[Federal Register Volume 59, Number 113 (Tuesday, June 14, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-14316]
[[Page Unknown]]
[Federal Register: June 14, 1994]
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FEDERAL TRADE COMMISSION
16 CFR Part 803
Premerger Notification; Reporting and Waiting Period Requirements
AGENCY: Federal Trade Commission.
ACTION: Notice of proposed rulemaking.
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SUMMARY: This notice proposes amendments to the Premerger Notification
and Report Form that parties to certain mergers or acquisitions are
required to file with the Federal Trade Commission and the Assistant
Attorney General in charge of the Antitrust Division of the Department
of Justice before consummating such transactions. The reporting
requirement and the waiting period that it triggers are intended to
enable the enforcement 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.
During the fifteen years the rules have been in effect, the Federal
Trade Commission, with the concurrence of the Assistant Attorney
General in charge of the Antitrust Division, has amended the premerger
notification rules several times to improve the program's effectiveness
and to lessen the burden of complying with the rules. The present
proposed revisions to the Premerger Notification and Report Form
(hereinafter ``the Form'') are also intended to improve the program's
efficiency in insuring a prompt, thorough, initial investigation of the
competitive implications of proposed acquisitions. The proposed
amendments are designed to improve the premerger notification program
by requiring persons to submit certain new and more up-to-date
information. The proposed revisions will also reduce the burden of
compliance by raising the thresholds of several items consistent with
the agencies' information needs. The burden reduction proposals will
decrease the amount of information that must be provided and the search
costs associated with providing that information.
DATES: Comments must be received on or before July 12, 1994.
ADDRESSES: Written comments should be submitted to both (1) the
Secretary, Federal Trade Commission, room 136, Washington, DC 20580,
and (2) the Assistant Attorney General, Antitrust Division, Department
of Justice, room 3214, Washington, DC 20530.
FOR FURTHER INFORMATION CONTACT: Victor L. Cohen, Attorney, or John M.
Sipple, Jr., Assistant Director, Premerger Notification Office, Bureau
of Competition, room 303, Federal Trade Commission, Washington, DC
20580. Telephone: (202) 326-3100.
SUPPLEMENTARY INFORMATION:
Regulatory Flexibility Act
Each of these proposed changes to the Form is designed to improve
the effectiveness of the premerger notification program. The Commission
has determined that none of the amendments is a major rule, as that
term is defined in Executive Order 12291. The amendments will not
result in: An annual effect on the economy of $100 million or more; a
major increase in costs or prices for consumers, individual industries,
Federal, State, or local government agencies, or geographic regions; or
significant adverse effects on competition, employment, investment,
productivity, innovation or the ability of United States-based
enterprises to compete with foreign-based enterprises in the domestic
market. None of the proposed amendments expands the coverage of the
Form in a way that would affect small business. Therefore, pursuant to
Section 605(b) of the Administrative Procedure Act, 5 U.S.C. 605(b), as
added by the Regulatory Flexibility Act, Public Law 96-354 (September
19, 1980), the Federal Trade Commission certifies that these proposals
will not have a significant economic impact on a substantial number of
small entities. Section 603 of the Administrative Procedure Act, 5
U.S.C. 603, requiring a final regulatory flexibility analysis of some
rules, is therefore inapplicable.
Paperwork Reduction Act
The Hart-Scott-Rodino Premerger Notification rules and Form contain
information collection requirements as defined by the Paperwork
Reduction Act, 44 U.S.C. 3501-3518. These requirements were reviewed
and approved by the Office of Management and Budget (OMB Control No.
3084-0005). Because the proposed amendments would affect the
information collection requirement of the premerger notification
program, the proposed amendments have been submitted to OMB for review
under Sec. 3504(h) of the Paperwork Reduction Act. These provisions are
described more fully in the Notice of Application to OMB under the
Paperwork Reduction Act, which also is being published in the Federal
Register today. Comments on the Commission's submission may be directed
to the Office of Information and Regulatory Affairs, Office of
Management and Budget, Washington, DC 20503, Attention: Desk Officer
for the Federal Trade Commission.
Background
Section 7A of the Clayton Act (``the Act''), 15 U.S.C. 18a, as
added by Sections 201 and 202 of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, requires parties to certain acquisitions of
assets or voting securities to notify the Federal Trade Commission
(hereafter referred to as ``the Commission'') and the Assistant
Attorney General in charge of the Antitrust Division of the Department
of Justice (hereafter referred to as ``the Assistant Attorney General''
or ``the Department'') before consummating the acquisition. The parties
must then wait a certain designated period before the consummation of
such acquisition. The transactions to which the advance notice
requirement is applicable and the length of the waiting period required
are set out respectively in subsections (a) and (b) of Section 7A. This
amendment to the Clayton Act does not change the standards used in
determining the legality of mergers and acquisitions under the
antitrust laws.
The legislative history suggests several purposes underlying the
act. Congress wanted to assure that large acquisitions were subjected
to meaningful scrutiny under the antitrust laws prior to consummation.
To this end, Congress clearly intended to eliminate the large
``midnight merger,'' which is negotiated in secret and announced just
before, or sometimes only after, the closing takes place. Congress also
provided an opportunity for the Commission or the Assistant Attorney
General (which are sometimes hereafter referred to collectively as the
``antitrust agencies'' or the ``enforcement agencies'') to seek a court
order enjoining the completion of those transactions that either agency
deems to present significant antitrust problems. Finally, Congress
sought to facilitate an effective remedy when a challenge by one of the
enforcement agencies proved successful. Thus, the Act requires that the
antitrust agencies receive prior notification of significant
acquisitions, provides certain tools to facilitate a prompt, thorough
investigation of the competitive implications of these acquisitions,
and assures the enforcement agencies an opportunity to seek a
preliminary injunction before the parties to an acquisition are legally
free to consummate it. The problem of unscrambling the assets after the
transaction has taken place is thereby eliminated.
Subsection 7A(d)(1) of the act, 15 U.S.C. 18a(d)(1), directs the
Commission, with the concurrence of the Assistant Attorney General, in
accordance with 5 U.S.C. 553, to require that the notification be in
such form and contain such information and documentary material as may
be necessary and appropriate to determine whether the proposed
transaction may, if consummated, violate the antitrust laws.
Subsection 7A(d)(2) of the act, 15 U.S.C. 18a(d)(2), grants the
Commission, with the concurrence of the Assistant Attorney General, in
accordance with 5 U.S.C. 553, the authority (A) to define the terms
used in the act, (B) to exempt from the act's notification and waiting
period requirements additional persons or transactions which are not
likely to violate the antitrust laws and (C) to prescribe such other
rules as may be necessary and appropriate to carry out the purposes of
section 7A.
The Commission, with the concurrence of the Assistant Attorney
General, promulgated implementing rules (``the rules'') and a
Notification and Report Form and issued an accompanying Statement of
Basis and Purpose, all of which were published in the Federal Register
of July 31, 1978, 43 FR 33450, and became effective on September 5,
1978.
The rules are divided into three parts, which appear at 16 CFR
Parts 801, 802, and 803. Part 801 defines a number of the terms used in
the Act and rules, and explains which acquisitions are subject to the
reporting and waiting period requirements. Part 802 contains a number
of exemptions from these requirements. Part 803 explains the procedures
for complying with the act. The Notification and Report Form, which is
completed by persons required to file notification, is an appendix to
Part 803 of the rules.
Changes of a substantive nature have been made in the premerger
notification rules or Form on ten occasions since they were first
promulgated. See, 44 FR 60781 (November 21, 1979); 45 FR 14205 (March
5, 1980); 46 FR 38710 (July 29, 1981); 48 FR 34427 (July 29, 1983); 50
FR 38742 (September 24, 1985); 51 FR 10368 (March 26, 1986); 52 FR 7066
(March 6, 1987) (all of these changes included revisions in the Form);
52 FR 20058 (May 29, 1987); 54 FR 21427 (May 18, 1989) and 55 FR 31371
(August 2, 1990).
The current set of proposals to change the Form is designed to
improve the program's effectiveness by requiring the submission of
certain additional information that will be very useful to the agencies
in the performance of their initial antitrust reviews of proposed
transactions. The proposals also include several modifications that are
intended to reduce the burden of completing the HSR Form consistent
with the agencies' antitrust enforcement needs. The Commission invites
interested persons to submit comments on the appropriateness of the
proposed changes to the Form and its instructions.
Proposed Changes in the Instructions and Form
a. Transactions Subject to the Bankruptcy Code
Section 363(b) of the Bankruptcy Code, 11 U.S.C. 363(b), provides
for a waiting period of ten days for transactions in which a trustee in
bankruptcy files notification of a proposed acquisition as an acquired
person. Since 11 U.S.C. 1107 provides that a debtor-in-possession
essentially has the same powers as a trustee in bankruptcy, a debtor-
in-possession also may file notification as an acquired person and
thereby invoke the ten-day waiting period. Due to the very limited time
provided for the initial review of such transactions, it is important
that the Commission and the Department quickly and easily identify
transactions to which the Bankruptcy Code provisions apply. For this
reason, the Commission proposes to modify the preamble found on page
one of the Form to include the question:
Is this filing being made as an acquired person by a trustee in
bankruptcy or a debtor-in-possession subject to Section 363(b) of the
Bankruptcy Code, 11 U.S.C. 363(b)? yes /________/ no /________/
b. Notification for an Acquisition That Has Taken Place
Several times each year, persons file premerger notifications for
acquisitions that have been consummated prior to filing notification
and observing the appropriate waiting period. Usually, such persons
call the Commission's Premerger Notification Office (``PNO'') promptly
after discovering the violation. Many of these violations are
determined to be inadvertent, the result of simple negligence. The PNO
advises persons who have consummated an acquisition in violation of the
Act to file a corrective filing as soon as possible and to submit a
detailed, written explanation signed by a company official explaining
how the violation occurred and the steps that will be taken to ensure
future compliance with the filing requirements. The letter of
explanation need not accompany the corrective filing. The submission of
a corrective, compliant notification will, in most instances, stop the
accruing of civil penalties after the waiting period has expired.
The PNO has established procedures for processing corrective
filings and conducting an informal inquiry to determine whether to
refer the violation to the appropriate litigation office for
investigation and a possible civil penalty action. The PNO procedures
are designed to monitor persons who have violated the Act to identify
repeat offenders. For this reason, it is important that filings for
acquisitions that have already been consummated be easily identified
and assigned to the persons who monitor and process such violations.
Sometimes, persons who file corrective filings do not identify them as
pertaining to an acquisition that has already been consummated.
Consequently, their filings are not always assigned to the persons who
have the expertise to handle these matters. To identify corrective
filings easily to ensure that they are assigned to the appropriate
person for review, the Commission proposes to modify the preamble found
on page one of the Form to include the question:
Is this filing being made for an acquisition that has already been
consummated? yes /______/ no /______/
c. Transactions Subject to Foreign Governmental Regulation
To enforce their antitrust statutes, many foreign governments
require, or provide for voluntary submission of, premerger notification
comparable to that required by the Form. Their thresholds for
notification overlap to varying degrees with those of section 7A.
Accordingly, parties to a merger or acquisition may file notification
with, and need clearance from, more than one sovereign authority. The
potential for multiple notifications has grown because of the increase
not only in merger enforcement organizations, but also in the number of
transactions involving firms based in different countries and/or which
do business in more than one country.
Bilateral and multilateral efforts have been undertaken to foster
communication and cooperation between antitrust authorities in order to
assist them in determining whether proposed acquisitions violate their
respective antitrust laws and avoid conflict in enforcement of those
laws. Bilateral agreements between the United States and Australia,
Canada, the European Commission and Germany provide for, inter alia,
timely notification of investigations which involve important interests
of the signatories, sharing of non-confidential information, and, where
possible, coordination of investigations. A 1986 Recommendation of the
Organization for Economic Cooperation and Development (OECD) similarly
provides for timely notification and information sharing among the OECD
members. Further efforts toward cooperation and even convergence of
premerger notification requirements have been recommended by the
American Bar Association in the 1991 Report of its special Committee on
International Antitrust.
Cooperation and potential coordination may be hindered by the
inability of antitrust authorities to learn as early as possible of the
fact of the submission of premerger notification to another
jurisdiction. This deficiency is complicated by the lack of uniformity
among the nations' premerger notification provisions as to the timing
of the submission of notification. As a result, submission of
notifications to different jurisdictions at different times often
occurs.
To provide for timely alert of multiple notifications of a
particular transaction in order to foster cooperation between the
notified jurisdictions and thereby assist the Commission and the
Department in determining whether such transaction would violate the
antitrust laws, the Commission proposes to modify the preamble found on
page one of the Form to require a listing of the name(s) of any foreign
antitrust or competition authority that has been or will be notified of
the proposed acquisition. The proposed language reads as follows:
If, to the knowledge or belief of the person filing notification, a
foreign antitrust or competition authority has been or will be notified
of the proposed acquisition, list the name and country or other
jurisdiction of each such authority and the date notification was made
or is anticipated to be made:
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d. Calculation of the Percentage of Assets in Item 3
At present, the instructions to item 3 require both the acquiring
and acquired persons to state the percentage of assets, percentage of
voting securities and the aggregate total dollar amount of assets and
voting securities that will be held by the acquiring person as a result
of the acquisition. Determining the percentage of assets held has
proven to be difficult for acquiring persons because they generally are
not aware of the book value of the assets or the total book value of
the acquired person's assets, which is the information needed to make
the required calculation. On the other hand, acquired persons can
readily ascertain the percentage of their total assets being acquired.
For this reason, the Commission proposes to amend item 3(a) to require
only the acquired person to determine the percentage of assets of the
acquired person that will be held as a result of the acquisition.
Some filing persons have expressed uncertainty regarding the
information that item 3(b) requires. Item 3(b) seeks to obtain
information regarding the percentage of voting securities of the issuer
or issuers whose voting securities will be held as a result of the
acquisition. Thus, if voting securities of more than one issuer will be
held as a result of the acquisition, percentages should be provided for
each issuer. The Commission proposes to add clarifying language to the
instructions in item 3(b).
Accordingly, the Commission proposes to modify the instructions to
item 3 to read as follows:
Assets and voting securities held as a result of the acquisition
(item 3(a) to be completed by the acquired person only; items 3(b) and
3(c) to be completed by both the acquiring and acquired persons).
State:
Item 3(a)--the percentage of assets of the acquired person (see
Sec. 801.12(d));
Item 3(b)--the percentage(s) of voting securities of each issuer
(see Sec. 801.12(a));
Item 3(c)--the aggregate total dollar amount of assets and voting
securities of the acquired person to be held by each acquiring person
as a result of the acquisition (see Secs. 801.13 and 801.14).
e. Elimination of Document Identification in Item 4(a)
At present, the instructions to item 4(a) of the Form permit filing
persons to merely identify documents filed with the Securities and
Exchange Commission (SEC) in lieu of their actual submission as
attachments to the Form when copies of the documents are not ``readily
available.'' Fortunately, filing persons rarely use this proviso and
generally submit the required SEC documents with their Forms. If filing
persons failed to submit these documents, it would hinder the ability
of the Commission and the Department to complete their antitrust
reviews within the limited time periods provided by the act.
Accordingly, the Commission proposes to delete the following
instruction presently included as the last sentence in item 4(a):
Alternatively, if the person filing notification does not have
copies of responsive documents readily available, identification of
such documents and citation to date and place of filing will constitute
compliance.
f. Submission of 4(c) Documents Prepared by or for Partners
Item 4(c) of the Form requires reporting persons to submit all
studies, surveys, analyses and reports that were prepared by or for any
officer or director (or individuals exercising similar functions in the
case of an unincorporated entity) for the purpose of evaluating or
analyzing the proposed acquisition with respect to market shares,
competition, competitors, markets, potential for sales growth or
product or geographic market expansion. Item 4(c) also encompasses
officers or directors of any entity included within the reporting
person. See 43 FR 33450, 33525 (July 31, 1978).
Item 4(c) documents often provide valuable insights into possible
product and geographic markets as well as the competitive purposes and
projected competitive consequences of the proposed transaction. As
such, item 4(c) documents are often essential to Commission and
Department attorneys in making preliminary determinations of product
and geographic markets and their initial evaluations of the potential
competitive effects of a proposed acquisition. In addition, item 4(c)
documents also have been very useful to the agencies in preparing
requests for additional information and documentary material.
At present, the instructions to item 4(c) require the submission of
documents ``which were prepared by or for any officer(s) or director(s)
(or, in the case of unincorporated entities, individuals exercising
similar functions) * * *.'' Item 4(c) applies to all entities included
within the reporting person and, thus, to partnerships. However, it has
been argued that partnerships do not have item 4(c) documents because
they contain no individuals exercising functions similar to officers or
directors (partnership interests generally ``do not entitle the owner
of that interest to vote for a corporate ``director'' or ``an
individual exercising similar functions''). See 16 CFR 801.1(b),
example 2, and 52 FR 20058, 20062 (May 29, 1987). The Commission
believes that documents prepared by or for partners of a partnership
and persons responsible for managing the affairs of a partnership are
likely to contain the same types of market information found in
documents prepared ``by or for officers or directors'' of a
corporation. For this reason, the Commission proposes to amend item
4(c) to require the submission of documents prepared by or for partners
of a partnership. However, the Commission is concerned about the burden
that such a requirement may impose on limited partners in a limited
partnership. There are often numerous limited partners in a limited
partnership, and it is the Commission's understanding that limited
partners are principally passive investors because, generally, they
must refrain from participation in the conduct of the partnership in
order to limit their liability. Uniform Limited Partnership Act
(U.L.A.), section 1. Indeed, the Commission has observed that often the
limited partners are pension funds, insurance companies and similar
types of investors.
In contrast, general partners in a limited partnership and partners
in a general partnership are normally the decisionmakers who
participate in the day-to-day management of a partnership. Uniform
Limited Partnership Act (U.L.A.), section 6. Consequently, they are
likely to create, or have created for them, documents that meet the
criteria of item 4(c). On the other hand, limited partners in a limited
partnership are likely to have in their possession primarily item 4(c)
documents which are also within the control of the general partners.
The Commission believes that any benefit that may be derived from
requiring a search for and submission of item 4(c) documents by limited
partners is outweighed by the additional burden that such a requirement
would impose.
Accordingly, the Commission proposes to amend item 4(c) to require
the submission of documents prepared by or for general partners of a
limited partnership and partners of a general partnership. These
changes are contained in the proposed item 4(c) language that follows
section g.
g. Submission of Documents Relating to Businesses or Products of
Parties to the Transaction
The Commission and the Department have received certain types of
documents in response to requests for additional information that the
Commission believes would be very useful to the agencies in conducting
their initial assessment of the possible competitive effects of a
proposed transaction. These documents describe or analyze the
businesses of, the products manufactured by or the services provided by
the parties to the transaction or relate to the possible integration of
operations.
In this regard, the Commission's experience with filings has
demonstrated that it is sometimes difficult to identify the specific
products produced by the filing persons using the information presently
required by the Form. The SIC codes do not always provide the
specificity needed to determine the products or services of the filing
persons. As a result, the agency cleared to review the transaction may
spend much of the waiting period trying to determine if the filing
persons manufacture products that actually compete. The agency is then
left with less time to reach conclusions about other antitrust issues,
such as entry, that are necessary to determine whether the acquisition
raises serious antitrust concerns. Documents that discuss or analyze
the businesses, products or services of the parties to the transaction,
if submitted when the filings are made, may, in some cases, obviate the
need for the issuance of a request for additional information and
documentary materials. Such request would otherwise be needed to
resolve the competitive issues that the agency lacked the time to
resolve during the initial waiting period.
To provide the agencies with additional documentary material to
analyze the competitive effects of a proposed acquisition, to assist
the agencies in resolving all competitive issues during the initial
waiting period and, in some cases, to eliminate the need to issue a
request for additional information and documentary materials, the
Commission proposes to modify item 4(c) to require the submission of
documents that discuss, describe or analyze (1) the businesses of, the
products manufactured or the services provided by the acquiring person
and the business enterprise being acquired (as represented by the
assets or issuer whose voting securities are being acquired) or (2) the
possible integration of the operations of the acquiring person and the
business enterprise being acquired. Documents covered by the change are
limited to documents that are considered to be within the traditional
criteria of item 4(c) noted above and are prepared by or for any
officers or directors (or, in the case of unincorporated entities,
individuals exercising similar functions or general partners of a
limited partnership and partners of a general partnership) for the
purpose of discussing, evaluating or analyzing the proposed
acquisition.
Although the amendment expands the categories of documents that
filing persons are required to submit, the Commission believes that the
documents may help to clarify information that the parties report in
item 7(a) concerning the SIC product code overlaps. For transactions
that pose no antitrust concerns, these documents are likely to enhance
the ability of the agencies to expedite their review and grant early
termination of the waiting period when requested.
Accordingly, the Commission proposes to amend item 4(c) of the Form
to read as follows:
Item 4(c)--All studies, surveys, analyses, or reports or documents
which were prepared by or for any officer(s) or director(s) including
officers or directors of any entity within the filing person (or, in
the case of unincorporated entities, individuals exercising similar
functions or, in the case of a limited partnership, any general
partner(s) of such partnership and, in the case of a general
partnership, the partners of such partnership) for the purpose of
discussing, evaluating or analyzing the acquisition with respect to (i)
market shares, competition, competitors, markets, potential for sales
growth or expansion into product or geographic markets; (ii) the
businesses of, products manufactured by or services provided by the
acquiring person and the business enterprise being acquired (as
represented by the assets or issuer whose voting securities are being
acquired); or (iii) the integration of the operations of the acquiring
person and the business enterprise to be acquired.
h. Submission of Solicitation Documents
Pursuant to the requirements of item 4(c), filing persons often
submit a variety of documents, including offering memoranda, analyses
by investment bankers and similar documents prepared by consultants and
investment firms for the purpose of soliciting expressions of interest
from prospective purchasers. These documents often provide detailed
information on the operations and the market position of the acquired
person.
On occasion, counsel for a filing person has contended that
investment bankers' books or other types of offering documents prepared
by third parties as general selling documents are not covered by item
4(c) because they were not prepared for the specific acquisition for
which a filing is being made. This position appears to be based, in
part, on the statement in the Statement of Basis and Purpose (``SBP'')
that the ``reporting person must submit only those documents prepared
in connection with the reported acquisition.'' 43 FR 33450, 33525 (July
31, 1978). The Commission did not intend, nor does it interpret, this
language to mean that only documents prepared after the acquiror has
been identified qualify as item 4(c) documents. Rather, it is the
Commission's view that such documents were ``prepared in connection
with the reported acquisition'' even though at the time of preparation
the specific acquiror had not been identified. Similarly, if an
acquiror is considering a number of acquisition candidates and prepares
documents which analyze various aspects of competition prior to making
its decision regarding which candidate(s) to pursue, those documents
pertaining to the candidate(s) selected are item 4(c) documents.
Counsel for filing persons also have contended that investment
bankers' books are not item 4(c) documents because it is not clear that
such documents are prepared ``by or for any officer(s) or
director(s).'' The Commission believes that such documents meet this
requirement because they are usually prepared at the direction of an
officer or director of the acquired person. Moreover, in the
Commission's view such documents of the acquiring person qualify as
4(c) documents because they are prepared for the officers or
directors--the decision-makers who will determine whether to pursue an
acquisition. The fact that investment bankers' books usually are
prepared by outside consultants also has no bearing on whether such
documents are covered by item 4(c). As the Commission made clear in the
SBP when the premerger notification rules were promulgated, item 4(c)
documents include ``documents prepared by any person, including
consultants, for officers and directors.'' See 43 FR 33450, 33525 (July
31, 1978). The Commission proposes to amend item 4(c) by adding new
item 4(c)(ii) which will make clear that the submission of investment
bankers' books and similar documents prepared in connection with the
sale of the acquired person or any portion of the acquired person is
required. However, this new section is not limited to documents
``prepared by or for any officer(s) or director(s)'' of the acquiring
or the acquired person. Documents of this type have provided valuable
information to the agencies in connection with their antitrust reviews
and the agencies should not be precluded from receiving these documents
simply because they were not prepared expressly for officers or
directors.
Accordingly, the Commission proposes to add a new subsection to
item 4 to be identified as item 4(c)(ii) and to renumber item 4(c) to
item 4(c)(i). Proposed item 4(c)(ii) will read as follows:
Item 4(c)(ii)--All investment bankers' books, offering memoranda,
and similar documents which have been prepared by any person for the
purpose of soliciting expressions of interest from prospective
purchasers of the assets or entity to be acquired.
i. Submission of an Index for Item 4(c) Documents
At present, persons filing documents required by item 4 of the Form
may provide an optional index for the documents submitted. An index to
item 4 documents has proven to be valuable to both the Premerger
Notification Office staff as well as to litigation staff in expediting
their reviews of proposed acquisitions, especially when numerous
documents are submitted.
In order to facilitate the review process, the Commission proposes
to require the submission of an index of documents submitted in
response to items 4(c)(i) and 4(c)(ii). Such indices will better enable
the Commission and the Department to keep track of item 4(c) documents.
They also will enable the agencies to determine whether filing parties
have inadvertently omitted any documents identified as item 4(c)
documents.
Accordingly, the Commission proposes to add the following language
to the general instructions to item 4, amended to require the
submission of an index identifying all item 4(c)(i) and 4(c)(ii)
documents:
Persons filing notification must provide an index of documents
being submitted pursuant to Items 4(c)(i) and 4(c)(ii). With respect to
each document, provide the name of the document, the date of
preparation, and the name and title of the document's authors and
recipients.
j. Acquisition of the Assets of an Insurance Carrier
Item 5 of the Form requires insurance carriers, i.e., persons
deriving revenues in 2-digit SIC major group 63, to supply revenue
information only for industries not within SIC major group 63 and
instructs such persons to complete the Insurance Appendix to the Form
when voting securities of an insurance carrier are to be acquired. If
the proposed acquisition is not of voting securities but of assets that
generate insurance revenues within 2-digit SIC major group 63, the
current instructions do not require the filing person to complete
either item 5 or the Insurance Appendix. To correct this omission, the
Commission proposes to modify item 5 and the Insurance Appendix to
require insurance carriers to complete the Insurance Appendix if the
acquisition is of assets that generate insurance revenues.
Accordingly, the Commission proposes to revise item 5 and the
Insurance Appendix instructions to the Form to read as follows:
Item 5--Insurance Carriers (2-digit SIC major group 63) should
supply the information requested only with respect to industries not
within SIC major group 63. If voting securities of an insurance carrier
or assets that generate insurance revenues in 2-digit SIC major group
63 are being acquired, the filing person should complete the Insurance
Appendix to this Form.
Appendix To Notification and Report Form: Insurance
Insurance carriers (2-digit SIC major group 63) are required to
complete this Appendix if voting securities of an insurance carrier
or assets that generate insurance revenues in 2-digit SIC major
group 63 are being acquired directly or indirectly.
k. Products Added
Item 5(b)(ii) of the Form requires the filing person to identify
(by 7-digit SIC code or in the manner ordinarily used by such person)
each product within 2-digit SIC major groups 20-39 (manufactured
products) which it has added or deleted subsequent to 1987 (the current
base year), indicating the year of addition or deletion and stating the
total dollar revenues it derived in the most recent year for each
product added. Products added by reason of mergers or acquisitions of
entities are not included and are reported in items 5(a) and 5(b)(i).
Some filing persons have asserted that item 5(b)(ii) does not
require the inclusion of products added, either through new product
innovation or through the purchase of assets including production
facilities, after the most recent year for which the filing person
reports revenues in item 5(b)(iii). For example, such persons assert
that if the revenues reported in item 5(b)(iii) are for calendar year
1992, then they need not report in item 5(b)(ii) any new product
developed in 1993 which generated revenues under an SIC code not
previously used by the filing person. This interpretation of the
current language of item 5(b)(ii) would permit filing persons to omit
potentially important information that is not called for elsewhere on
the Form. It might allow an SIC code overlap to go unreported, as well
as information about the filing person's ability to manufacture the new
product.
The Commission believes that the language of item 5(b)(ii) does not
permit this limited reading. However, the Commission proposes to amend
item 5(b)(ii) to make explicit that all manufactured products added or
deleted after the base year must be reported. The amendment will alert
filing persons that they must provide the ``most current information
available'' about their production activities to enable the agencies to
better assess the competitive effects of a proposed transaction. See 43
FR 33450, 33529 (July 31, 1978).
The Commission also proposes to modify item 5(b)(ii) to clarify the
procedure for reporting revenues derived during the base year by
entities acquired by filing persons after the base year. The current
instructions to item 5 require that a filing person report in response
to items 5(a)-(c) any revenues derived during the base year by an
entity that the filing person later acquires by merger or acquisition.
However, the instructions to item 5(b)(ii) require only the reporting
of products added by merger or acquisition in item 5(b)(i), which calls
for revenues by 7-digit SIC manufacturing product codes, and not item
5(a), which asks for base year revenues by 4-digit SIC manufacturing
and non-manufacturing industry codes. The amendment adds language to
item 5(b)(ii) to indicate that base year revenues for these added
products should be included in response to both items 5(a) and 5(b)(i).
Since the present language in item 5 applies only to the
acquisition of an ``entity'', it does not cover asset acquisitions.
However, the Commission's staff has adopted the position that if an
asset is acquired after the base year and is accompanied by books and
records sufficient to provide responses to items 5 (a) through (c),
then such responses must be provided. If such books and records do not
accompany the purchased asset, then, if the asset engages in
manufacturing, it must be included in the response to item 5(b)(ii) as
a product added by the reporting person. The Commission is in agreement
with the staff's treatment of asset acquisitions and has modified item
5 to reflect this position.
Accordingly, the Commission proposes to modify the general
instructions to item 5 and item 5(b)(ii) to read as follows:
Persons filing notification should include the total dollar
revenues for 1987 derived by all entities, or generated by assets (for
which books and records necessary to supply such revenues are
available) even if such entities or assets have become included within
the person since 1987. For example, if the person filing notification
acquired assets in 1989, along with the books and records necessary to
supply 1987 revenues generated by the assets, it must include those
revenues in Item 5(a) and, if a manufactured product, in item 5(b)(i).
Item 5(b)(ii)--Products added or deleted. Within 2-digit SIC major
groups 20-39 (manufacturing industries), identify each product of the
person filing notification added or deleted subsequent to 1987,
including products added after the most recent year for which period
revenues are reported in the response to item 5(b)(iii). Indicate the
year of addition or deletion and, for products added, state the total
dollar revenues derived in the most recent year, and, for products
added after the most recent year, for the time period, if any, the
product has derived revenues. Also include products added by the
acquisition of assets engaged in manufacturing (2-digit SIC major
groups 20-39) for which books and records sufficient to provide
revenues for the base year were not also acquired. Products added
should be identified by the appropriate 7-digit SIC product code unless
the person is unsure of the proper code, in which case the person can
identify the product in the manner it ordinarily uses.
Do not include products added since 1987 by reason of the
acquisition of an entity in operation in 1987 or of assets accompanied
by the books and records sufficient to provide 1987 revenues for such
assets. Dollar revenues derived from such products should be included
in response to Items 5(a) and, if a manufactured product, 5(b)(i).
However, if an entity acquired after 1987 by the person filing
notification (and now included within the person) itself has added or
deleted any manufactured products since 1987, these products should be
listed in Item 5(b)(ii). Products deleted by reason of dispositions of
assets or voting securities since 1987 should also be listed in Item
5(b)(ii).
l. Foreign Manufactured Products
Section 803.2(c)(1) of the rules, 16 CFR 803.2(c)(1), instructs
filing persons to provide information in response to items 5, 7, 8 and
9 and the Insurance Appendix ``with respect to operations conducted
within the United States.'' Areas included in the United States are
defined in Sec. 801.1(k), 16 CFR 801.1(k). Filing persons are not
required to submit SIC code information on a detailed manufacturing
basis for products they manufacture outside the United States even if
they sell the products in the United States. For example, if a filing
person manufactured a product in 1987 in Canada, imported it into the
United States and sold that product at the wholesale or retail level,
the filing person would report revenues derived from those sales in
item 5(a) using a wholesale or retail 4-digit SIC code. The filing
person would not be required to identify in either item 5(a) or item
5(b)(i) the product it manufactured in Canada using the descriptive 4-
digit SIC code or the 7-digit SIC product code for manufactured
products that would have been required if the product had been
manufactured in the United States. Similarly, if the filing person
derived revenues in the most recent year from sales of the product in
the United States, the person would report those revenues in item 5(c)
using the appropriate 4-digit wholesale or retail code. The filing
person would not report those revenues in item 5(b)(iii) using the
appropriate 5-digit SIC product class code for manufactured products as
it would have if the product had been manufactured in the United
States.
The 4-digit SIC wholesale and retail codes reported in items 5(a)
and 5(c) do not identify the SIC manufacturing codes applicable to the
products manufactured abroad that are sold by the manufacturer in the
United States. Consequently, the agencies have found it very difficult,
using the information presently required by the Form, to determine
whether a filing person that manufactures products outside the United
States but sells them in the United States may be involved in
manufacturing activities similar to those of another party to the
transaction.
The Commission believes that 7-digit SIC product code information
concerning products manufactured outside the United States that are
sold in or into the United States at the wholesale or retail level
would be very helpful to the agencies in performing their initial
antitrust review. This information has become more important over the
last decade as foreign imports and their effect on the nation's economy
have increased. For this reason, the Commission proposes to modify the
Form to require filing persons to identify the 7-digit SIC product code
(manufacturing industries) for each product they manufacture outside
the United States and sell in the United States at wholesale or retail.
Since this provision requires persons to identify codes and not report
revenues, it should only impose a minimal additional burden on filing
persons. The proposed revision would require filing persons to identify
the 7-digit SIC product codes for such foreign manufactured products
only for the most recent year.
Accordingly, the Commission proposes to add a new item 5(c)(ii) to
the Form and to change the designation of present item 5(c) to 5(c)(i).
New proposed item 5(c)(ii) reads as follows:
Item 5(c)(ii)--Identification of 7-digit SIC product codes for
certain foreign manufactured products. Provide the 7-digit SIC product
code for each product manufactured outside the United States by the
person filing notification for which the person reported revenues in
Item 5(c)(i). The 7-digit SIC product codes to be provided are those
that the person would use to identify the products if the person had
manufactured the product(s) in the United States. Revenues for such 7-
digit codes need not be provided.
m. Increases in Reporting Thresholds in Items 6(b) and 6(c)
At present, item 6(b) of the Form requires the reporting person to
identify shareholders holding five percent or more of the voting stock
of any entity included within the reporting person (including the
ultimate parent entity) having total assets of $10 million or more. For
each shareholder, the reporting person must list the issuer, the class,
the number and the percentage of each class of voting securities held.
Item 6(c) requires the reporting person to list its minority voting
stock holdings of five percent or more in any issuer having total
assets of $10 million or more.
Item 6 is designed to obtain information to ``alert the enforcement
agencies to situations in which the potential antitrust impact of the
reported transaction does not result solely or directly from the
acquisition, but may arise from direct or indirect shareholder
relationships between the parties to the transaction.'' See 43 FR
33450, 33531 (July 31, 1978). For example, items 6(b) and 6(c) may
reveal situations in which ``a person known to be a competitor or
customer or supplier of one of the parties is also a significant
shareholder of the other party, or when the acquiring party holds stock
in a competitor or customer or supplier of the acquired company or vice
versa.'' Id.
The Commission has reviewed its use of the information submitted in
response to items 6(b) and (c) and has determined to propose an
increase in the thresholds from five percent to ten percent. Subsection
(c)(9) of the Act exempts most acquisitions of ten percent or less of
an issuer's voting securities, so long as the acquisition is made
solely for the purpose of investment. Although the Commission and the
Department of Justice have issued requests for additional information
to reporting persons who proposed to acquire less than ten percent of
an issuer's voting securities, it does not appear that disclosures of
stock holdings of less than ten percent by filing persons in response
to items 6(b) and 6(c) of the Form have raised competitive concerns
sufficient to result in the issuance of any second requests.
Increasing the reporting thresholds to ten percent is also likely
to reduce significantly the compliance burden of certain filing
persons, such as nonpublic and foreign firms. Generally, nonpublic and
foreign firms are not required to report their holdings regularly as
publicly-held companies in the United States are required to do.
Consequently, such firms appear to have difficulty gathering the
information needed to respond accurately to items 6(b) and 6(c) at the
five percent thresholds.
Accordingly, the Commission proposes to revise items 6(b) and 6(c)
of the Form to read as follows:
Item 6(b)--Shareholders of person filing notification. For each
entity (including the ultimate parent entity) included within the
person filing notification the voting securities of which are held (See
Sec. 801.1(c)) by one or more other persons, list the issuer and class
of voting securities, the name and headquarters mailing address of each
other person which holds ten percent or more of the outstanding voting
securities of the class, and the number and percentage of each class of
voting securities held by that person. Holders need not be listed for
issuers with total assets of less than $10 million.
Item 6(c)--Holdings of person filing notification. If the person
filing notification holds voting securities of any issuer not included
within the person filing notification, list the issuer and class, the
number and percentage of each class of voting securities held, and
(optional) the entity within the person filing notification which holds
the securities. Holdings of less than ten percent of the outstanding
voting securities of any issuer, and holdings of issuers with total
assets of less than $10 million, may be omitted.
n. Reporting of 5-Digit SIC Code Overlaps
At present, item 7 of the Form requires the filing person who has
knowledge or belief that it and any other party to the acquisition
derived revenues in the most recent year from any of the same 4-digit
SIC industry codes to list the overlapping SIC codes and to provide its
description. If the transaction involves the formation of a joint
venture or other corporation, the filing person must indicate the
common 4-digit SIC codes in which it derives revenues and in which the
joint venture will derive revenues as well as the common codes it has
with other parties to the transaction. The Commission proposes to amend
item 7 in two ways.
First, the Commission proposes to require filing persons to
identify and provide geographic market information for overlapping 5-
digit SIC product class codes as well as 4-digit SIC codes for
manufacturing operations (SIC major groups 20-39). The Commission has
found that many of the 4-digit SIC codes within SIC major groups 20-39
are too broad for proper product line determinations. Because many
products are often included within a particular 4-digit SIC code, it is
difficult to determine based on 4-digit information whether the parties
to the transaction produce competing products. However, 5-digit SIC
codes delineate specific product classes that are less inclusive than
the 4-digit SIC codes that classify products by manufacturing industry.
Modifying item 7 to include overlapping 5-digit SIC codes will provide
more detailed geographic market information about a more narrowly
defined class of products that the filing persons produce in common.
For example, the 4-digit SIC code, 2834 - Pharmaceutical Preparations,
is sub-categorized into nine different 5-digit SIC codes. Thus, for the
most part, while the information received in response to item 7 has
been very useful, the Commission believes that information regarding
geographic markets at the 5-digit SIC code overlap level will improve
the agencies' initial antitrust review.
Second, the Commission proposes to amend item 7 to require filing
persons to include SIC code overlaps and geographic market information
for products added and facilities that began operations after the
period for which revenue information was provided in response to items
5(b)(iii) and 5(c). At present, Item 7 requires a filing person to
identify overlaps from operations in which it derived revenues ``in the
most recent year.'' If a filing person interprets this language
narrowly to mean only overlaps for operations in which it reported
revenues in items 5(b)(iii) and 5(c) for the most recent year (for
which it has compiled twelve months of revenue information), overlaps
which exist due to products or facilities added after that period would
not be identified. The Commission is aware of at least one instance in
which a filing person failed to report geographic market information
for a retail establishment it opened and from which it derived revenues
after the year for which it reported revenues in item 5(c). The failure
to disclose such locations in responding to item 7 compromises the
agencies' ability to make a complete assessment of the potential
competitive effects of a proposed acquisition. For this reason, the
Commission proposes to amend item 7 to clarify that filing persons are
required to report product overlap and geographic market information
current to the date of filing.
In addition, consistent with the proposal described above, the
Commission proposes to amend current item 7(c)(iv), which will be
renumbered item 7(c)(v). This item requires filing persons to provide
the street addresses, arranged by state, county and city or town, of
establishments in certain industries, e.g., retail trade, for which the
competitive effects in local geographic markets may be of concern. The
Commission proposes to amend renumbered item 7(c)(v) to make clear that
the listing of establishments must include establishments acquired or
constructed since the end of the most recent year for which period
revenues are reported in item 5(b)(iii).
The Commission therefore proposes to amend item 7 to require: (1)
The disclosure of SIC code overlaps and geographic market information
at the 5-digit product class level as well as the 4-digit industry
level in SIC major groups 20-39; (2) the listing of SIC code overlaps
and geographic markets resulting from products added or businesses
entered into since the end of the most recent year for which revenues
are reported in item 5(b)(iii) or item 5(c)(i); and (3) in newly
numbered item 7(c)(v), the listing of establishments acquired or
constructed since the end of the most recent year for which period
revenue information was provided in response to items 5(b)(iii) and
5(c). The proposed amendments read as follows:
Item 7--If, to the knowledge or belief of the person filing
notification, the person filing notification derived dollar revenues in
the most recent year (and/or in the period from the end of the most
recent year to the date of filing of this Notification and Report Form)
from any 4-digit SIC code or, within SIC major groups 20-39
(manufacturing industries), from any 4-digit industry or 5-digit
product class code in which any other person who is a party to the
acquisition also derived dollar revenues in the most recent year or
since the end of the most recent year (or in which a joint venture or
other corporation will derive dollar revenues), then for each 4-digit
(SIC code) industry and each 5-digit (SIC code) product class:
Item 7(a)--List the 4-digit (industry) and 5-digit (product class)
SIC codes and the description for the industries and product classes;
Item 7(b)--List the name of each person who is a party to the
acquisition who derived dollar revenues in the 4-digit industry and 5-
digit product class code;
Item 7(c)(i)--For each 4-digit industry and 5-digit product class
code within SIC major groups 20-39 (manufacturing industries) listed in
Item 7(a) above, list the states (or, if desired, portions thereof) in
which, to the knowledge or belief of the person filing notification,
the products in that 4-digit industry and 5-digit product class
produced by the person filing notification are sold without a
significant change in their form, whether they are sold by the person
filing notification or by others to whom such products have been sold
or resold;
Item 7(c)(v)--For each 4-digit industry within SIC major groups 52-
61, 70, 75, 78, and 80 (retail trade, banking, and certain services)
listed in Item 7(a) above, provide the street address, arranged by
state, county and city or town, of each establishment from which dollar
revenues were derived in the most recent year or since the end of the
most recent year, including establishments acquired or constructed by
the filing person since the end of the most recent year.
o. Submission of Geographic Market Information for Health Care
Facilities
At present, item 7 does not always provide the enforcement agencies
with the geographic market information needed to assess the potential
anticompetitive effects of acquisitions involving health care
facilities. The problem results from the use of different 4-digit SIC
codes to report the revenues derived from owned versus managed health
care facilities. Persons who derive revenues from the ownership and
operation of health care facilities report their revenues in item 5
under one of six different 4-digit SIC codes in industry groups 805 and
806. In contrast, persons who manage health care facilities but do not
own the facility report revenues derived from their management services
under 4-digit SIC code 8741-Management Services. Consequently, since
filing persons use different 4-digit SIC codes to report revenues
derived from owned and managed health care facilities, they are not
required to identify these operations as overlaps in item 7(a). Thus,
if one party to an acquisition derived revenue from the ownership and
operation of a general medical hospital (4-digit SIC code 8062) in the
most recent year and the other party derived revenue from the
management of a general medical hospital (4-digit SIC code 8741) in the
same metropolitan area, the parties would not be required to identify
these operations as an overlap in item 7 or to provide geographic
market information.
The Commission believes that information concerning the operation
of both owned and managed health care facilities is essential to the
agencies' ability to perform an initial antitrust review of health care
acquisitions. As the Commission found in Hospital Corporation of
America, 106 F.T.C. 361 (1985), aff'd, Hospital Corporation of America
v. Federal Trade Commission, 807 F.2d 1381 (7th Cir. 1986), cert.
denied, 481 U.S. 1038 (1987), management contracts greatly enhance the
ability of a firm to coordinate behavior between its owned hospitals
and the hospitals it manages, thereby increasing the likelihood of
anticompetitive consequences. For this reason, the Commission held that
including the management contracts to be acquired from Hospital
Affiliates within Hospital Corporation of America's market shares
presented a more accurate picture of HCA's post-acquisition market
power.
The importance of receiving information concerning management
contracts in the health care area is further supported by the fact that
approximately eight percent of the nation's community hospitals are
operated under management contracts, often by hospital companies that
both manage hospitals for others as well as operate hospitals which
they own. See American Hospital Ass'n, Guide to the Health Care Field
(1992) and Hospital Statistics (1992-1993 ed.). However, geographic
information for managed health care facilities is not readily available
on a current basis from these or any other published sources. Thus, it
is important that the enforcement agencies receive with the HSR filing
overlap and geographic market information concerning health care
facilities that are owned, as well as those that are managed, by the
filing parties.
Accordingly, the Commission proposes to amend item 7 to require
reporting persons to identify managed and owned health care operations
as overlaps and to provide appropriate geographic market information.
To accomplish this, the Commission proposes to add a special
instruction to item 7 that will treat reporting persons that operated a
health care facility under a management contract in the most recent
year as having derived revenues from that facility in that facility's
4-digit SIC code. For example, if the acquiring person in a reported
transaction owned and operated a general medical hospital in the most
recent year and reported revenues under 4-digit SIC code 8062 and the
acquired person managed a general medical hospital under a management
contract in the most recent year, the parties would be required to
identify in item 7(a) an overlap in 4-digit SIC code 8062. In addition,
each person would be required to provide, in response to renumbered
item 7(c)(v), the street address, arranged by state, county and city or
town, for each general medical hospital it owned or managed. This
special instruction will apply only to establishments listed within SIC
industry group 805, Nursing and Personal Care Facilities, and SIC
industry group 806, Hospitals. Accordingly, the Commission proposes to
add the following language to the instructions to item 7.
For purposes of Item 7, a person that operates, under a management
contract an establishment included within SIC industry group 805,
Nursing and Personal Care Facilities, or within industry group 806,
Hospitals, shall be deemed to derive revenues from that establishment
in the establishment's 4-digit SIC code, whether or not the person is
entitled to share in the establishment's revenue, or is otherwise
compensated for its management services. An establishment is deemed to
be operated under a management contract by a person if that person has
been delegated by another person, or governmental unit, the contractual
authority and responsibility to administer or supervise the operations
of all, or substantially all, of the establishment, whether or not the
operator is subject to the supervision of that or any other person or
unit.
p. Submission of County Geographic Market Information
Item 7(c)(ii) of the Form requires filing persons to identify the
states in which they derive revenues for overlapping 4-digit SIC codes
within major groups 01-17 (agriculture, forestry, fishing, mining,
construction and transportation industries) and 40-49 (communications,
electric, gas and sanitary services). Based on the agencies' review of
past transactions in these industries, the Commission has determined
that the agencies need more detailed geographic market information for
the communications industry (major group 48), which includes cable
television services. Many franchises and licenses in the communications
industry are issued on a local (county or city) basis rather than on a
state-wide basis. Comparison of county services will provide
information as to whether competition exists or is likely to exist in
this industry. Submission of county information will help the agencies
in determining the possible competitive effects of a proposed
transaction within the limited time provided by the act.
Accordingly, the Commission proposes that county as well as state
information be provided by filing persons whenever a 4-digit SIC code
within 2-digit major group 48 has been identified as an SIC code
overlap in response to item 7(a) of the Form. To accomplish this, the
Commission proposes that item 7(c)(ii) be changed to exclude SIC major
group 48 and that (1) a new item 7(c)(iii) be added to the Form to
require the filing person to identify the counties and states in which
it derived revenues for 4-digit SIC codes in major group 48; and (2)
present items 7(c)(iii), 7(c)(iv), 7(c)(v) and 7(c)(vi) be renumbered,
respectively, 7(c)(iv), 7(c)(v), 7(c)(vi) and 7(c)(vii). The proposed
modification of item 7(c)(ii) and the proposed new item 7(c)(iii) read
as follows:
Item 7(c)(ii)--For each 4-digit industry within SIC major groups
01-17, 40-47 and 49 (agriculture, forestry and fishing, mining,
construction, transportation, electric, gas and sanitary services)
listed in Item 7(a) above, list the states (or, if desired, portions
thereof) in which the person filing notification conducts such
operations;
Item 7(c)(iii)--For each 4-digit industry within SIC major group 48
(communications) listed in Item 7(a) above, list the states and the
counties within such states in which the person filing notification
conducts such operations or, if the person filing notification conducts
operations in all counties within a state, the identity of such states.
q. Increase in Reporting Threshold for Vendor-Vendee Relationships
At present, item 8 of the Form requires filing persons that are
also vendees to provide certain information if the acquiring and the
acquired persons maintained a vendor-vendee relationship during the
most recent year with respect to any manufactured product that the
vendee either resells, consumes in, or incorporates into, the
manufacture of a product. If the proposed acquisition involves the
formation of a joint venture or other corporation, item 8 requires each
person forming the entity to identify any manufactured product it
purchased from any other such person which will be supplied to the
joint venture or other corporation. If the aggregate annual sales of
the manufactured product do not exceed $1 million, the filing person
need not list the product in item 8. The intended purpose of item 8 is
to ``identify certain instances in which a reported acquisition may
result in vertical foreclosure or an increase in vertical integration
in an industry.'' See 43 FR 33450, 33533 (July 31, 1978).
The Commission is aware that the $1 million threshold can make
complying with item 8 burdensome. Responding can be particularly
difficult for a large firm without a centralized accounting system that
tracks the sales and purchases of each of its many divisions and
subsidiaries. Consequently, such a firm may need to undertake a
significant records check to determine whether it had sales or
purchases of over $1 million of product from the other person to the
transaction in order to supply the data called for by item 8.
The Commission proposes to increase the threshold in item 8 to
require the reporting of vendor-vendee relationships when aggregate
annual sales or purchases of a manufactured product during the most
recent year exceed $5 million. In 1978, the Commission declined to
raise the threshold to $5 or $10 million because it was concerned that
a reporting floor higher than $1 million would exclude some highly
significant vertical relationships. See 43 FR 33450, 33534 (July 31,
1978). However, the Commission's experience in reviewing filings and
investigating proposed transactions in recent years has indicated that
acquisitions in which either party makes product purchases from the
other party under $5 million rarely, if ever, present risks of vertical
foreclosure or increased vertical integration in a given industry. In
addition, this threshold should simplify filing persons' reporting
obligations because even large firms with numerous operations are
likely to be able easily to identify customers that purchase this
volume of product. Vendees that must supply the data required by item 8
also will likely know if they acquired products exceeding $5 million
from a single source of supply.
Accordingly, the Commission proposes to modify item 8 of the Form
to read:
Manufactured products are those within 2-digit SIC major groups 20-
39. Any product purchased from the vendor in the aggregate annual
amount not exceeding $5 million, or the manufacture, consumption or use
of which is not attributable to the assets to be acquired, or to the
issuer whose voting securities are to be acquired (including entities
controlled by the issuer), may be omitted.
r. Reporting of Prior Acquisitions
At present, item 9 requires the acquiring person to list certain
prior acquisitions when both the acquiring person and the acquired
issuer or the acquired assets had attributable to them revenues of $1
million or more in the most recent year in the same 4-digit SIC code.
The acquiring person is required to list only prior acquisitions made
within the previous five years of more than 50 percent of the voting
securities or assets of entities which had annual net sales or total
assets greater than $10 million in the year prior to the acquisition.
The purpose of item 9 is ``to assist the agencies in identifying
any prior acquisitions by the acquiring person that may suggest a
pattern of acquisitions in a particular industry by that person.'' 43
FR 33450, 33534 (July 31, 1978). Item 9 has been useful to the agencies
in monitoring competition within industries. Responses to this item
have provided information relating to acquisitions for which a
premerger filing was not made as well as information regarding possible
violations of the Act for failure to file notification.
As stated above, item 9 currently requires information regarding
prior acquisitions involving common 4-digit SIC codes in which both the
acquiring person and the issuer or assets to be acquired derived
revenues of $1 million or more in the most recent year. In 1987, the
Commission decided not to adopt a suggestion to raise the $1 million
threshold to $10 million ``because the agencies sometimes find overlaps
of less than $10 million in a given 4-digit SIC code to be of
significance.'' 52 FR 7078 (March 6, 1987) The Commission explained
that this is particularly true when the parties compete in small local
markets and when the acquiror has a large market share. Id. However,
based on the Commission's experience in reviewing acquisitions since
1987, the Commission has observed that acquisitions in which either
party currently derives revenues of less than $5 million in the same 4-
digit SIC industry code seldom present competitive concerns. Thus,
information about the acquiring person's prior acquisitions involving
such industries is of limited value, either in analyzing the
transaction for which the acquiring person is currently filing
notification, or for monitoring competition in the given industry. For
this reason, the Commission proposes to raise the $1 million threshold
presently found in item 9 to $5 million.
The Commission also proposes to clarify the language in item 9
which provides that ``only acquisitions of more than 50 percent of the
voting securities or assets of entities'' need be listed. With respect
to asset acquisitions, this language has been read to mean that only
acquisitions of more than 50 percent of the assets of an entity need be
listed. While the more than 50 percent threshold is justified for
voting securities acquisitions, it appears to have no basis from an
antitrust perspective as applied to assets. In many cases, filing
parties often have recognized this incongruity and have included in
their response to item 9 acquisitions of assets that did not constitute
more than 50 percent of the acquired entity's assets; strict
application of the more than 50 percent requirement to assets would
permit nearly all prior acquisitions from large, multi-divisional
corporations to go unreported in item 9. Accordingly, the Commission
proposes to modify the instructions to item 9 to make clear that asset
acquisitions are not subject to the 50 percent test.
In addition, the Commission proposes to modify the language of the
``more than 50 percent'' test as applied to the acquisition of voting
securities to a ``50 percent or more'' test consistent with the
Commission's definition of control of an issuer. See 16 CFR 801.1(b).
Accordingly, the Commission proposes that the instructions to item
9 be revised, in part, as follows:
Item 9--Previous acquisitions (to be completed by acquiring
persons). Determine each 4-digit (SIC code) industry listed in Item
7(a) above, in which the person filing notification derived dollar
revenues of $5 million or more in the most recent year and in which
either (1) the issuer to be acquired derived revenue of $5 million or
more in the most recent year (or in the case of the formation of a
joint venture or other corporation, where the joint venture or other
corporation can be expected to derive revenues of $5 million or more),
or (2) revenues of $5 million or more in the most recent year are
attributable to the assets to be acquired.
For each such 4-digit industry, list all acquisitions made by the
person filing notification in the five years prior to the date of
filing. List only acquisitions of (1) 50 percent or more of the voting
securities of an issuer which had assets or annual net sales of $10
million or more in the year prior to the acquisition or (2)
acquisitions of assets valued at $10 million or more at the time of
their acquisition.
By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 94-14316 Filed 6-13-94; 8:45 am]
BILLING CODE 6750-01-P
