2018-14378. Premerger Notification; Reporting and Waiting Period Requirements

AGENCY:

Federal Trade Commission.

ACTION:

Final rule.

SUMMARY:

The Commission is amending the Hart-Scott-Rodino (“HSR”) Premerger Notification Rules (the “Rules”) that require the parties to certain mergers and acquisitions to file reports with the Federal Trade Commission (“the Commission” or “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 Rules to make them clearer and easier to apply. The Commission is also amending the Rules to allow for the use of email in certain circumstances. Finally, the Commission is adding updated Instructions to the Premerger Notification and Report Form which include amendments for clarity and to make several non-substantive changes.

DATES:

Effective August 15, 2018.

FOR FURTHER INFORMATION CONTACT:

Nora Whitehead, Attorney, 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 reports 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 the 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 Premerger Notification and Report Form (“Form”) and its associated Instructions, codified in the appendix to part 803, to govern the form of premerger notification to be provided by merging parties.

Potential filing parties rely on the Rules to determine whether they must file under the Act and often consult the Premerger Notification Office to better understand how to apply the Rules. These changes to the Rules and Instructions address many of the questions received.

Amendments to the Rules

The Commission is amending the Rules, as described below, in order to clarify them and make them easier for potential filing parties to apply. The Commission is also amending the Rules to allow for the use of email in sending notice letters pursuant to 16 CFR 801.30, granting early termination, withdrawing a filing pursuant to 16 CFR 803.12, and issuing requests for additional information or documentary material (“Second Requests”).

A. Control of a Trust

The Commission is amending § 801.1(b)(2) to clarify the term “control” as it pertains to trusts. This change explains that a person or entity is deemed to control a trust if that person or entity has the contractual power to designate 50 percent or more of the trust's trustees, where the trust is also irrevocable and/or the settlor does not retain a reversionary interest. This revision does not alter the substance of the test, but merely aims to eliminate confusion that arises from the text as currently written.

B. Exemption for Goods Acquired in the Ordinary Course of Business

The Commission is amending § 802.1 to remove “realty” from the heading and introductory paragraph of the rule. Although section 7A(c)(1) of the Act exempts from the reporting requirement both goods and realty transferred in the ordinary course of business, § 802.1 addresses only the exemption of goods, and the reference to realty in the heading and introductory paragraph is misleading and confusing. Prior to 1996, § 802.1 paralleled the language of the statute, which allowed for a broad ordinary course exemption but contained no guidance on specifics. In 1996, the FTC revised and clarified the “ordinary course of business” exemption with four new rules—§ 802.1 through § 802.3 and § 802.5. With this change, § 802.1 was amended to address only the acquisition of goods in the ordinary course of business. The removal of the term “realty” from § 802.1does not affect the treatment of acquisitions of realty, which are addressed in the other regulations noted above.

In addition, the Commission is amending example 4 to § 802.1 to clarify that the acquisition described could be exempt pursuant to § 802.2.

C. Intraperson Transactions

The Commission is amending § 802.30(c) to add “non-corporate interests” after assets and voting securities. This change clarifies that, in the context of a formation pursuant to § 801.40 or § 801.50, the contribution of non-corporate interests by the acquiring person to the newly formed entity, like the contribution of assets and voting securities, is exempt from the requirements of the Act as to that contributing acquiring person. This change corrects an oversight in the non-corporate rulemaking.^[1]

D. Entity Formation

The Commission is amending § 802.41, Example 1, to replace the word “cash” with “assets.” In its current form, the example is confusing and misleading because the acquisition of an entity that holds only cash is not subject to notification requirements.

E. Affidavits

The Commission is amending § 803.5(a)(1) to clarify that the provision applies to acquisitions of non-corporate interests as well as acquisitions of voting securities. With this amendment, the Commission brings § 803.5(a)(1) into accord with the language in the rest of § 803.5 regarding the applicability of the rule to acquisitions of non-corporate interests.

F. Withdraw and Refile Notification

The Commission is amending § 803.12(c) to clarify that the process for withdrawing an HSR filing and resubmitting it without incurring a new filing fee is available only during the initial waiting period. Although a filing may be withdrawn at any time while the waiting period is open, pursuant to § 803.12(a), a party may refile without paying a new fee only prior to the expiration or early termination of the initial waiting period and prior to the issuance of a Second Request. This revision eliminates confusion about the availability of the withdraw and refile process.

G. Use of Email

The Commission makes the following amendments to allow for the use of email.

• Section 803.5(a)(1) is amended to allow notice letters required by § 801.30 to be sent via email. The PNO has permitted notice letters to be sent via email for many years, and the Commission now formally authorizes the use of email to send notice letters pursuant to § 801.30. The Commission is also amending § 803.5(a)(1) to clarify that notice letters sent via email must be sent to the email address of an officer within the acquired issuer, such as the Chief Executive Officer, General Counsel or Secretary, or in the case of an unincorporated entity, persons exercising similar functions. Allowing notice letters to be sent via email to an appropriate person at the acquired entity will make the process of providing and receiving the notice letter required by § 801.30 more efficient for filing parties.
• Section 803.11(c) is amended to provide that grants of early termination will become effective upon notice to the filing persons transmitted by either telephone or email. Notice by email will also serve as written confirmation. Allowing for notice of grants of early termination by email eliminates the time-intensive and inefficient process of calling each party individually and then following-up with a hard copy letter, instead combining notice and confirmation into one step.
• Section 803.12(a) and (b) are amended to provide that a party's notification to the Agencies of its withdrawal of its premerger notification may be delivered in writing by email or mail to the Agencies.
• Section 803.20(b) is amended to provide that a Second Request may be delivered in writing by email. Current Agency practice is to send notice via mail as well as to email the parties a Second Request within the original waiting period. In addition, the section is amended to eliminate the requirement that the full text of a Second Request will be read upon request. This amendment makes clear that email confirmation of the Second Request within the original waiting period is sufficient for the Second Request to be effective, and that email is a valid means of communication during the waiting period.

These amendments will make the Rules easier to apply for both filing parties and the Agencies. Further, amending the Rules to allow for the use of email in sending notice letters pursuant to § 801.30, granting early termination, withdrawing a filing, and issuing Second Requests will make these processes more efficient.

Revisions to the Instructions to the Form

The Commission is adding updated Instructions to the Form with amendments as follows.

Page I of the Instructions now provides an email address for the Premerger Notification Office, an updated address for DOJ's Premerger and Division Statistics Unit, and a reminder that affidavits and certifications submitted with DVD filings should be in searchable PDF format.

Page I of the Instructions is also edited to clarify how the terms “documentary attachments,” “person filing,” “filing person,” and “ultimate parent entity” are used in the Instructions.

Page II of the Instructions is edited to clarify that filing parties should continue to use 6- and 10-digit 2012 NAICS codes when responding to certain items in the Form, until further announcement by the Premerger Notification Office.

Page II of the Instructions is further edited to clarify that the limitation on the acquired person's response applies to Items 5-7 of the Form.

Page III of the Instructions is edited to indicate that there are now specific, limited criteria for fee payment via certified check.

Page IV of the Instructions is edited to remove references to fax numbers.

Page V of the Instructions is edited to clarify that it is not necessary to list all subsidiaries wholly owned by the acquired entity in Item 3(a), and to require filing parties to provide an index of any coded names used to refer to the parties in any transaction document(s).

Page V of the Instructions is also edited to include a list of the most common mistakes when completing the HSR Form.

Page VI of the Instructions is edited to include additional instructions regarding the numbering and cross-referencing of Item 4(c) and 4(d) documents.

Page VI of the Instructions is further clarified to note that any privilege log(s) should contain the names of inside and outside counsel providing privileged legal advice.

Page IX of the Instructions is edited to note that if the acquiring person reports an associate overlap only, the acquired person need not respond to Item 7.

Page XI of the Instructions is edited to cross-reference the regulation setting civil penalties for consummation of a reportable transaction without providing complete and proper notification.

The footer on each page of the Instructions has been updated to reflect the date of the latest revision.

These amendments to the Instructions, which provide additional clarity, will benefit filing parties in the preparation of the Form.

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).

The Commission is amending the Rules to make them clearer and easier to apply. The Commission is also amending the Rules to allow for the use of email in certain circumstances. Finally, the Commission is amending the Instructions to the Form for clarity and to make several non-substantive changes. 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)(A). Because the amendments are not substantive in nature, they are also not subject to the delayed effective date provisions of the APA. See 5 U.S.C. 553(d) (substantive rules may take effect no sooner than 30 days after publication). For these reasons, the Commission finds that there is good cause for adopting this final rule as effective on August 15, 2018 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. The Regulatory Flexibility Act requirements apply, however, 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, 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 by exempting all transactions valued at less than $50 million (as adjusted annually). Further, none of the proposed rule amendments expands the coverage of the premerger notification rules in a way that would affect small business. Accordingly, to the extent, if any, that the Regulatory Flexibility Act applies, the Commission certifies that these proposed 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

These changes do not contain any record maintenance, reporting or disclosure requirements that would constitute agency “collections of information” that would have to be submitted for clearance and approval by the Office of Management and Budget under the Paperwork Reduction Act of 1995, 44 U.S.C. 3501-3521.

List of Subjects in 16 CFR Parts 801, 802, and 803

• Antitrust

By direction of the Commission.

Donald S. Clark,

Secretary.

For the reasons stated above, the Federal Trade Commission amends 16 CFR parts 801, 802, and 803 as set forth below:

PART 801—COVERAGE RULES

1. The authority citation for part 801 continues to read as follows:

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

2. Amend § 801.1 by revising the introductory text of paragraph (b)(2) to read as follows:

§ 801.1

Definitions.

* * * * *

(b) * * *

(2) Having the contractual power presently to designate 50 percent or more of the directors of a for-profit or not-for-profit corporation, or 50 percent or more of the trustees in the case of trusts that are irrevocable and/or in which the settlor does not retain a reversionary interest.

* * * * *

PART 802—EXEMPTION RULES

3. The authority citation for part 802 continues to read as follows:

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

4. Amend § 802.1 by revising the section heading, introductory text, and Example 4 of paragraph (d)(4) to read as follows:

§ 802.1

Acquisitions of goods in the ordinary course of business.

Pursuant to section 7A(c)(1) of the Clayton Act (the “Act”), acquisitions of goods transferred in the ordinary course of business are exempt from the notification requirements of the Act. This section identifies certain acquisitions of goods that are exempt as transfers in the ordinary course of business. This section also identifies certain acquisitions of goods that are not in the ordinary course of business and, therefore, do not qualify for the exemption.

* * * * *

(d) * * *

(4) * * *

Examples:

* * *

4. “A,” a national producer of canned fruit, preserves, jams and jellies, agrees to purchase from “B” for in excess of $50 million (as adjusted) a total of 20,000 acres of orchards and vineyards in several locations throughout the U.S. “A” plans to harvest the fruit from the acreage for use in its canning operations. The acquisition is not exempt under this section because orchards and vineyards are real property, not “goods.” If, on the other hand, “A” had contracted to acquire from “B” the fruit and grapes harvested from the orchards and vineyards, the acquisition would qualify for the exemption as an acquisition of current supplies under paragraph (c)(3) of this section. Although the transfer of orchards and vineyards is not exempt under this section, the acquisition could be exempt under § 802.2(g) as an acquisition of agricultural property.

* * * * *

5. Amend § 802.30 by revising the introductory text of paragraph (c) to read as follows:

§ 802.30

Intraperson transactions.

* * * * *

(c) For purposes of applying § 802.4(a) to an acquisition that may be reportable under § 801.40 or § 801.50, assets, voting securities, or non-corporate interests contributed by the acquiring person to a new entity upon its formation are assets, voting securities, or non- corporate interests whose acquisition by that acquiring person is exempt from the requirements of the Act.

* * * * *

6. Amend § 802.41 by revising Example 1 to read as follows:

§ 802.41

Corporations or unincorporated entities at time of formation.

* * * * *

Examples:

1. Corporations A and B, each having sales of in excess of $100 million (as adjusted), each propose to contribute in excess of $50 million (as adjusted) in assets in exchange for 50 percent of the voting securities of a new corporation, N. Under this section, the new corporation need not file notification, although both A and B must do so and observe the waiting period prior to receiving any voting securities of N.

* * * * *

PART 803—TRANSMITTAL RULES

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

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

8. Amend § 803.5 by:

a. Revising the introductory text of paragraph (a)(1);

b. Adding an example in paragraph (a)(1)(vi); and

c. In paragraph (a)(2), removing “ Example:” and adding in its place “Examples to paragraph (a)(2):”.

The revisions and addition read as follows:

§ 803.5

Affidavits Required.

(a)(1) Section 801.30 acquisitions. For acquisitions to which § 801.30 applies, the notification required by the Act from each acquiring person shall contain an affidavit, attached to the front of the notification, or with the DVD submission, attesting that the issuer or unincorporated entity whose voting securities or non-corporate interests are to be acquired has received written notice delivered to an officer (or a person exercising similar functions in the case of an entity without officers) by email, certified or registered mail, wire, or hand delivery, at its principal executive offices, of:

* * * * *

(vi) * * *

Example to paragraph (a)(1)(vi):

1. Company A intends to acquire voting securities of Company B. “A” sends, via email, a notice letter to a general email account, [e-mail]. “A” has not provided sufficient notice. Alternatively, “A” sends, via email, a notice letter to “B's” President, Jane Doe, at [e-mail]. “A” has provided email notice to a specific officer of “B.”

* * * * *

9. Amend § 803.11 by revising paragraph (c) to read as follows:

§ 803.11

Termination of waiting period.

* * * * *

(c) The Federal Trade Commission and the Assistant Attorney General may, in their discretion, terminate a waiting period upon the written request of any person filing notification or, notwithstanding paragraph (a) of this section, sua sponte. A request for termination of the waiting period shall be sent to the offices designated in § 803.10(c). Termination shall be effective upon notice to any requesting person by either email or telephone, and such notice shall be given as soon as possible. Such notice shall be made to each person which has filed notification, and notice of termination shall be published in the Federal Register in accordance with section 7A(b)(2) of the Clayton Act (the “act”). The Federal Trade Commission and the Assistant Attorney General also may use other means to make the termination public, prior to publication in the Federal Register in a manner that will make the information equally accessible to all members of the public.

10. Amend § 803.12 by revising paragraphs (a), (b), and (c)(1) to read as follows:

§ 803.12

Withdraw and refile notification.

(a) Voluntary. An acquiring person, and in the case of an acquisition to which § 801.30 does not apply, an acquired person, may withdraw its notification by notifying the Federal Trade Commission and the Antitrust Division in writing by email or mail of such withdrawal.

(b) Upon public announcement of termination. An acquiring person's notification or, in the case of an acquisition to which § 801.30 of this chapter does not apply, an acquiring or an acquired person's notification, will be deemed to have been withdrawn if any filing that publicly announces the expiration, termination or withdrawal of a tender offer or the termination of an agreement or letter of intent is made by the acquiring person or the acquired person with the U.S. Securities and Exchange Commission (“SEC”) under the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) and rules promulgated under that act. The acquiring person or acquired person must notify the Federal Trade Commission and the Antitrust Division in writing by email or mail that such filing has been made with the SEC and the withdrawal shall be deemed effective on the date of the SEC filing. Withdrawal of the HSR notification(s) shall occur even if statements are made in the SEC filing indicating a desire to recommence the tender offer or enter into a new or amended agreement or letter of intent. This paragraph is inapplicable if the initial 15-day or 30-day waiting period has expired without issuance of a request for additional information or documentary material and without an agreement in place with the Agencies to delay closing of the transaction (“a timing agreement”); or early termination of that waiting period has been granted, without a timing agreement in place; or if a request for additional information or documentary material has been issued and the Agencies have either granted early termination or allowed the extended waiting period to expire following certification of compliance without a timing agreement in place.

(c) Resubmission without a new filing fee. (1) An acquiring person whose notification has been voluntarily withdrawn pursuant to paragraph (a) of this section, or an acquiring person whose notification is deemed to have been automatically withdrawn under paragraph (b) of this section, may resubmit its notification, thereby initiating a new waiting period for the same transaction without an additional filing fee pursuant to § 803.9(f). This procedure may be used only one time, and only under the following circumstances:

(i) The notification is withdrawn prior to the expiration or early termination of the waiting period and prior to the issuance of a request for additional information pursuant to § 803.20 and section 7A(e) of the act;

(ii) The proposed acquisition does not change in any material way;

(iii) The resubmitted notification is recertified, and the submission, as it relates to Items 4(a), 4(b), 4(c), and 4(d) of the Notification and Report Form, is updated to the date of the resubmission;

(iv) A new executed affidavit is provided with the resubmitted HSR filing; and

(v) The resubmitted notification is refiled prior to the close of the second business day after withdrawal.

* * * * *

11. Amend § 803.20 by revising paragraphs (b)(2)(ii) and (b)(3) and the example in paragraph (b)(3) to read as follows:

§ 803.20

Requests for additional information or documentary material.

* * * * *

(b) * * *

(2) * * *

(ii) In the case of a written request, upon notice of the issuance of such request to the person to which it is directed within the original 30-day (or, in the case of a cash tender offer or of an acquisition covered by 11 U.S.C. 363(b), 15-day) waiting period (or, if § 802.23 applies, such other period as that section provides), provided that written confirmation of the request is emailed or mailed to the person to which the request is directed within the original 30-day (or, in the case of a cash tender offer or of an acquisition covered by 11 U.S.C. 363(b), 15-day) waiting period (or, if § 802.23 applies, such other period as that section provides). Notice to the person to which the request is directed may be given by email, telephone or in person. The person filing notification shall keep a designated individual reasonably available during normal business hours throughout the waiting period at the email or telephone number supplied in the Notification and Report Form. Notice of a request for additional information or documentary material need be given by email or telephone only to that individual or to the individual designated in accordance with paragraph (b)(2)(iii) of this section. The written confirmation of the request shall be emailed or mailed to the ultimate parent entity of the person filing notification, or if another entity within the person filed notification pursuant to § 803.2(a), then to such entity.

* * * * *

(3) Requests to natural persons. A request addressed to an individual, requiring that he or she submit additional information or documentary material, shall be transmitted to the person filing notification of which the individual is an ultimate parent entity, officer, director, partner, agent or employee, and shall be effective as to that individual when effective as to the person filing notification pursuant to paragraph (b)(2) of this section. A written copy of the request shall also be delivered to the individual by email, by hand, or by registered or certified mail at his or her home or business address.

Example: A designee of the Federal Trade Commission sends, by email, a written request for additional information to the CEO of corporation W, the ultimate parent entity within a person that filed notification. The request is effective under paragraph (b)(2)(i) of this section. If the email also addressed a request for documentary material to the Secretary of corporation W, a named individual, under this paragraph (b)(3), the request would likewise be effective as to the individual upon receipt of the email by corporation W. In the latter case, the Federal Trade Commission also would send a copy of the request to the Secretary of the corporation at his or her home or business address, or email.

* * * * *

Appendix to Part 803 [Redesignated as Appendix A to Part 803]

12. Redesignate the appendix to part 803 as appendix A to part 803.

13. Add 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.  70 FR 11502 (Mar. 8, 2005).