2019-13225. Premerger Notification; Reporting and Waiting Period Requirements

AGENCY:

Federal Trade Commission.

ACTION:

Final rule.

SUMMARY:

The Federal Trade Commission (“Commission” or “FTC”) is amending the Hart-Scott-Rodino (“HSR”) Premerger Notification Rules (“Rules”) that require the parties to certain mergers and acquisitions to file reports with the FTC and the Assistant Attorney General in charge of the Antitrust Division of the Department of Justice (“the Assistant Attorney General” or “DOJ”) (together the “Antitrust Agencies” or “Agencies”) and to wait a specified period of time before consummating such transactions. The Commission is amending the Antitrust Improvements Act Notification and Report Form (“HSR Form”) and Instructions to require use of 10-digit codes based upon the North American Product Classification System in place of the 10-digit codes based upon the North American Industry Classification System.

DATES:

The amendments are effective September 25, 2019.

FOR FURTHER INFORMATION CONTACT:

Robert Jones, Assistant Director, Premerger Notification Office, Bureau of Competition, Room 5301, Federal Trade Commission, 400 7th Street SW, Washington, DC 20024. Telephone [phone], Email: [e-mail].

SUPPLEMENTARY INFORMATION:

Introduction

Section 7A of the Clayton Act (the “Act”) requires the parties to certain mergers or acquisitions to file with the Commission and DOJ and wait a specified period before consummating the proposed transaction to allow the Agencies to conduct their initial review of a proposed transaction's competitive impact. The reporting requirement and the waiting period that it triggers are intended to enable the Antitrust 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.

Section 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 the Administrative Procedure Act, 5 U.S.C. 553, to require that premerger 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. Section 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 to define the terms used in the Act and prescribe such other rules as may be necessary and appropriate to carry out the purposes of section 7A of the Act.

Pursuant to that authority, the Commission, with the concurrence of the Assistant Attorney General, developed the Rules, codified in 16 CFR parts 801, 802 and 803, and the HSR Form and its associated Instructions, codified in the appendices to part 803, to govern the form of premerger notification to be provided by merging parties.

The Commission is amending the HSR Form and Instructions to require use of 10-digit codes based upon the North American Product Classification System (“NAPCS”) in place of the 10-digit codes based upon the North American Industry Classification System (“NAICS”).

Background

Item 5 of the HSR Form requires filing persons to submit information regarding dollar revenues and lines of commerce with respect to operations conducted within the United States during a company's most recently completed year using NAICS and NAICS-based codes. All filing persons submit non-manufacturing revenue at the 6-digit NAICS industry code level. While the official NAICS classification system only provided for six-digit codes, the United States Census Bureau (“Census”) developed a 10-digit NAICS-based product classification code for manufactured and mineral products. Filing persons must also report manufacturing revenues (NAICS sectors 31-33) by these 10-digit codes in Item 5 of the HSR Form. These 10-digit codes were updated in conjunction with the data collection for the 2002, 2007, and 2012 Economic Censuses.

In 2017, Census updated the 6-digit NAICS codes, but discontinued its use and update of the 10-digit NAICS-based codes. Census, instead, adopted 10-digit codes based upon the North American Product Classification System to report products, including manufactured products. The NAPCS is a comprehensive, market- or demand-based, hierarchical classification system for products (goods and services).^[1] Census used these 10-digit NAPCS codes, along with the 6-digit NAICS codes in the 2017 Economic Census, which it commenced in May 2018. In addition, Census has published concordance tables that link 2012 NAICS product codes to 2017 NAPCS collection codes.^[2] Now that the deadline for response to the 2017 Economic Census has passed and Census has published its concordance tables, the Commission has determined that it is appropriate to adopt the use of 10-digit NAPCS codes for reporting manufacturing revenues in the HSR Form.

Incorporating the 10-digit NAPCS codes into the HSR Form and the Instructions will ensure that filing persons provide revenues in a format that can be compared to the most recent and complete economic data published by Census. The amended HSR Form and Instructions will continue to require the use of 6-digit NAICS industry codes for non-manufacturing revenues. For manufacturing revenues, filing persons will be required to report revenue in both the 6-digit NAICS industry code, as well as the 10-digit NAPCS product code. The reporting of overlaps in Item 6 and Item 7 has been based upon 6-digit NAICS codes and will not change.

Revisions to the HSR Form and Instructions

The Commission is amending the HSR Form and Instructions to require the reporting of manufacturing revenue by both the applicable 6-digit NAICS code and 10-digit NAPCS code. The changes are as follows:

A. HSR Form Item 5

The Commission has deleted the following language: “5(a) DOLLAR REVENUES BY NON-MANUFACTURING INDUSTRY CODE AND BY MANUFACTURED PRODUCT CODE” and replaced it with “5(a) DOLLAR REVENUES BY NAICS INDUSTRY CODE AND BY NAPCS-BASED PRODUCT CODE.” The Commission has also deleted the following language: “6-DIGIT INDUSTRY CODE AND/OR 10-DIGIT PRODUCT CODE” and replaced it with “6-DIGIT NAICS INDUSTRY CODE AND/OR 10-DIGIT NAPCS-BASED PRODUCT CODE.”

Previously, manufactured product revenue (NAICS Sectors 31-33) only needed to be reported at the 10-digit NAICS-based code level, since the relevant 6-digit NAICS code constituted the first 6 digits of the 10-digit code. However, because the 10-digit NAPCS-based codes do not include the 6-digit NAICS code, manufactured product revenue must now be reported by both NAICS and NAPCS codes. For example, assume that a filing person determined that its Item 5 revenues should be reported as follows using NAICS codes:

3111111131 Canned dog food—$50 million

3111111411 Dry and semi-moist dog food—$45 million

3111114411 Canned cat food—$35 million

3111114511 Dry and semi-moist cat food—$25 million

That filing person would now report the following in Item 5 using NAICS and NAPCS codes:

311111 Dog and Cat Food Manufacturing—$155 million

2009750000 Canned dog food $50—million

2009775000 Dry and semi-moist dog food—$45 million

2009800000 Canned cat food—$35 million

2009825000 Dry and semi-moist cat food—$25 million

The reporting requirements for revenue derived from non-manufacturing operations remain the same.

B. HSR Form Revised Date

The HSR Form's “Revised Date” on the bottom of each page has been updated from “(rev. 01/02/17)” to “(rev. 06/07/19)” to reflect the ministerial revisions described in this document.

C. Revisions to the Instructions to the Form

The Commission is amending the Instructions to the Form as follows.

Page II of the Instructions adds references to the use of the North American Product Classification System and updates references to the North American Industry Classification System to reflect the release of 2017 codes.

Page II of the Instructions also deletes the paragraph that instructed filing parties to continue to use 2012 NAICS codes while Census completed its transition to NAPCS.

The section for Item 5 on Page VII instructs filers that derive revenue from manufacturing operations to use 10-digit NAPCS codes, rather than 10-digit NAICS codes, to report this revenue.

The section for Item 5 on Page VII also instructs filing parties that derive revenue from manufacturing operations to report the sum of those revenues in the appropriate 6-digit NAICS code.

The section for Item 5 on Page VII requires filing parties to check the overlap box for NAICS and NAPCS code overlaps. Filers deriving revenue from manufacturing operations that will report an overlap in Item 7 should check the overlap box for the corresponding 6-digit NAICS code in Item 5, even if there are no 10-digit NAPCS code overlaps.

The section for Item 5 on Page VII is further changed to emphasize that acquired persons are to only include total dollar revenues for all entities included within the acquired entity.

Administrative Procedure Act

The Commission finds good cause to adopt these changes without prior public comment. Under the Administrative Procedure Act (“APA”), notice and comment are not required “when the agency for good cause finds (and incorporates the finding and a brief statement of reasons therefore in the rules issued) that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest.” 5 U.S.C. 553(b)(3)(B).

In this case, the Commission finds that public comment on these changes is unnecessary. The Commission is amending the HSR Rules to adopt updates developed by the Census for the reporting of manufactured product revenue. These updates do not involve any substantive changes in the HSR Rules' requirements for entities subject to the Rules. Rather, they merely change the numerical codes used to report manufactured product revenue.

In addition, these amendments fall within the category of rules covering agency procedure and practice that are exempt from the notice-and-comment requirements of the APA. See 5 U.S.C. 553(b)(3)(A). These changes merely alter the manner in which entities report manufactured product revenue to the Agencies.

For these reasons, the Commission finds that there is good cause for adopting this final rule as effective on September 25, 2019 without prior public comment.

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 proposed amendments on small businesses, except where the agency head 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 invoke an HSR filing, the premerger notification rules rarely, if ever, affect small businesses. Indeed, amendments to the Act in 2001 were intended to reduce the burden of the premerger notification program further by exempting all transactions valued at less than $50 million (as adjusted annually).^[3] Likewise, none of the rule amendments expand the coverage of the premerger notification rules in a way that would affect small business. In addition, the Regulatory Flexibility Act requirements apply only to rules or amendments that are subject to the notice-and-comment requirements of the APA. See 5 U.S.C. 603, 604. Because these amendments are exempt from those APA requirements, as noted earlier, they are also exempt from the Regulatory Flexibility Act requirements. In any event, to the extent, if any, that the Regulatory Flexibility Act applies, the Commission certifies that these rules will not have a significant economic impact on a substantial number of small entities. This document serves as notice of this certification to the Small Business Administration.

Paperwork Reduction Act

The Commission has existing Paperwork Reduction Act clearance for the HSR Rules (OMB Control Number 3084-0005). The Commission has concluded that these technical amendments do not change the substance or frequency of the pre-existing information collection requirements and, therefore, do not require further OMB clearance.

List of Subjects in 16 CFR Part 803

Antitrust.

By direction of the Commission.

April Tabor,

Acting Secretary.

For the reasons stated above, the Federal Trade Commission amends 16 CFR part 803 as set forth below:

PART 803—TRANSMITTAL RULES

1. The authority citation for part 803 continues to read as follows:

Authority: 15 U.S.C. 18a(d).

2. Revise appendix A to part 803 to read as follows:

Appendix A to Part 803—Notification and Report Form for Certain Mergers and Acquisitions

3. Revise appendix B to part 803 to read as follows:

Appendix B to Part 803—Instructions to the Notification and Report Form for Certain Mergers and Acquisitions

Footnotes

1.  See United States Census Bureau, Economic Census, Concordance of 2012 Product Codes to 2017 NAPCS-Based Codes, https://www.census.gov/​programs-surveys/​economic-census/​guidance/​understanding-napcs.html;​; United States Census Bureau, North American Product Classification System, https://www.census.gov/​eos/​www/​napcs/​index.html.

2.  United States Census Bureau, 2017 NAPCS-Based Collection Code to 2012 Product Code: https://www2.census.gov/​programs-surveys/​economic-census/​technical-documentation/​napcs/​2017_​napcs-based_​collection_​code_​to_​2012_​product_​code.xlsx;​; United States Census Bureau, 2012 Product Code to 2017 NAPCS-Based Collection Code: https://www2.census.gov/​programs-surveys/​economic-census/​technical-documentation/​napcs/​2012_​product_​code_​to_​2017_​napcs_​based_​collection_​code.xlsx.

3.  By comparison, the dollar thresholds established for total annual receipts of a small business under the applicable small business size standards fall well under $50 million. See 13 CFR 121.201.