The FTC Releases Proposed Changes to the Hart-Scott-Rodino Form

August 17, 2010


On August 13, the Federal Trade Commission (“FTC” or “Commission”), with the concurrence of the Department of Justice (collectively, the “Agencies”), proposed significant modifications to the Hart-Scott-Rodino (“HSR”) Act Notification and Report Form (“Form”).[1] These changes are designed to provide the Agencies with more information relevant to their antitrust analysis of notified transactions. However, the proposed changes will, in many cases, increase the burden on filers.

Revisions to Items 1-3 (Identification of Parties and Description of Transaction)

The Commission proposes a number of minor changes to Items 1 through 3 of the Form; generally, these changes eliminate duplicative questions and requests for non-relevant information (for example, the request that the filing person separately identify and describe the type and number of securities of the to-be acquired entity). There is one proposal of significance: the FTC proposes to require the filing person to provide -- in addition to the main agreement between the parties -- a copy of any “Agreements Not To Compete.”

Revisions to Items 4(a) and 4(b) (Request for Financial Statements)

The Commission first proposes several helpful changes to the financial information requested at Items 4(a) and 4(b).[2]

Item 4(a) would be amended to require only that the filing person list all entities within it that file annual reports[3] with the Securities and Exchange Commission, and to provide the Central Index Key (“CIK”) number for each entity.[4] Item 4(b) would be amended to eliminate the requirement that the filing person provide its most recent balance sheets (whether consolidated or unconsolidated), but would be expanded to require the filing person to provide annual reports and/or audit reports of any unconsolidated non-corporate U.S. issuer (e.g., L.P., LLC, or LLP) within the filing person.

Proposed New Item 4(d) (Request for New Classes of Documents)

The Commission proposes no change to one of the most important aspects of the Form, Item 4(c), which calls for documents prepared in connection with the transaction that analyze or provide guidance on the competitive effect of the transaction.[5] But, in a significant change, the FTC is introducing a new Item 4(d). It would require the filing parties to provide: (i) all confidential information memoranda or offering memoranda that reference the to-be acquired entity or assets; (ii) all studies, surveys, analyses, and reports prepared by investment bankers, consultants, or other third party advisors for any officer(s) or director(s)[6] of the filing person that meet the competitive information prong of Item 4(c) and reference the acquired entity or assets; and, (iii) all studies, surveys, analyses or reports evaluating or analyzing synergies or efficiencies, prepared by or for any officer(s) or director(s)[7] for the purpose of evaluating or analyzing the acquisition. Proposed new items 4(d)(i) and 4(d)(ii) would require the filing person to provide responsive documents prepared within two (2) years of the HSR filing date.

Proposed Revisions to and Expansions of Item 5 (Revenue Information)

The Commission also proposes significant changes to Item 5. Item 5 presently directs the filing person to provide U.S. revenue information by a 6-digit NAICS code for manufactured and non-manufactured products and, additionally, by a 10-digit NAICS code for manufactured products for a base year (presently 2002), as well as similar data (by either a 7-digit or a 6-digit NAICS Code) for the most current completed year.[8] Recognizing the limited value of base year data, the FTC proposes eliminating the request for this data.[9]

However, the FTC also proposes expanding the information requested for current year operations in two significant ways. First, a filing person would be required to allocate manufacturing data by a 10-digit NAICS code, rather than by a 7-digit NAICS code. Second, the filing person would also be required to provide information on products manufactured outside the U.S. but sold in or exported into the United States by a 10-digit NAICS code.[10]

Revisions to Item 6 (Request for Information on Ownership Structure)

The Commission proposes substantial and substantive changes to Item 6. This item identifies the entities within the filing person, any minority shareholders of corporate entities, and minority share-holdings of the filing person.

Proposed changes to Item 6(b) would require the filing person to identify significant minority owners[11] of any non-corporate entity controlled by the filing party. (Recognizing the limited role that limited partners play in limited partnerships, the modified form would require identification of the general partner of non-corporate entities controlled by the filing party, but not any of the limited partners.) Item 6(c) would be modified to allow a filing person to limit its response to the identification of minority-owned interests, in both corporate and non-corporate entities, to those from which the minority-held entity derived revenue in its most recent completed year within any 6-digit NAICS code in which the acquiring and acquired person also derived dollar revenues.

Introduction of New Item 6(c)(ii): (Identification of Associates of Filing Party)

Proposed new item 6(c)(ii) would require the acquiring person to identify any “associates” with significant minority ownership[12] of any corporate or non-corporate entity that derived dollar revenues, in its most recent completed year, within any 6-digit NAICS code in which the acquired entity also derived dollar revenues.

Associates, a new term, is defined as an entity that:

      • (A) has the right, directly, or indirectly, to manage, direct or oversee the affairs and/or the investments of an acquiring entity (a “managing entity”); or
      • (B) has its affairs and/or investments, directly or indirectly, managed, directed or overseen by the acquiring person; or
      • (C) directly or indirectly, controls, is controlled by, or is under common control with a managing entity; or
      • (D) directly or indirectly, manages, directs or overseas, is managed by, directed by or overseen by, or is under common management with a managing entity.[13]

The addition of the concept of an associate to the HSR filing process is a significant change and reflects the Agencies’ increasing concern over the competitive effects of minority shareholdings in or among competitors or common persons.

The Commission is seeking comment on the proposed rule changes; comments are due on or before October 18, 2010.


[1] In addition, the FTC proposes some corrective changes to the HSR Regulations (available at 16 C.F.R. 801.1 et. seq.).

[2] Item 4(a) requires the filing person to provide copies of, or links to, certain of its filings and the filings of the entities within it with the United States Securities and Exchange Commission. Item 4(b) requires the filing person to provide its most recent consolidated annual financial statements and audit report, and similar reports for any unconsolidated U.S. corporation within it. Item 4(b) also requires the filing person to provide its most recent regularly-prepared consolidated balance sheet and the balance sheet of any unconsolidated U.S. issuer.

[3] Form 10-Ks and 20-Fs.

[4] The CIK is a number given to an individual or company by the SEC to identify the filings of a company, person, or entity in online databases, including the EDGAR database.

[5] Specifically, Item 4(c) of the HSR Notification and Report Form requires that filing parties include with the form “all studies, surveys, analyses and reports which were prepared by or for any officer(s) or director(s) (or, in the case of unincorporated entities, individuals exercising similar functions) for the purpose of evaluating or analyzing the acquisition with respect to market shares, competition, competitors, markets, potential for sales growth or expansion into product or geographic markets.”

[6] In the case of unincorporated entities, this requirement includes individuals exercising similar functions.

[7] In the case of unincorporated entities, this requirement includes individuals exercising similar functions.

[8] A filing party is also required to identify products added or deleted between 2002 and the most current completed year.

[9] This would also eliminate the requirement that the filing party identify products added or deleted between the base year and the current year.

[10] Products manufactured outside the United States and sold through a U.S. wholesale operation would be identified twice, as both manufactured products (sold at their transfer price) and as products sold at wholesale (and/or retail). The FTC also proposes slight modifications to Item 5(d) – applicable if the parties are filing for the formation of a joint venture – to eliminate some sections (the name and the address of the joint venture and the description of any credit guarantees) and to require the parties to provide information on the expected source of the joint venture’s dollar revenues by a 6-digit (non-manufacturing) or a 10-digit (manufacturing) NAICS code.

[11] Interests of 5% or more, but less than 50%.

[12] Significant minority ownership is considered more than 5% but less than 50% of outstanding interests (or voting securities).

[13] The FTC also proposes that filing parties identify, at Item 7, any NAICS code overlaps between the acquired entity and associates of the acquiring person.