Originally published in Antitrust News & Notes, August 2011

Effective August 18, 2011, there will be changes to the reporting requirements under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"). The following is a brief overview of the amendments to the regulation. It does not discuss all of the nuances of the amendments and counsel should be consulted to determine how the amendments apply to particular transactions.

Many of the revisions simplify the HSR form. As two examples, filing persons will no longer have to provide 2002 revenue data (a previous "base year" requirement) and filing parties can, if they wish, limit their lists of worldwide subsidiaries to those that have sales into the U.S.

Other revisions will increase reporting requirements. Some of the more significant changes are as follows:

  • Manufacturers will now have to provide revenue data, classified by the North American Industry Classification System (NAICS) codes for products manufactured outside of the U.S. but sold in or into the U.S.; there was previously no such requirement.
  • Manufacturers will now have to report the revenue data for the most recent year by 10 digit NAICS manufacturing codes; previously 10 digit code information was provided for the base year 2002 but only seven digit codes were required for the most recent year.
  • All filing persons will continue to be required to submit certain documents under item 4(c) of the HSR form dealing with market shares, competition, competitors, markets, and potential for sales growth or expansion into product or geographic markets. There is now a new requirement to provide (i) certain confidential information memoranda or documents meant to serve the purpose of describing the business being sold, (ii) certain reports prepared by investment bankers or other consultants for the purposes of evaluating a transaction and which contain 4(c) content, and (iii) certain documents evaluating the synergies or efficiencies associated with a transaction. Many filing parties already included this type of material in their filings.
  • A new concept of "Associate" is incorporated into the regulations and HSR form. All acquiring persons (not the selling party) will be required to provide certain geographical information when, to the best of their knowledge and belief, NAICS codes of their associates overlap with those of the acquired person. With certain exceptions, buyers also will be required to list the minority holdings (5 to 49 percent) of their associates when, to the best of their knowledge and belief, NAICS codes of the associates overlap with those of the acquired person. The focus is on indentifying NAICS codes of associates, not on collecting associate revenue data.

Why is "Associate" information being required? The agencies are requesting the new information because the current HSR form doesn't capture competitive information concerning certain parties that are under common investment or operational management but which are not under common control for HSR purposes (the HSR test being an economic test). A good example is the general partner of a partnership which may manage the partnership but only hold a 2 percent economic interest and thus does not "control" the partnership for HSR purposes.

Who is most affected by the introduction of the "Associate" concept? Private equity funds and master limited partnerships will probably be the entities most affected by the new provision.

What is the definition of an "Associate"? An "Associate" of an acquiring person is defined as an entity that is not an affiliate of such person (i.e., not controlled for HSR purposes directly or indirectly by the ultimate parent entity 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 investments, 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.

Additional revisions to the reporting requirements include:

  • The current HSR form requests certain information on the minority ownership structure (5 to 49 percent shareholders) of the acquiring and acquired persons (and entities within them) when they are corporations, as opposed to when they are partnerships or limited liability companies (LLCs). Under the revised regulations, this ownership reporting requirement will be expanded to cover LLCs. It will also cover limited partnerships except that for partnerships, only the general partner(s), regardless of percentage, must be listed.
  • The current HSR form requests certain information concerning the acquiring and acquired persons' minority investments in other corporations, but not partnerships and LLCs. Under the revised regulation, certain information will be required concerning the minority investments in unincorporated entities such as partnerships and LLCs, as well as corporations, when it is believed that they derive revenues under the same NAICS code(s) as the other side of the transaction. Alternatively, all minority investments may be listed.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.