US Antitrust Agencies Propose Changes to Pre-Merger Notification Rules

The Federal Trade Commission (FTC) and Antitrust Division of the Department of Justice (DOJ) (together, the Agencies) proposed changes on Monday to the Rules that govern reporting under the Hart-Scott-Rodino Act, as amended (HSR Act). The proposed changes expand who must file in certain instances, but also include an exemption for certain acquisitions.

The HSR Act requires parties to a merger or acquisition to file a notification with the Agencies for review, and wait a specified period of time after filing prior to consummating the transaction. The HSR Act gives the Agencies time to review transactions and determine if the transaction may violate antitrust laws. Periodically, the Agencies propose changes to the Rules implementing the HSR Act, as well as to the HSR Form and Instructions. 

The first substantive proposed change would require an acquiring person to disclose additional information about their associates throughout the HSR Form. This change would particularly affect investment entities, such as investment funds and master limited partnerships (MLPs). Investment funds and MLPs already must report certain, limited information about “associates” (entities that have the same Investment Manager as the fund or limited partnership making the acquisition) that generate revenue in the same NAICS code as the target. With the proposed change, “associates” are included in the definition of Person, which affects the information that must be reported throughout the Form and may affect whether or not a transaction is reportable.

Specifically, a non-corporate entity filing as an acquiring person would include that non-corporate entity, its associates, as well as the entity that manages the non-corporate entity and its associates (the “managing entity”). The Agencies gave the following example:

Fund Vehicles 1, 2 and 3, each non-corporate entities and their own UPEs¹, exist within the same family of funds. Fund Vehicles 1, 2 and 3 have the same Investment Manager, and are thus associates. Fund Vehicle 1 will acquire 6% of Issuer D valued at $100 million, Fund Vehicle 2 will acquire 6% of Issuer D valued at $100 million and Fund Vehicle 3 will acquire 3% of Issuer D valued at $50 million.² The Acquiring Person includes Fund Vehicles 1, 2 and 3, which are all UPEs, and Investment Manager. With this fact pattern, the Investment Manager would file for the 15% aggregate interest in Issuer D valued at $250 million. 

Without the new proposed Rule, these acquisitions would not be aggregated or show the relationship between the three Fund Vehicles. Thus, because the proposed rule would require aggregation among the Fund Vehicles, the size of transaction threshold may be triggered when it would not be triggered today. The change also means that the filing person will need to report more financial information and more broadly search for so-called Item 4 documents.

The Agencies also proposed a new exemption, which would exempt the acquisition of 10% or less of an issuer’s voting securities when the acquiring person does not already have a competitively significant relationship with the issuer. A competitively significant relationship includes where the acquiring person operates competing lines of business, has an existing vertical relationship with the issuer, or employs or is otherwise represented by an individual who is an officer or director of the issuer or a competitor. The Agencies expect that companies would evaluate whether or not it is a competitor in good faith, based on ordinary course documents, not simply on overlapping NAICS codes.

The above proposed changes also require changes to the HSR Form and Instructions themselves, which are detailed in the announcement.

The Agencies are accepting comments on these proposed changes for 60 days, which they will then review and use to finalize the new Rules. Buchanan attorneys stand ready to assist interested clients to submit comments before the deadline.   

Due to the complexity of the HSR Act and its corresponding Rules, it is always a best practice to engage counsel familiar with the Rules, Form and Instructions when evaluating whether a transaction is reportable.