the acquiring person. The
proposed definition reads:
Associate. For purposes of Items 6(c) and 7 on the Form, an
associate of an acquiring person shall be an entity that is not an
affiliate of such person but: (A) Has the right, directly or
indirectly, to manage, direct or oversee the affairs and/or the
investments of an acquiring entity (a ``managing entity''); or (B)
has its affairs and/or investments, directly or indirectly, managed,
directed or overseen by the acquiring person; or (C) directly or
indirectly, controls, is controlled by, or is under common control
with a managing entity; or (D) directly or indirectly, manages,
directs or oversees, is managed by, directed by or overseen by, or
is under common management with a managing entity.
Comments 2, 6, 9 and 11 stated that the definition of associate as
proposed was not only overly broad, but was also unduly complex and
confusing. Comment 2 stated that the phrase ``the right, directly or
indirectly, to manage, direct or oversee'' affairs of the acquiring
entity was so expansive as to provide little guidance regarding the
relationships to be covered. Comment 6 noted that the definition as
proposed was not limited to entities subject to common investment
management, but also included entities that were subject to a common
ability to ``direct and oversee the affairs'' of other entities.
Comment 9 also addressed the potentially broad scope of the term
``oversee.'' Comment 11 recommended that the Commission consider
limiting associates to master limited partnerships and private equity
funds.
Comments 7 and 9 stated that the control rules provided well
understood and easily applied guidance as to the scope of HSR filings.
Comment 7 stated that requiring filers to determine which entity might
be an associate would increase the complexity, burden and expense of
HSR filings. Both recommended that the Commission reconsider requiring
information on associates.
To address these concerns, the Commission has refined the
definition of associate. The Commission's purpose in requiring
information on associates is to be able to analyze the holdings of
entities that are under common investment or operational management
with the person filing notification. The term is not intended to
include entities that are under other forms of common management or
direction. To clarify this, the definition of associate has been
revised to eliminate the terms ``direct'', ``oversee'' and ``affairs''
from the rule. Any examples that contain these terms have also been
revised. Additional examples have also been added to clarify the
definition.
The Commission is unwilling to limit the definition to master
limited partnerships and private equity funds, as suggested by Comment
11. New types of entities that are not master limited partnerships or
private equity funds may emerge in the future, and the Commission does
not want to limit the information it would receive about these entities
as a result. The Commission believes that the changes to the definition
of associate clarify its intent and reduce the burden of identifying
associates.
The new definition of associate reads as follows:
Associate. For purposes of Items 6 and 7 of the Form, an
associate of an acquiring person shall be an entity that is not an
affiliate of such person but: (A) has the right, directly or
indirectly, to manage the operations or investment decisions of an
acquiring entity (a ``managing entity''); or (B) has its operations
or investment decisions, directly or indirectly, managed by the
acquiring person; or (C) directly or indirectly controls, is
controlled by, or is under common control with a managing entity; or
(D) directly or indirectly manages, is managed by, or is under
common operational
[[Page 42473]]
or investment management with a managing entity.
Items 6(c) and 7
The Commission proposed adding Item 6(c)(ii) to require an
acquiring person to report, based on its knowledge or belief, all of
its associates' holdings of voting securities and non-corporate
interests of 5 percent or more but less than 50 percent in the acquired
entity(s) and in entities having 6-digit NAICS industry code overlaps
with the acquired entity(s) or assets.
The Commission also proposed amending the instructions to Item 7 as
follows:
Item 7(a) to require reporting any 6-digit NAICS industry code
in which the acquiring person, or any associate of the acquiring
person, derives revenues and in which the acquired entity(s) or
assets also derive revenues;
Item 7(b)(i) to require reporting the name of any entity(s)
controlled by the acquiring person that derived revenues in the
overlapping 6-digit NAICS code in the most recent fiscal year and
Item 7(b)(ii) to require reporting the name of any entity(s)
controlled by an associate of the acquiring person that derived
revenues in the overlapping 6-digit NAICS code in the most recent
fiscal year; and
Item 7(c) to require reporting the geographic information for
any entity(s) controlled by the acquiring person that derived
revenues in the overlapping NAICS code in the most recent fiscal
year.
Item 7(d) to require reporting the geographic information for
any entity(s) controlled by an associate of the acquiring person
that derived revenues in the overlapping NAICS code in the most
recent fiscal year.
The comments focused on Item 6(c)(ii), citing Item 7 only in
reference to Item 6(c)(ii), and addressed the burden of gathering the
information required by Item 6(c)(ii).\3\ Comment 5 stated that the
request in Item 6(c)(ii) to provide information on minority holdings of
associates that overlap with the acquired assets or entity(s) exceeded
reasonable expectations about the type of information that an acquiring
person can obtain when it does not have possession or control of the
requested data and does not maintain the data in the ordinary course of
its business. In the same vein, Comment 6 contended that the specific
requirements of Item 6(c)(ii) imposed a disproportionate burden on
filing parties regardless of the benefit to the Agencies. Comment 11
stated that the breadth of Item 6(c)(ii) could create a significant
additional burden on a filing party, while providing the Agencies with
little additional useful information. It claimed that, as written, this
item required a filing party to report minority holdings of minority
holdings, and suggested limiting Item 6(c)(ii) to holdings of
associates of interests in the target company rather than including
holdings of other entities that overlap with the target.
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\3\ Comment 5 stated that the problems with collecting
information for associates that are identified for Item 6(c)(ii) are
equally applicable to Item 7.
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The purpose of Item 6(c)(ii) is not to obtain information on
``minority holdings of minority holdings'' as Comment 11 suggested, but
to receive information on competitively relevant minority holdings of
entities that are under common investment or operational management
with the acquiring person. For the Agencies, there is clear utility to
having the HSR filing contain information regarding the acquiring
person's associates' minority holdings in competitors of the target. As
such, limiting the response for Item 6(c)(ii) only to holdings of
associates in the acquired entity(s), as suggested by Comment 11, is
too narrow. Take, for instance, a transaction in which Pharma Fund A is
acquiring 100 percent of the voting securities of Acquired Pharma Corp.
Pharma Fund A does not have holdings in any competitors of Acquired
Pharma Corp, but four associates of Pharma Fund A (Pharma Funds B-E)
each hold 15 percent of Pharma Competitor. The Agencies would certainly
benefit from knowing that the funds under common management hold an
aggregate controlling interest in a competitor. The Agencies, however,
may have no other realistic means of learning about the holdings of
Pharma Funds B-E, particularly if Pharma Competitor is not publicly
traded, making it very difficult to find this information through
public sources. Item 6(c)(ii) as proposed requires the disclosure of
the holdings of Pharma Funds B-E.
Item 6(c)(ii) would also provide very useful information to the
Agencies in transactions involving the intricate structures that often
characterize Master Limited Partnerships. For example, consider a
transaction in which Pipeline MLP A is acquiring 100 percent of
Acquired Pipeline Corp., and Pipeline MLP A's general partner is
Pipeline GP, which is also the general partner of Pipeline MLP B and
Pipeline MLP C, neither of which holds a minority interest in Acquired
Pipeline Corp. or a controlling interest in a competitor of Acquired
Pipeline Corp. Thus, Pipeline MLP B and Pipeline MLP C would not be
identified in either Item 6(c)(ii) or Item 7 under Comment 11's
proposal. Pipeline MLP B and Pipeline MLP C each indirectly hold a 45
percent interest in Competing Pipeline Co., a direct competitor of
Acquired Pipeline Corp., through a number of intermediate entities. The
Agencies clearly would be interested in these minority holdings in this
fairly typical scenario in the oil and gas industry, but might have
trouble identifying the relationship as a result of the number of
layers between the top level entity and the competitor at the bottom of
the structure. Item 6(c)(ii) requires the disclosure of the holdings of
Pipeline MLP B and Pipeline MLP C. As these examples illustrate, Item
6(c)(ii) provides the Agencies with a much clearer picture of the
competitive impact in transactions involving families of private equity
funds or master limited partnerships.
The Commission acknowledges that some filing parties may face an
increase in burden the first time they respond to Item 6(c)(ii) but
believes that thereafter, the burden should be largely limited to
keeping responsive information current. Further, it believes the burden
of responding to Item 6(c)(ii) does not outweigh the benefit to the
Agencies. An acquiring person must look beyond the concept of control
to determine whether it has entities that are under common investment
or operational management with the acquiring person. The general
partner makes investment or operational decisions for its managed
limited partnerships and should therefore have access to information on
the holdings of the other managed limited partnerships for the purposes
of responding to Item 6(c)(ii).
Further, the Commission notes that Item 6(c)(ii) provides
mechanisms for limiting the potential burden. For instance, if an
acquiring person cannot provide information on the minority holdings of
its associates in response to Item 6(c)(ii) at the NAICS-code level, it
could opt to respond on the basis of industry. That is, instead of
providing a list of its associates' minority holdings based on an
overlapping NAICS code with the target, the acquiring person could
provide a list of its associates' minority holdings that fall into the
same industry as the target, such as pharmaceuticals, mining,
healthcare, etc.
Item 6(c)(ii) also allows the acquiring person to respond to Item
6(c)(ii) by listing all the minority holdings of its associates. This
is intended to provide an option for an acquiring person that, despite
its best efforts, cannot obtain more granular information about the
minority holdings of its associates. The Commission notes that if an
acquiring person responds by listing all holdings in Item 6(c)(ii),
whether overlapping or not, the review of the filing could be
[[Page 42474]]
delayed and the parties may be more likely to receive follow up
requests from staff to obtain the information. It is thus in the best
interests of the acquiring person to limit the list of minority
holdings in Item 6(c)(ii) to those that overlap with the acquired
entity(s) or assets, even if only by industry, to allow the Agencies to
conclude quickly whether the acquisition may be competitively
problematic because of these holdings.
The Commission has made one additional change to Item 6(c) to
attempt to mitigate further the burden on persons who must respond to
this item. The person filing notification may rely on its regularly
prepared financials that list investments and the regularly prepared
financials of its associates that list investments to respond to Items
6(c)(i) and (ii), provided the financials are no more than three months
old.\4\ Many investment funds routinely prepare such documents on a
quarterly basis, and this change allows acquiring persons to rely on
documents prepared in the ordinary course to gather the information
necessary to respond to Items 6(c)(i) and (ii). If the acquiring person
and its associates make quarterly filings concerning their investments
in publicly traded companies with the Securities and Exchange
Commission (``SEC''), those lists can be relied on to gather the
information necessary to respond to Items 6(c)(i) and (ii) with respect
to publicly traded companies, as long as they are no more than three
months old. Of course, acquiring persons must still report in Items
6(c)(i) and (ii) their holdings of non-publicly traded companies.
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\4\ This approach does not apply to the response required with
regard to associates in Item 7. Item 7 deals with controlled
entities and the information required by Item 7 should therefore be
easier to obtain.
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In summary, the Commission believes that the benefits of Item 6(c)
and Item 7, as revised, to the Agencies with regard to information on
associates outweigh the additional burden on certain acquiring persons
of providing the information. Consequently, the Commission promulgates
Items 6(c)(i) and 6(c)(ii), with the aforementioned allowance for
relying on financial statements and SEC documents, and Item 7, as
proposed. The caveats in the language in the instructions to Items
6(c)(i) and 6(c)(ii) that the information be provided based on the
knowledge or belief of the acquiring person should ease concerns on
certification of the Form. If the information is completely
unobtainable the acquiring person can rely on a statement of reasons
for noncompliance.\5\
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\5\ 16 CFR 803.3.
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Item 4
Item 4(d): Additional Documents
In proposing Item 4(d), the Commission noted that certain
categories of documents are quite useful for the Agencies' initial
substantive analysis of transactions but were not always provided
because parties have differing interpretations as to whether they were
called for under current Item 4(c). The Commission proposed new Item
4(d) to enumerate these discrete categories of documents and require
their submission with the Form.
In expressing concerns regarding proposed Item 4(d), all of the
comments raised the overarching issue of the relationship of proposed
Item 4(d) to Item 4(c). Item 4(d) is indeed closely related to Item
4(c), as is evident in the language of Item 4(d) which closely
parallels the language of Item 4(c). But Item 4(d) seeks different
documents from those covered by the language of Item 4(c) as will be
more fully discussed below.
Item 4(d)(i): Offering Memoranda
Proposed Item 4(d)(i) required filing parties to provide all
offering memoranda (or documents that served that function) that
reference the acquired entity(s) or assets produced up to two years
before the date of filing.
With the exception of Comments 5 and 8, the comments suggested that
proposed Item 4(d)(i) uses, in the words of Comment 3, ``ambiguous and
overbroad language.'' For instance, the requirement that materials
responsive to Item 4(d)(i) ``reference'' the acquired entity(s) or
assets and documents that ``serve the function of''an offering
memorandum were imprecise and as drafted could lead to the production
of a large of amount of documents in response to Item 4(d)(i). Comments
1, 2, 6, 7, 10, and 11 expressed concern that the Item 4(d)(i)
requirement was not limited to the evaluation or analysis of the
acquisition, as is the language of Item 4(c). Comments 1, 2, 3, 6, 10
and 11 suggested that a limitation such as the one in Item 4(c)
involving only materials prepared by or for any officer(s) or
director(s) (or, in the case of unincorporated entities, individuals
exercising similar functions) would be helpful in guiding responses to
Item 4(d)(i). Comments 1, 2, 3, 4, 6, 7 and 11 expressed the related
concern that searching beyond the team of people aware of the
transaction would compromise the confidentiality of the transaction.
Finally, Comments 1, 2, 9 and 11 stated that the 2-year time frame in
Item 4(d)(i) was too long to provide a useful limitation on this item.
In proposing Item 4(d)(i), the Commission intended to capture
offering memoranda. These are formal documents created in-house or by a
third party that lay out the details of a company, or a part of a
company, that is for sale. The Commission intends to reach in Item
4(d)(i) what comment 10 termed ``transaction-specific marketing
presentation[s]'' because they are invaluable to staff in their initial
analysis. In order to make the parameters of this item more clear, the
Commission uses the term ``Confidential Information Memoranda'' instead
of the broader term ``offering memoranda.'' Many filing parties already
submit Confidential Information Memoranda because these documents often
contain a section on the industry or competitive landscape and thus
fall within the requirements of Item 4(c). But, in cases where they do
not, the in-depth overview of the business, even without competition-
related content, is still immensely helpful to staff in understanding
the companies and products involved in a transaction.
Confidential Information Memoranda are useful even though,
arguably, there may be no ``acquisition'' at the time they are
prepared. Item 4(c) requires the submission of all studies, surveys,
analyses and reports prepared by or for any officer(s) or director(s)
(or, in the case of unincorporated entities, individuals exercising
similar functions) for the purpose of evaluating or analyzing the
transaction with respect to market shares, competition, competitors,
markets, potential for sales growth or expansion into product or
geographic markets. Leaving out of the language of Item 4(d)(i) the
Item 4(c) requirement that responsive materials evaluate or analyze
``the acquisition'' addresses the fact that some parties have relied on
the transaction-specific language of Item 4(c) when not submitting
Confidential Information Memoranda.
The comments expressed concern that without the requirement that
responsive materials evaluate or analyze the transaction, the scope of
what was required by Item 4(d)(i) was too broad. In response to this
concern, the Commission can provide a more precise parameter than
``some reference to the acquired entity(s) or assets.'' The Commission
intends to capture materials that provide an in-depth overview or
analysis of the entities or assets that are for sale, not just those
materials that contain a passing
[[Page 42475]]
reference to them. To make this intent clear, the language in Item
4(d)(i) has been changed to adopt in part the language proposed by
Comment 4, namely to capture those Confidential Information Memoranda
that ``specifically relate to the sale of the acquired entity(s) or
assets.''
Comment 4 also suggested narrowing proposed Item 4(d)(i) to ``those
separate presentations [that] would have been responsive to Item 4(c)
if they had been prepared for the filed-for transaction.'' The problem
with this language is that it requires competition-related content. As
discussed above, the underlying rationale behind Item 4(d)(i) is that
Confidential Information Memoranda are always helpful, and so Item
4(d)(i) requires their submission regardless of the presence of
competition-related content.
Comments 1, 2, 3, 4, 5, 10 and 11 expressed concern that proposed
Item 4(d)(i) was not limited to officers and directors. The Commission
does not intend to reach those Confidential Information Memoranda, as
stated in Comment 1, received by ``any employee within the company
regardless of their location or involvement in a particular
transaction.'' Instead, the Commission intends to reach those
Confidential Information Memoranda prepared in the specific
contemplation of a sale. In reality, an officer or director would
likely be informed of the internal or external drafting of such a
memorandum. The easiest way to clarify the Commission's intent is by
adopting the suggestion in the comments that a limitation involving
officer(s) or director(s) be added to Item 4(d)(i). As such, the
Commission is promulgating Item 4(d)(i) with a requirement that
responsive documents must have been prepared by or for any officer(s)
or director(s) or, in the case of unincorporated entities, individuals
exercising similar functions. Further, the Commission limits this
requirement to any officer(s) or director(s) or, in the case of
unincorporated entities, individuals exercising similar functions, of
the Ultimate Parent Entity of the Acquiring or Acquired Person and/or
any officer(s) or director(s) or, in the case of unincorporated
entities, individuals exercising similar functions, of the Acquiring or
Acquired Entity(s). These changes also address the concerns raised by
many of the comments that gathering documents responsive to Item
4(d)(i) could compromise the confidentiality of the transaction.
Comment 10 suggested that this item be limited to ``offering
memoranda prepared for the purpose of evaluating or analyzing the
transaction and which were shared with prospective buyers.'' Sellers
will sometimes create a Confidential Information Memorandum and, for
one reason or another, it does not end up being shared with the
eventual buyer. This, if the Commission limited Item 4(d)(i)'s
requirement to submit Confidential Information Memoranda to only those
given to the buyer, in some cases, no Confidential Information
Memorandum would be submitted even though one was created. This is
counter to the rationale behind Item 4(d)(i). Under Item 4(d)(i), if
the eventual buyer did not receive a copy of the Confidential
Information Memorandum, but one was prepared, that Confidential
Information Memorandum must be submitted with the Acquired Person's
filing.
Comments 1, 2, 3, 6, 7, 9, 10, and 11, expressed concern about the
exact definition of ``documents serving the same function as an
offering memorandum.'' As a starting point, if there was a Confidential
Information Memorandum prepared, filing parties do not need under Item
4(d)(i) to supply documents that served the purpose of a Confidential
Information Memorandum. The Commission intends to capture only those
situations in which no Confidential Information Memorandum was
prepared, but the seller has a pre-existing presentation containing an
overview of the company that was given to any officer(s) or director(s)
of the buyer as an introduction to the company. In this case, the
presentation effectively serves the purpose of a Confidential
Information Memorandum in an instance in which no Confidential
Information Memorandum was prepared. Filing parties often submit such
documents when no Confidential Information Memorandum was prepared, and
the Commission does not seek any other category of materials in
response to this item. For instance, the Commission does not intend
this item to require ordinary course documents and/or financial data
shared in the course of due diligence, except to the extent that such
materials are shared with the buyer specifically to serve the purpose
of a Confidential Information Memorandum when no Confidential
Information Memorandum was prepared. Unlike the case of Confidential
Information Memoranda, a document that served the purpose of a
Confidential Information Memorandum will only be responsive to Item
4(d)(i) if it was given to the buyer (and a Confidential Information
Memorandum was not). The instructions to Item 4(d)(i) outline these
specifics.
Many filing parties already submit materials responsive to Item
4(d)(i) based on longstanding informal interpretations that
Confidential Information Memoranda should be submitted as Item 4(c)
documents. However, parties have sometimes excluded these documents on
the grounds that they were not prepared for the purpose of evaluating
or analyzing the acquisition or did not contain competition-related
content. Item 4(d)(i) is intended to make clear that Confidential
Information Memoranda must be submitted in response to Item 4(d)(i).
The Commission intends Items 4(c) and 4(d) to complement one another.
For instance, if a filing party includes a document responsive to Item
4(d)(i) with its HSR filing, it need not submit that document
separately in response to Item 4(c).
The comments raised concerns about the length of the proposed two
year time period applicable to proposed Item 4(d)(i). Although such a
timeframe is consistent with the specified ``relevant time period'' of
two years as applicable to second requests in the 2006 merger process
reforms,\6\ the Commission believes that, as applied to the documents
required by Item 4(d)(i), a period of one year is more appropriate.
Confidential Information Memoranda are typically drafted within this
shorter timeframe and arguably are more useful to staff if they are
more recent. The instructions to Item 4(d)(i) have been changed to
reflect the one year time period.\7\
---------------------------------------------------------------------------
\6\ See REFORMS TO THE MERGER REVIEW PROCESS (p.19) announced by
then Chairman Deborah Platt Majoras on February 16, 2006. http://www.ftc.gov/os/2006/02/mergerreviewprocess.pdf and http://www.justice.gov/atr/public/press_releases/2006/220302.htm.
\7\ The one year time limit applicable to materials responsive
to Items 4(d)(i) and 4(d)(ii) does not apply to materials responsive
to Item 4(c); Item 4(c) has no specific timeframe.
---------------------------------------------------------------------------
In summary, the Commission is promulgating Item 4(d)(i) using the
term ``Confidential Information Memoranda'' instead of ``Offering
Memoranda'' and with the clarification that this item requires only
those Confidential Information Memoranda that ``specifically relate to
the sale of the acquired entity(s) or assets'' and that were prepared
by or for any officer(s) or director(s) or, in the case of
unincorporated entities, individuals exercising similar functions, of
the Ultimate Parent Entity of the Acquiring or Acquired Person and/or
any officer(s) or director(s) or, in the case of unincorporated
entities, individuals exercising similar functions, of the Acquiring or
Acquired Entity(s) within one year of filing. In addition, the
Commission requires the submission of
[[Page 42476]]
documents that served the function of a Confidential Information
Memorandum only when given to the buyer in situations in which no such
Confidential Information Memorandum exists.
Item 4(d)(ii): Materials Prepared by Investment Bankers, Consultants or
Other Third Party Advisors
Proposed Item 4(d)(ii) required filing parties to provide all
studies, surveys, analyses and reports prepared by investment bankers,
consultants or other third party advisors if they were prepared for any
officer(s) or director(s) (or, in the case of unincorporated entities,
individuals exercising similar functions) for the purpose of evaluating
or analyzing market shares, competition, competitors, markets,
potential for sales growth or expansion into product or geographic
markets, and that also reference the acquired entity(s) or assets
produced up to two years before the date of filing.
In response to proposed Item 4(d)(ii), the comments expressed
concern that this item as drafted was too broad and would capture many
documents immaterial to staff's initial analysis. Each comment stated
that Item 4(d)(ii) as drafted would pull in ordinary course documents
because it was not limited to materials that evaluated or analyzed the
acquisition. Comments 2, 3, 5, 6, 7, 9, 10, and 11 raised the issue
that searching beyond the team of people aware of the transaction would
lead to confidentiality concerns. Finally, Comments 1, 5, 7, 8, 9, and
11 contended that the 2 year time frame in Item 4(d)(ii) was too long
to provide a useful limitation on this item.
Item 4(d)(ii) is intended to reach materials prepared by investment
bankers, consultants or other third party advisors (``third party
advisors'') that contain competition-related content pertaining to the
transaction. The most typical example of this kind of document is, as
defined by Comment 8, ``pitch books,'' which are ``developed by
investment banking firms for the purpose of seeking an engagement.''
These materials are sometimes also known informally as ``bankers'
books.'' In the Commission's experience, these are typically
presentations that contain an overview of several potential courses of
action available to a company (e.g., whether to buy another business or
sell a particular business) and that also contain several pages
analyzing the specific industry at issue.
Item 4(d)(ii) also seeks documents prepared by third party advisors
who have been hired by a particular company to develop and analyze a
variety of strategic options, one of which is a merger that requires an
eventual HSR filing. These materials are different from bankers' books
in that the third party advisor has been hired and is already working
with the company in detail, but they contain information that is just
as valuable to staff. Whether developed by a third party for the
purpose of seeking an engagement or after having been engaged, these
materials often provide staff with a useful overview of the relevant
industry and/or competitive landscape. Sometimes such materials fall
within the requirements of Item 4(c). In some cases, however, they may
not, as there is arguably no ``acquisition'' at the time they are
prepared.
The most strenuous objection we received to proposed Item 4(d)(ii)
was that leaving out the Item 4(c) requirement that responsive
materials evaluate or analyze the acquisition made the language of
proposed Item 4(d)(ii) too broad. As noted above, leaving this language
out of Item 4(d)(ii) addresses the fact that some parties have relied
on this language when not submitting this category of documents. As
documents responsive to Item 4(d)(ii) must meet all the other
requirements of Item 4(c), one approach would be to rely on the
language proposed by Comment 4 in reference to Item 4(d)(i) to require
only those materials that ``would have been responsive to Item 4(c) had
they been prepared for the acquisition.'' While this language narrows
the scope of this item and better reflects the Commission's intent, it
leaves Item 4(d)(ii) without the limiting language on the entity(s) or
assets for sale and officer(s) and director(s) the Commission has
adopted in Item 4(d)(i).
To further clarify the intent of Item 4(d)(ii), the Commission
limits materials responsive to Item 4(d)(ii) to those prepared by third
party advisors during an engagement or for the purpose of seeking an
engagement and, as has been done in Item 4(d)(i), that specifically
relate to the sale of the acquired entity(s) or assets. In addition,
the Commission similarly limits the officer(s) and director(s)
encompassed in Item 4(d)(ii) to any officer(s) or director(s) or, in
the case of unincorporated entities, individuals exercising similar
functions, of the Ultimate Parent Entity of the Acquiring or Acquired
Person and/or any officer(s) or director(s) or, in the case of
unincorporated entities, individuals exercising similar functions, of
the Acquiring or Acquired Entity(s). These clarifications, included in
the instructions to Item 4(d)(ii), also address the confidentiality
concerns raised by many of the comments.
Item 4(d)(ii) seeks materials developed by third party advisors
during an engagement or for the purpose of seeking an engagement
prepared by or for certain officers and directors (as discussed above)
that contain competition-related content specifically related to the
sale of the acquired entity(s) or assets, and the instructions specify
this. Item 4(d)(ii) is not intended to capture many of the broad
categories of materials envisioned by the comments; the language of
Item 4(d)(ii) is drafted in recognition of the fact that there are
numerous kinds of consultants who create responsive materials during an
engagement or for the purpose of seeking an engagement. We note that
Item 4(d)(ii) does not require, as enumerated in Comment 11, the
submission of corporate subscriptions to market studies, information or
periodicals; industry reference materials and databases; routine market
research; information received by financial investors; unsolicited
financial and market analyses from investment bankers and consultants;
and reports prepared in the course of patent, securities, antitrust or
other forms of litigation. Some unsolicited materials developed by
investment banking firms or other third parties for the purpose of
seeking an engagement may appear in the files of officers or directors
covered by Item 4(d)(ii). Item 4(d)(ii) requires the submission of such
unsolicited materials only if they specifically relate to the sale of
the acquired entity(s) or assets and contain competition related
content as specified in the instructions.\8\
---------------------------------------------------------------------------
\8\ Item 4(d)(ii) does not require the inclusion of unsolicited
materials received from third party advisors as a separate category.
---------------------------------------------------------------------------
Many filing parties already submit materials responsive to Item
4(d)(ii) based on longstanding informal interpretations that materials
developed by third party advisors during an engagement or for the
purpose of seeking an engagement should be submitted as Item 4(c)
documents. However, parties have sometimes excluded these documents on
the grounds that they were not prepared for the purpose of evaluating
or analyzing the acquisition. Item 4(d)(ii) is intended to make clear
that materials developed by third party advisors during an engagement
or for the purpose of seeking an engagement must be submitted in
response to Item 4(d)(ii). The Commission intends Items 4(c) and 4(d)
to complement one another. For instance, if a filing party includes a
document responsive to Item 4(d)(ii)
[[Page 42477]]
with its HSR filing, it need not submit that document separately in
response to Item 4(c).
The comments raised concerns about the length of the proposed two-
year time period applicable to proposed Item 4(d)(ii). Consistent with
the modification to Item 4(d)(i), the time period for this item has
been changed to one year.\9\
---------------------------------------------------------------------------
\9\ The one-year time limit applicable to materials responsive
to Items 4(d)(i) and 4(d)(ii) does not apply to materials responsive
to Item 4(c); Item 4(c) has no specific timeframe.
---------------------------------------------------------------------------
In summary, the Commission is promulgating Item 4(d)(ii) with the
clarification that this item seeks materials developed by third party
advisors during an engagement or for the purpose of seeking an
engagement that ``specifically relate to the sale of the acquired
entity(s) or assets'' and that were prepared by or for any officer(s)
or director(s) or, in the case of unincorporated entities, individuals
exercising similar functions, of the Ultimate Parent Entity of the
Acquiring or Acquired Person and/or any officer(s) or director(s) or,
in the case of unincorporated entities, individuals exercising similar
functions, of the Acquiring or Acquired Entity(s) within one year of
filing.
Item 4(d)(iii): Materials Evaluating or Analyzing Synergies and/or
Efficiencies
Proposed Item 4(d)(iii) required filing parties to provide all
studies, surveys, analysis and reports evaluating or analyzing
synergies and/or efficiencies if they were prepared by or for any
officer(s) or director(s) (or, in the case of unincorporated entities,
individuals exercising similar functions) for the purpose of evaluating
or analyzing the acquisition.
Although proposed Item 4(d)(iii) did not receive as many comments
as the other parts of proposed Item 4(d), Comments 2 and 6 questioned
staff's need to review these documents in every transaction, suggesting
that staff could seek these documents from the parties at a later time
if relevant in a specific transaction. Comments 1, 6, and 11 stated
that even if filers did not submit synergies documents at the time of
filing, they should not be precluded from being able to make arguments
concerning applicable synergies at a later time.
Item 4(d)(iii) requires the submission of documents that evaluate
or analyze the synergies related to a particular acquisition. Although
many filing parties do submit documents discussing synergies in
response to Item 4(c), the PNO has long provided the informal advice
that this category of documents, without separate competition-related
content, is not caught by the language in Item 4(c). At the same time,
these kinds of documents are very useful to staff in many transactions.
Thus, Item 4(d)(iii) requires that these documents be submitted. The
Commission believes that the benefits to the Agencies from receiving
this discrete set of documents outweighs the burden to parties of
producing them. Filing parties can assert synergies arguments at any
time, but there is the possibility that documents submitted with an HSR
filing in response to Item 4(d)(iii) may carry greater weight with the
Agencies than materials claiming synergies created and submitted at a
later time during an investigation.
Instructions to Item 4(d)
Incorporating many of the comments as described above, the
instructions to Item 4(d) will read as follows:
Item 4(d)
For each category below, indicate (if not contained in the
document itself) the date of preparation, and the name of the
company or organization that prepared each such document.
Item 4(d)(i): Provide all Confidential Information Memoranda
prepared by or for any officer(s) or director(s) (or, in the case of
unincorporated entities, individuals exercising similar functions)
of the Ultimate Parent Entity of the Acquiring or Acquired Person or
of the Acquiring or Acquired Entity(s) that specifically relate to
the sale of the acquired entity(s) or assets. If no such
Confidential Information Memorandum exists, submit any document(s)
given to any officer(s) or director(s) of the buyer meant to serve
the function of a Confidential Information Memorandum. This does not
include ordinary course documents and/or financial data shared in
the course of due diligence, except to the extent that such
materials served the purpose of a Confidential Information
Memorandum when no such Confidential Information Memorandum exists.
Documents responsive to this item are limited to those produced up
to one year before the date of filing.
Item 4(d)(ii): Provide all studies, surveys, analyses and
reports prepared by investment bankers, consultants or other third
party advisors (``third party advisors'') for any officer(s) or
director(s) (or, in the case of unincorporated entities, individuals
exercising similar functions) of the Ultimate Parent Entity of the
Acquiring or Acquired Person or of the Acquiring or Acquired
Entity(s) for the purpose of evaluating or analyzing market shares,
competition, competitors, markets, potential for sales growth or
expansion into product or geographic markets that specifically
relate to the sale of the acquired entity(s) or assets. This item
requires only materials developed by third party advisors during an
engagement or for the purpose of seeking an engagement. Documents
responsive to this item are limited to those produced up to one year
before the date of filing.
Item 4(d)(iii): Provide all studies, surveys, analyses and
reports evaluating or analyzing synergies and/or efficiencies
prepared by or for any officer(s) or director(s) (or, in the case of
unincorporated entities, individuals exercising similar functions)
for the purpose of evaluating or analyzing the acquisition.
Financial models without stated assumptions need not be provided in
response to this item.
Item 5
Item 5(a) and Foreign Manufactured Products
The Commission proposed changes to Item 5 of the Form to make it
easier for filing parties to complete, and to obtain information more
useful to the Agencies. In this vein, the Commission proposed modifying
the Form to require filing persons to identify the 10-digit NAICS
product codes and revenues for each product they manufacture outside
the U.S. and sell in the U.S. at the wholesale or retail level, or that
they sell directly to customers in the U.S. This would give the
Agencies a more accurate understanding of products in the U.S. Filing
parties would include 10-digit NAICS product codes and revenues for
such foreign manufactured products only for the most recent year in
proposed Item 5(a). As proposed, sales made directly to customers in
the U.S. would be reported in a manufacturing code while sales made
into the U.S. through a wholesale operation within the same person
would be reported in both manufacturing (transfer price) and wholesale
or retail (sales price) codes, to be consistent with current practice
when companies have both domestic manufacturing and wholesale or retail
operations.
Comment 1 objected to the proposed reporting of revenues for
products manufactured outside the U.S. on the grounds that compiling
NAICS code information would be a substantial burden for foreign
manufacturers who do not currently use NAICS. Comment 2 objected on the
same grounds, and also stated that the double listing of foreign
manufacturing and importing revenues was confusing. Comment 6 stated
that the Commission specifically declined to require foreign
manufactured product data by U.S. census code in the 1978 final rules,
and that the burden of providing such data is not significantly smaller
today. Comment 7 also stated that finding NAICS information would be
burdensome for foreign filers and that only U.S. operations should be
reported. Comment 9 also raised this concern and cited to International
Competition
[[Page 42478]]
Network principles that unnecessary costs on transactions should be
avoided.
After considering these comments, the Commission is not persuaded
that NAICS reporting would be significantly more difficult for foreign
manufacturers than it is for domestic manufacturers. One of the reasons
the Commission decided to propose the elimination of base year
reporting was that HSR practitioners have told the PNO that filers
generally do not rely on previous NAICS data compiled for submission to
the Bureau of Census, as the Commission previously understood, but
rather that the parties determine the appropriate NAICS codes and
underlying revenues as they are preparing their filings. That being the
case, foreign manufacturers should be able to identify appropriate
NAICS codes as readily as domestic manufacturers can; in fact, foreign
entities with U.S. wholesale or retail operations already use the NAICS
system to report revenues from those operations. Finally, the
Commission believes that whatever additional burden may be initially
experienced by foreign manufacturers because of their unfamiliarity
with NAICS manufacturing codes is outweighed by the usefulness of the
information to the Agencies.
Comments 6 and 11 also objected to the double-counting effect that
would result from the proposed requirement that foreign manufacturers
report revenues under both manufacturing codes (at transfer price) and
wholesaling codes (sales revenues) if their products are manufactured
outside the U.S. and sold in the U.S. Indeed, Comment 11 stated that
this is a long-standing problem with Item 5 in its current form as it
relates to domestic manufacturers who sell their product from a
separate establishment and must then report manufacturing and
wholesaling revenues.
The Commission agrees that double-counting can distort revenues
reported in Item 5 and therefore will amend the instruction for Item
5(a) to require that any manufacturer, whether foreign or domestic,
report revenues from the sale of its manufactured products only under
10-digit NAICS manufacturing product codes. Sales of products that are
not manufactured by the parties but only sold by them would, of course,
continue to be reported under 6-digit wholesaling or retailing codes.
Comment 6 advocated eliminating the double-counting problem by
requiring the listing of revenues from manufactured products by 6-digit
wholesaling code only, but this solution would not provide the Agencies
with sufficient information about the products being manufactured and
sold.
Item 5 De Minimis Exception
The proposed changes to Item 5 also included a proposal to
eliminate the million dollar minimum that currently applies to
reporting revenues for non-manufacturing operations in the most recent
year. As discussed in the Proposed Rule, the minimum was based on the
way filing persons reported non-manufacturing data to the Census
Bureau, but given that there appears to be little or no reliance on the
part of filers on previously assembled census data for HSR reporting,
there seemed to be little reason to retain it. In addition, the minimum
was sometimes misconstrued as a minimum for the reporting of overlaps
in Item 7, which it is not. Comments 6 and 11 objected to the proposed
elimination of the million dollar minimum, stating that the minimum
reduces the burden of characterizing minor operations by NAICS code and
allocating revenues to those codes; further, the comments suggested
that instead of eliminating the minimum, an instruction could be added
to clarify that an Item 7 overlap can still exist for operations that
generate less than $1 million in revenues in the most recent year.
The Commission accepts that the million dollar minimum is helpful
to filers and agrees that amending the instruction to Item 7 to state
that the item is applicable to an overlap of operations generating any
amount of revenue is a reasonable approach. Therefore, the million
dollar minimum will remain for Item 5, and the Item 7 instruction has
been amended, as below:
If, to the knowledge or belief of the person filing
notification, the acquiring person, or any associate (see Sec.
801.1(d)(2)) of the acquiring person, derived any amount of dollar
revenues in the most recent year from operations in industries
within any 6-digit NAICS industry code in which any acquired entity
that is a party to the acquisition also derived any amount of dollar
revenues in the most recent year, or in which a joint venture
corporation or unincorporated entity will derive dollar revenues
(note that if the acquired entity is a joint venture the only
overlaps will be between the assets to be held by the joint venture
and any assets of the acquiring person or its associates not
contributed to the joint venture), then for each such 6-digit NAICS
industry code: * * *
Regulatory Flexibility Act
The Regulatory Flexibility Act, 5 U.S.C. 601-612, requires that the
agency conduct an initial and final regulatory analysis of the
anticipated economic impact of the amendments on small businesses,
except where the Commission certifies that the regulatory action will
not have a significant economic impact on a substantial number of small
entities. 5 U.S.C. 605. Because of the size of the transactions
necessary to trigger a Hart-Scott-Rodino filing, the premerger
notification rules rarely, if ever, affect small businesses. Indeed,
these amendments are intended to reduce the burden of the premerger
notification program. Further, none of the rule amendments expands the
coverage of the premerger notification rules in a way that would affect
small business. Accordingly, the Commission certifies that these rules
will not have a significant economic impact on a substantial number of
small entities. This document serves as the required notice of this
certification to the Small Business Administration.
Paperwork Reduction Act
The Paperwork Reduction Act, 44 U.S.C. 3501-3521, requires agencies
to submit ``collections of information'' to the Office of Management
and Budget (``OMB'') and obtain clearance before instituting them. Such
collections of information include reporting, recordkeeping, or
disclosure requirements contained in regulations. The existing
information collection requirements in the HSR Rules and Form have been
reviewed and approved by OMB under OMB Control No. 3084-0005. The
current clearance expires on June 30, 2013. On September 23, 2010, the
Commission submitted a clearance request to OMB regarding the then
proposed amendments to the reporting requirements in the Rules and
Form. On November 8, 2010, OMB filed a comment, requesting that the FTC
consider public comments on the proposed amendments and to respond to
them and make any necessary adjustments in its ensuing submission to
OMB for the final amendments. Consistent with the analysis shown here,
the Commission is submitting a supplemental response to OMB as a
follow-up to its prior clearance request.
Increase or Decrease in Filings Due to Ministerial Changes in Filing
Requirements
The final amendments are primarily changes to the information
reported on the Notification and Report Form and do not affect the
reportability of a transaction. Most of the ministerial changes to the
Rules are clarifications (e.g., the change to Sec. 802.4) or new
procedures (e.g., the change to Sec. 801.30), which also would have no
effect on reporting obligations. One amendment could theoretically
produce an increase
[[Page 42479]]
in filings. The definition of ``entity'' in Sec. 801.1(a)(2) is being
modified to include unincorporated entities engaged in commerce that
are controlled by a government. The definition currently includes only
corporations engaged in commerce. Another amendment could theoretically
produce a decrease in filings. The amendment to the aggregation rules
in Sec. 801.15 would eliminate the unintended effect of requiring
aggregation when exactly 50 percent of multiple subsidiaries have been
acquired and additional voting securities of the same person are newly
being acquired. The Commission believes that any increase or decrease
in filings as a result of the final ministerial amendments would be
negligible.
Reduced Time Collecting Data for and Preparing the Form
Premerger Notification Office staff canvassed eight practitioners
from the private bar to estimate the projected change in burden due to
the then proposed, now final, amendments to the Form. All those
consulted are considered HSR experts and have extensive experience with
preparing HSR filings for the types of transactions that are most
likely to be affected by the amendments.
Many of the final amendments would significantly reduce burden for
all filers. Others would increase burden, particularly for acquiring
persons that are private equity funds and master limited partnerships.
The consensus of those canvassed was that, on average, burden for
collecting and reporting would decrease by approximately five percent.
Thus, 37 hours (rounded to the nearest hour) will be allocated to non-
index filings.\10\ [(Current estimate, 39 hours \11\) x (1 - .05) =
37.05 hours.]
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\10\ Id. Clayton Act sections 7A(c)(6) and (c)(8) exempt from
the requirements of the premerger notification program certain
transactions that are subject to the approval of other agencies, but
only if copies of the information submitted to these other agencies
are also submitted to the FTC and the Assistant Attorney General.
Thus, parties must submit copies of these ``index'' filings, but
completing the task requires significantly less time than non-exempt
transactions that require ``non-index'' filings.
\11\ Id.
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Net Effect
The Form changes only affect non-index filings which, for FY 2011,
the FTC projects will total 1,428. The amendments to the HSR Rules and
Notification and Report Form should reduce the time required to prepare
responses for non-index filings, with an estimated net reduction of 2
hours per filing (39 hours to 37 hours). Cumulatively, however, owing
to a projected increase from 841 such filings to 1,428 (independent of
the amendments' effects), total burden will increase from the currently
cleared estimate of 33,298 hours \12\ to 53,756 hours.\13\
---------------------------------------------------------------------------
\12\ The preceding estimate, detailed further at 75 FR 27558,
27559-27560 (May 17, 2010), was calculated as follows: [(841 non-
index filings x 39 hours) + (22 transactions requiring more precise
valuation x 40 hours) + (20 index filings x 2 hours)]-[841 non-index
filings x \1/2\ of these filings incorporating Item 4(a) and Item
4(b) documents by reference to an Internet link x 1 hour savings) =
33,298 hours. The reduction within this prior calculation for time
saved when incorporating Item 4(a) and Item 4(b) documents by
reference to an Internet link would be mooted by the final
amendments. The amendments would further reduce time to complete the
Form, and are factored into the estimated five percent reduction
stated above.
\13\ This is determined as follows: [(1428 non-index filings x
37 hours) + (22 transactions requiring more precise valuation x 40
hours) + (20 index filings x 2 hours)].
---------------------------------------------------------------------------
Applying the revised estimated hours, 53,756, to the previous
assumed hourly wage of $460 for executive and attorney
compensation,\14\ yields $24,728,000 (rounded to the nearest thousand)
in labor costs.\15\ The amendments presumably will impose minimal or no
additional capital or other non-labor costs, as businesses subject to
the HSR Rules generally have or obtain necessary equipment for other
business purposes. Staff believes that the above requirements
necessitate ongoing, regular training so that covered entities stay
current and have a clear understanding of federal mandates, but that
this would be a small portion of and subsumed within the ordinary
training that employees receive apart from that associated with the
information collected under the HSR Rules and the corresponding
Notification and Report Form.
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\14\ See 75 FR at 57122 n. 48 and accompanying text.
\15\ Though the filing time and associated labor per respondent
is reduced as a result of these amendments, the cumulative dollar
total is higher than previously stated ($15,317,000) at the time of
the proposed rulemaking. This is attributable solely to a projected
increase in the number of related filings for fiscal year 2011, as
compared to the prior estimated filings for fiscal year 2010.
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List of Subjects in 16 CFR Parts 801, 802 and 803
Antitrust.
For the reasons stated in the preamble, the Federal Trade
Commission amends 16 CFR parts 801, 802 and 803 as set forth below:
PART 801--COVERAGE RULES
0
1. The authority citation for part 801 continues to read as follows:
Authority: 15 U.S.C. 18a(d).
0
2. Amend Sec. 801.1 by revising paragraphs (a)(2) and (b)(2), revising
example 2 to paragraph (b), adding example 5 to paragraph (b), revising
paragraph (d), and revising paragraph (f)(1)(ii) to read as follows:
Sec. 801.1 Definitions.
* * * * *
(a) * * *
(2) Entity. The term entity means any natural person, corporation,
company, partnership, joint venture, association, joint-stock company,
trust, estate of a deceased natural person, foundation, fund,
institution, society, union, or club, whether incorporated or not,
wherever located and of whatever citizenship, or any receiver, trustee
in bankruptcy or similar official or any liquidating agent for any of
the foregoing, in his or her capacity as such; or any joint venture or
other corporation which has not been formed but the acquisition of the
voting securities or other interest in which, if already formed, would
require notification under the act and these rules:
Provided, however, that the term entity shall not include any
foreign state, foreign government, or agency thereof (other than a
corporation or unincorporated entity engaged in commerce), nor the
United States, any of the States thereof, or any political subdivision
or agency of either (other than a corporation or unincorporated entity
engaged in commerce).
* * * * *
(b) * * *
(2) Having the contractual power presently to designate 50 percent
or more of the directors of a for-profit or not-for-profit corporation,
or in the case of trusts that are irrevocable and/or in which the
settlor does not retain a reversionary interest, the trustees of such a
trust.
* * * * *
Examples: * * *
2. A statutory limited partnership agreement provides as follows:
The general partner ``A'' is entitled to 50 percent of the partnership
profits, ``B'' is entitled to 40 percent of the profits and ``C'' is
entitled to 10 percent of the profits. Upon dissolution, ``B'' is
entitled to 75 percent of the partnership assets and ``C'' is entitled
to 25 percent of those assets. All limited and general partners are
entitled to vote on the following matters: the dissolution of the
partnership, the transfer of assets not in the ordinary course of
business, any change in the nature of the business, and the removal of
the general partner. The interest of each partner is evidenced by an
ownership certificate
[[Page 42480]]
that is transferable under the terms of the partnership agreement and
is subject to the Securities Act of 1933. For purposes of these rules,
control of this partnership is determined by paragraph (1)(ii) of this
section. Although partnership interests may be securities and have some
voting rights attached to them, they do not entitle the owner of that
interest to vote for a corporate ``director'' as required by Sec.
801.1(f)(1). Thus control of a partnership is not determined on the
basis of either paragraph (1)(i) or (2) of this section. Consequently,
``A'' is deemed to control the partnership because of its right to 50
percent of the partnership's profits. ``B'' is also deemed to control
the partnership because it is entitled to 75 percent of the
partnership's assets upon dissolution.
* * * * *
5. A is the settlor of an irrevocable trust in which it does not
retain a reversionary interest in the corpus of the trust. A is
entitled under the trust indenture to designate four of the eight
trustees of the trust. A controls the trust pursuant to Sec.
801.1(b)(2) and is deemed to hold the assets that constitute the corpus
of the trust. Note that the right to designate 50 percent or more of
the trustees of a business trust that has equity holders entitled to
profits or assets upon dissolution of the business trust does not
constitute control. Such business trusts are treated as unincorporated
entities and control is determined pursuant to Sec. 801.1(b)(1)(ii).
* * * * *
(d)(1) Affiliate. An entity is an affiliate of a person if it is
controlled, directly or indirectly, by the ultimate parent entity of
such person.
(2) Associate. For purposes of Items 6 and 7 of the Form, an
associate of an acquiring person shall be an entity that is not an
affiliate of such person but:
(A) Has the right, directly or indirectly, to manage the operations
or investment decisions of an acquiring entity (a ``managing entity'');
or
(B) Has its operations or investment decisions, directly or
indirectly, managed by the acquiring person; or
(C) Directly or indirectly controls, is controlled by, or is under
common control with a managing entity; or
(D) Directly or indirectly manages, is managed by, or is under
common operational or investment decision management with a managing
entity.
Examples:
1. ABC Investment Group has organized a number of investment
partnerships. Each of the partnerships is its own ultimate parent, but
ABC makes the investment decisions for all of the partnerships. One of
the partnerships intends to make a reportable acquisition. For purposes
of Items 6(c) and 7, each of the other investment partnerships, and ABC
Investment Group itself are associates of the partnership that is the
acquiring person. In response to Item 6(c)(i), the acquiring person
will disclose any of its 5 percent or greater minority holdings that
generate revenues in any of the same NAICS codes as the acquired
entity(s) in the reportable transaction. In Item 6(c)(ii) it would
report any 5 percent or greater minority holdings of its associates in
the acquired entity(s) and in any entities that generate revenues in
any of the same NAICS codes as the acquired entity(s). In Item 7, the
acquiring person will indicate whether there are any NAICS code
overlaps between the acquired entity(s) in the reportable transaction,
on the one hand, and the acquiring person and all of its associates, on
the other.
2. XYZ Corporation is its own ultimate parent and intends to make a
reportable acquisition. Pursuant to a management contract, Fund MNO has
the right to manage the investments of XYZ Corporation. For the HSR
filing by XYZ Corporation, Fund MNO is an associate of XYZ, as is any
other entity that either controls, or is controlled by, or manages or
is managed by Fund MNO or is under common control or common investment
management with Fund MNO.
3. EFG Investment Group has the contractual power to determine the
investments of PRS Corporation, which is its own ultimate parent.
Natural person Mr. X, who is not an employee of EFG Investment Group,
has been contracted by EFG Investment Group as its investment manager.
When PRS Corporation makes an acquisition, its associates include (i)
EFG Investment Group, (ii) any entity over which EFG Investment Group
has investment authority, (iii) any entity that controls, or is
controlled by, EFG Investment Group, (iv) Natural person Mr. X, (v) any
entity over which Natural person Mr. X has investment management
authority, and (vi) any entity which is controlled by Natural person
Mr. X, directly or indirectly.
4. CORP1 controls GP1 and GP2, the sole general partners of private
equity funds LP1 and LP2 respectively. LP1 controls GP3, the sole
general partner of MLP1, a newly formed master limited partnership
which is its own ultimate parent entity. LP2 controls GP4, the sole
general partner of MLP2, another master limited partnership that is its
own ultimate parent entity and which owns and operates a natural gas
pipeline. In addition, GP4 holds 25 percent of the voting securities of
CORP2, which also owns and operates a natural gas pipeline.
MLP1 is acquiring 100 percent of the membership interests of LLC1,
also the owner and operator of a natural gas pipeline. MLP2, CORP2 and
LLC1 all derive revenues in the same NAICS code (Pipeline
Transportation of Natural Gas). All of the entities under common
investment management of CORP1, including GP4 and MLP2, are associates
of MLP1, the acquiring person.
In Item 7 of its HSR filing, MLP1 would identify MLP2 as an
associate that has an overlap in pipeline transportation of natural gas
with LLC1, the acquired person. Because GP4 does not control CORP2 it
would not be listed in Item 7, however, GP4 would be listed in Item
6(c)(ii) as an associate that holds 25 percent of the voting securities
of CORP2. In this example, even though there is no direct overlap
between the acquiring person (MLP1) and the acquired person (LLC1),
there is an overlap reported for an associate (MLP2) of the acquiring
person in Item 7. 5. LLC is the investment manager for and ultimate
parent entity of general partnerships GP1 and GP2. GP1 is the general
partner of LP1, a limited partnership that holds 30 percent of the
voting securities of CORP1. GP2 is the general partner of LP2, which
holds 55 percent of the voting securities of CORP1. GP2 also directly
holds 2 percent of the voting securities of CORP1. LP1 is acquiring 100
percent of the voting securities of CORP2. CORP1 and CORP2 both derive
revenues in the same NAICS code (Industrial Gas Manufacturing).
All of the entities under common investment management of the
managing entity LLC, including GP1, GP2, LP2 and CORP1 are associates
of LP1. In Item 6(c)(i) of its HSR filing, LP1 would report its own
holding of 30 percent of the voting securities of CORP1. It would not
report the 55 percent holding of LP2 in Item 6(c)(ii) because it is
greater than 50 percent. It also would not report GP2's 2 percent
holding because it is less than 5 percent. In Item 7, LP1 would
identify both LP2 and CORP1 as associates that derive revenues in the
same NAICS code as CORP2.
6. LLC is the investment manager for GP1 and GP2 which are the
general partners of limited partnerships LP1 and LP2, respectively. LLC
holds no equity interests in either general partnership but manages
their investments and the investments of the limited partnerships by
contract. LP1 is newly formed and its own ultimate parent entity. It
plans to
[[Page 42481]]
acquire 100 percent of the voting securities of CORP1, which derives
revenues in the NAICS code for Consumer Lending. LP2 controls CORP2,
which derives revenues in the same NAICS code. All of the entities
under the common management of LLC, including LP2 and CORP2, are
associates of LP1. For purposes of Item 7, LP1 would report LP2 and
CORP2 as associates that derive revenues in the NAICS code that
overlaps with CORP1. Even though the investment manager (LLC) holds no
equity interest in GP1 or GP2, the contractual arrangement with them
makes them associates of LP1 through common management.
[GRAPHIC] [TIFF OMITTED] TR19JY11.100
7. Corporation A is its own ultimate parent entity and is making an
acquisition of Corporation B. Although Corporation A is operationally
managed by its officers and its investments, including the acquisition
of Corporation B, are managed by its directors, neither the officers
nor directors are considered associates of A.
8. Limited partnership A is an investment partnership that is
making an acquisition. LLC B has no equity interest in A, but has a
contract to manage its investments for a fee. LLC B has an investment
committee comprised of twelve of its employees that makes the actual
investment decisions. LLC B is an associate of A but none of the twelve
employees are associates of A, as LLC B is a managing entity and the
twelve individuals are merely its employees. Contrast this with example
3 where a managing entity, EFG, is itself managed by another entity,
Mr. X, who is thus an associate.
9. GP is the general partner of FUND. GP has contracted with LLC to
act as an
[[Page 42482]]
investment advisor with respect to FUND's investments. In this role,
LLC acts as a consultant who makes recommendations to GP on what
portfolio companies FUND should invest in. The recommendations are non-
binding and GP is the only entity that has the authority to exercise
investment discretion over FUND's acquisitions of interests in
portfolio companies. In this example, GP is an associate of FUND, while
LLC is not.
10. GP A is the general partner and investment manager of FUND A1.
Mr. X is a principal in the A family of private equity funds and has
the contractual right to veto certain proposed actions of GP A and FUND
A1, for example, divestitures of stock that would result in a change of
control in a portfolio company. His contractual right to veto certain
proposed actions does not constitute managing operations. Mr. X does
not have the authority under the contract to veto proposed investments
of FUND A1 directed by GP A or to direct GP A to authorize investments
by FUND A1. In this example, GP A is an associate of FUND A1, while Mr.
X is not.
11. LLC is the general partner of LP and has entered into a
management contract to exercise investment discretion over LP's
investments in portfolio companies as well as to provide certain other
administrative services for LP. Mr. Y is the managing member of LLC and
as such is the person who actually makes the investment decisions on
behalf of LLC. Mr. Y has no management contract with either LLC or LP.
In this example, LLC is an associate of LP, while Mr. Y is not. Compare
with Example 7 where officers and directors of a corporation are not
associates of the corporation.
12. GP is the general partner of LP and has entered into a
management contract to exercise investment discretion over LP's
investments in portfolio companies. GP has entered into a contract with
CORP, under which CORP will manage building maintenance and certain
back office functions (e.g., maintenance of phones and computers,
accounting, IT and human resources) for LP. GP is an associate of LP
because it manages LP's investments. However, the management services
provided by CORP do not constitute operational management, therefore,
CORP is not an associate of LP.
* * * * *
(f) * * *
(1) * * *
(ii) Non-corporate interest. The term ``non-corporate interest''
means an interest in any unincorporated entity which gives the holder
the right to any profits of the entity or in the event of dissolution
of that entity the right to any of its assets after payment of its
debts. These unincorporated entities include, but are not limited to,
general partnerships, limited partnerships, limited liability
partnerships, limited liability companies, cooperatives and business
trusts; but these unincorporated entities do not include trusts that
are irrevocable and/or in which the settlor does not retain a
reversionary interest and any interest in such a trust is not a non-
corporate interest as defined by this rule.
* * * * *
0
3. Amend Sec. 801.10 by revising paragraph (c)(2) to read as follows:
Sec. 801.10 Value of voting securities, non-corporate interests and
assets to be aquired.
* * * * *
(c) * * *
(2) Acquisition price. The acquisition price shall include the
value of all consideration for such voting securities, non-corporate
interests or assets to be acquired.
* * * * *
0
4. Amend Sec. 801.15 by revising its section heading, introductory
text and paragraphs (a) and (b) to read as follows:
Sec. 801.15 Aggregation of voting securities, non-corporate
interests and assets the acquisition of which was exempt.
Notwithstanding Sec. 801.13, for purposes of determining the
aggregate total amount of voting securities, non-corporate interests
and assets of the acquired person held by the acquiring person under
Section 7A(a)(2) and Sec. 801.1(h), none of the following will be held
as a result of an acquisition:
(a) Assets, non-corporate interests or voting securities the
acquisition of which was exempt at the time of acquisition (or would
have been exempt, had the act and these rules been in effect), or the
present acquisition of which is exempt, under--
(1) Sections 7A(c)(1), (3), (5), (6), (7), (8), and (11)(B);
(2) Sections 802.1, 802.2, 802.5, 802.6(b)(1), 802.8, 802.30,
802.31, 802.35, 802.52, 802.53, 802.63, and 802.70 of this chapter;
(b) Assets, non-corporate interests or voting securities the
acquisition of which was exempt at the time of acquisition (or would
have been exempt, had the Act and these rules been in effect), or the
present acquisition of which is exempt, under Section 7A(c)(9) and
Sec. Sec. 802.3, 802.4, and 802.64 of this chapter unless the
limitations contained in Section 7A(c)(9) or those sections do not
apply or as a result of the acquisition would be exceeded, in which
case the assets or voting securities so acquired will be held; and
* * * * *
0
5. Amend Sec. 801.30 by revising its section heading and paragraph
(a)(5) to read as follows:
Sec. 801.30 Tender offers and acquisitions of voting securities and
non-corporate interests from third parties.
(a) * * *
(5) All acquisitions (other than mergers and consolidations) in
which voting securities or non-corporate interests are to be acquired
from a holder or holders other than the issuer or unincorporated entity
or an entity included within the same person as the issuer or
unincorporated entity;
* * * * *
PART 802--EXEMPTION RULES
0
6. The authority citation for part 802 continues to read as follows:
Authority: 15 U.S.C. 18a(d).
0
7. Amend Sec. 802.4 by revising paragraph (a) to read as follows:
Sec. 802.4 Acquisitions of voting securities of issuers or non-
corporate interests in unincorporated entities holding certain assets
the acquisition of which is exempt.
(a) An acquisition of voting securities of an issuer or non-
corporate interests in an unincorporated entity whose assets together
with those of all entities it controls consist or will consist of
assets whose acquisition is exempt from the requirements of the Act
pursuant to section 7A(c) of the Act, this part 802, or pursuant to
Sec. 801.21, is exempt from the reporting requirements if the acquired
issuer or unincorporated entity and all entities it controls do not
hold non-exempt assets with an aggregate fair market value of more than
$50 million (as adjusted). The value of voting or non-voting securities
of any other issuer or interests in any unincorporated entity not
included within the acquired issuer or unincorporated entity does not
count toward the $50 million (as adjusted) limitation for non-exempt
assets.
* * * * *
Sec. 802.21 [Amended]
0
8. Amend Sec. 802.21 by removing paragraph (b) and its three examples.
0
9. Amend Sec. 802.52 by revising its section heading and paragraph (b)
to read as follows:
Sec. 802.52 Acquisitions by or from foreign governmental entities.
* * * * *
[[Page 42483]]
(b) The acquisition is of assets located within that foreign state
or of voting securities or non-corporate interests of an entity
organized under the laws of that state.
* * * * *
PART 803--TRANSMITTAL RULES
0
10. The authority citation for part 803 continues to read as follows:
Authority: 15 U.S.C. 18a(d).
0
11. Amend Sec. 803.2 by revising paragraphs (b)(2), (c), and (e) to
read as follows:
Sec. 803.2 Instructions applicable to Notification and Report Form.
* * * * *
(b) * * *
(2) For purposes of item 7 of the Notification and Report Form, the
acquiring person shall regard the acquired person in the manner
described in paragraphs (b)(1)(ii), (iii) and (iv) of this section.
* * * * *
(c) In response to items 5, 7, and 8 of the Notification and Report
Form--Information need not be supplied with respect to assets or voting
securities to be acquired, the acquisition of which is exempt from the
requirements of the act.
* * * * *
(e) A person filing notification may instead provide:
(1) A cite to a previous filing containing documentary materials
required to be filed in response to item 4(b) of the Notification and
Report Form, which were previously filed by the same person and which
are the most recent versions available; except that when the same
parties file for a higher threshold no more than 90 days after having
made filings with respect to a lower threshold, each party may instead
provide a cite to any documents or information in its earlier filing
provided that the documents and information are the most recent
available;
(2) A cite to an Internet address directly linking to the document,
only documents required to be filed in response to item 4(b) of the
Notification and Report Form. If an Internet address is inoperative or
becomes inoperative during the waiting period, or the document that is
linked to it is incomplete, or the link requires payment to access the
document, upon notification by the Commission or Assistant Attorney
General, the parties must make these documents available to the
agencies by either referencing an operative Internet address or by
providing paper copies to the agencies as provided in Sec.
803.10(c)(1) by 5 p.m. on the next regular business day. Failure to
make the documents available, by the Internet or by providing paper
copies, by 5 p.m. on the next regular business day, will result in
notice of a deficient filing pursuant to Sec. 803.10(c)(2).
* * * * *
0
12. Amend Sec. 803.5 by revising paragraphs (a)(1) introductory text,
(a)(1)(ii), (a)(1)(iii), and (a)(1)(vi) to read as follows.
Sec. 803.5 Affidavits required.
(a)(1) Section 801.30 acquisitions. For acquisitions to which Sec.
801.30 applies, the notification required by the act from each
acquiring person shall contain an affidavit, attached to the front of
the notification, or attached as part of the electronic submission,
attesting that the issuer or unincorporated entity whose voting
securities or non-corporate interests are to be acquired has received
notice in writing by certified or registered mail, by wire or by hand
delivery, at its principal executive offices, of:
* * * * *
(ii) The fact that the acquiring person intends to acquire voting
securities or non-corporate interests of the issuer or unincorporated
entity;
(iii) The specific classes of voting securities or non-corporate
interests of the issuer or unincorporated entity sought to be acquired;
and if known, the number of voting securities or non-corporate
interests of each such class that would be held by the acquiring person
as a result of the acquisition or, if the number of voting securities
is not known in the case of an issuer, the specific notification
threshold that the acquiring person intends to meet or exceed; and, if
designated by the acquiring person, a higher threshold for additional
voting securities it may hold in the year following the expiration of
the waiting period;
* * *
(vi) The fact that the person within which the issuer or
unincorporated entity is included may be required to file notification
under the act.
* * * * *
0
13. Appendix to Part 803 is revised to read as follows:
Appendix to Part 803--Notification and Report Form
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[[Page 42502]]
By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 2011-17822 Filed 7-18-11; 8:45 am]
BILLING CODE 6750-01-C