Premerger Notification; Reporting and Waiting Period Requirements, 73369-73377 [05-23884]

Agencies

• FEDERAL TRADE COMMISSION

[Federal Register Volume 70, Number 237 (Monday, December 12, 2005)]
[Rules and Regulations]
[Pages 73369-73377]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-23884]


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FEDERAL TRADE COMMISSION

16 CFR Parts 801 and 803


Premerger Notification; Reporting and Waiting Period Requirements

AGENCY: Federal Trade Commission.

[[Page 73370]]


ACTION: Final rules.

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SUMMARY: The Federal Trade Commission is amending the premerger 
notification rules, which require the parties to certain mergers or 
acquisitions to file reports with the Commission and with the Assistant 
Attorney General in charge of the Antitrust Division of the Department 
of Justice (``DOJ'') and to wait a specified period of time before 
consummating such transactions, pursuant to Section 7A of the Clayton 
Act (``the Act''). The filing and waiting period requirements enable 
these 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. If either agency determines during the waiting 
period that further inquiry is necessary, it can issue a Request for 
Additional Information and Documentary Materials (``second request''), 
which extends the waiting period for a specified period after all 
parties have complied with the request (or, in the case of a tender 
offer or a bankruptcy sale, after the acquiring person complies). The 
Commission is amending the Notification and Report Form and its 
Instructions (``the Form and Instructions'') to relieve some of the 
burden when complying with Items 4(a) and (b). Currently, paper copies 
of annual reports, annual audit reports and regularly prepared balance 
sheets and copies of certain documents, such as 10Ks filed with the 
Securities and Exchange Commission (``SEC''), must be provided in 
response to these Items. The modification of paragraph 803.2(e) will 
allow filing persons to provide an operative Internet address linking 
directly to the documents required by Items 4(a) and (b) in lieu of 
providing paper copies. The Commission is also amending the rules to 
specify that an acquiring person's notification, and an acquired 
person's notification in certain types of transactions, shall expire 
after eighteen months if a second request to either person remains 
outstanding. In addition, the Commission is making technical 
corrections to certain rules and to the Form and Instructions to 
address minor oversights in the final rules promulgated in connection 
with the treatment of unincorporated entities.\1\
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    \1\ 70 FR 11502 (March 8, 2005).

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DATES: These final rules are effective January 11, 2006.

FOR FURTHER INFORMATION CONTACT: Marian R. Bruno, Assistant Director, 
or B. Michael Verne, Compliance Specialist, Premerger Notification 
Office, Bureau of Competition, Room 303, Federal Trade Commission, 
Washington, DC 20580. Telephone: (202) 326-3100.

SUPPLEMENTARY INFORMATION:

Statement of Basis and Purpose

    On August 15, 2005, the Commission published a Notice of Proposed 
Rulemaking and Request for Public Comment.\2\ The proposed rules would 
allow Internet links to be used for responses to Items 4(a) and (b) of 
the Notification and Report Form, and would provide an expiration date 
for premerger notification when a second request remains outstanding. 
The comment period closed on October 14, 2005. No public comments were 
received, and the Commission, with the concurrence of the Assistant 
Attorney General, therefore is adopting the proposed rules as final 
with minor changes for clarification. The unrelated technical 
corrections are minor in nature and are described in the sections 
below.
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    \2\ 70 FR 47733 (August 15, 2005).
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Part 801--Coverage Rules

Section 801. Definitions

    Example 3 to Paragraph 801.1(b)(2) is amended to properly reflect 
the application of the control test for nonprofit corporations.
    Paragraph 801.1(f)(1)(i), the definition of voting securities, is 
amended to reflect the changes to the control test for unincorporated 
entities in 801.1(b). The reference to unincorporated entities having 
individuals exercising similar functions to directors of a corporation 
should have been deleted to be consistent with the test for control of 
unincorporated entities.

Section 801.11 Annual Net Sales and Total Assets

    Section 801.11 is amended by adding a reference to an acquisition 
of non-corporate interests in Paragraph (e). This will allow the 
exclusion of cash to be used in the acquisition of non-corporate 
interests and the value of any securities or assets of the acquired 
person already held by an acquiring person with no regularly prepared 
balance sheet. Paragraph (e) currently already accords this treatment 
to acquisitions of assets or voting securities.

Section 801.14 Aggregate Total Amount of Voting Securities and Assets

    Section 801.14 is amended by the addition of new Paragraph (c) that 
corrects an inadvertent omission of a reference to non-corporate 
interests. For example, if an acquiring person is acquiring controlling 
interests in two unincorporated entities from the same acquired person, 
Section 801.14(c) will require that the value of the non-corporate 
interest in both entities be aggregated to determine the value of the 
transaction.

Part 803--Transmittal Rules

Section 803.2 Instructions Applicable to Notification and Report Form

    In response to Items 4(a) and (b) of the Form, filing parties 
currently must provide paper copies of annual reports, annual audit 
reports and regularly prepared balance sheets, and copies of certain 
documents, such as 10K's, filed with the SEC. Many of these documents 
are routinely available via the Internet on company Web sites or other 
Web sites. Responses to these items may often be voluminous and can 
account for the bulk of documents submitted with the Form.
    In view of the ease with which the antitrust agencies can access 
these documents via the Internet, the modification of paragraph 
803.2(e) and Instructions to the Form will allow filing parties to 
provide an Internet address linking directly to the documents required 
by Items 4(a) and 4(b) in lieu of providing paper copies. Note that the 
Internet link must not require payment for access. Incorporating 
documents by reference to Internet Web pages only applies to Items 4(a) 
and 4(b) and will not be available for responding to other items on the 
Form.
    It remains the filer's duty to ensure that the filing is accurate 
and complete, as attested by the filer's certification signature. 
Accordingly, Section 803.2 is amended to provide that if an Internet 
link submitted is, or becomes inoperative, or the document it is linked 
to is incomplete such that the documents required by Items 4(a) or 4(b) 
are not available for review by the FTC and DOJ, the filer shall make 
the document(s) available by referencing an operative Internet link(s) 
or provide paper copies of the relevant document(s) by 5 p.m. on the 
business day following any request by the FTC or the DOJ. Failure to 
provide requested documents by the close of the next business day will 
result in notice of a deficient filing under Section 803.10(c)(2). 
Given the ability to incorporate such documents by linking, the 
previous option to cite the date and place of filing if copies are not 
readily available is no longer necessary, and is

[[Page 73371]]

accordingly deleted from the Instructions.

Section 803.7 Expiration of Notification

    The Commission and the DOJ have encountered instances where, after 
parties make premerger notification filings and after second requests 
are issued, the parties make no effort to comply with the second 
requests. Generally this occurs when the parties have decided not to go 
forward with the proposed acquisition. In nearly all of these 
instances, the parties have voluntarily withdrawn their premerger 
notification filings. The agency is then able to close its 
investigation, as there no longer is a transaction pending with a 
waiting period.
    In some instances, however, the parties have refused to withdraw 
their notifications, even though they lack a present intention to 
undertake the acquisition. In such instances, the agency's 
investigation remains open indefinitely because the waiting period is 
suspended, and would only begin to run for the final 30 days if and 
when there were compliance with the second requests.
    The information contained in the parties' notifications becomes 
stale with the passage of time. In order to conduct the meaningful 
review contemplated by the Act, the agencies require current 
information pertaining to the competitive implications of transactions. 
Indeed, since the rules' inception in 1978, Section 803.7 has provided 
that notification with respect to an acquisition shall expire one year 
following expiration of the waiting period. As the Statement of Basis 
and Purpose (``SBP'') states, ``If the acquisition is to be consummated 
after that time, the possibility of changed circumstances warrants a 
fresh review by the enforcement agencies.'' 43 FR 33450, 33512 (July 
31, 1978). Fresh review of a proposed acquisition cannot be assured 
when the information contained in the parties' notification has become 
outdated.
    Further, Section 803.21 requires that all additional information or 
documentary material sought via a second request (or partial submission 
accompanied by a Section 803.3 statement of reasons for noncompliance) 
``be supplied within a reasonable time.'' Although the SBP accompanying 
the promulgation of Section 803.21 states that the rule was ``designed 
primarily to prevent an acquired person in a transaction subject to 
Section 801.30 from frustrating the acquisition[,]'' \3\ the wording of 
the rule does not limit its application to certain types of 
transactions or persons.
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    \3\ 43 FR 33450, 33516 (July 31, 1978). The SBP goes on to state 
that absent Section 803.21, ``an uncooperative acquired person could 
delay the expiration of the waiting period indefinitely by not 
responding'' to a second request. Section 801.30 transactions are 
essentially non-consensual transactions, including tender offers, 
purchases from third parties, and open market purchases. While the 
Act addresses this problem in the context of tender offers by 
providing that a second request to an acquired person in a tender 
offer does not extend the waiting period, the problem would exist 
for other types of non-consensual, Section 801.30 transactions 
without Section 803.21. ``Rather than extend [tender offer] 
treatment to all other Section 801.30 transactions, the Commission 
opted to impose a general obligation on all recipients to respond 
within a reasonable time.'' Id.
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    While Section 803.21 requires compliance with all second requests 
``within a reasonable time[,]'' it does not define ``a reasonable 
time'' and does not expressly provide the consequences for 
noncompliance. The Commission believes however, that there would come a 
point when the agency would have sound legal basis under Section 803.21 
for disregarding, rejecting or deeming withdrawn or expired a 
notification where the party had failed to comply with a second 
request.
    The Commission believes that it is preferable and would improve the 
certainty of the premerger notification process to clearly identify the 
specific time at which an acquiring person's notification (or an 
acquired person's notification in a non-Section 801.30 transaction) 
will expire if a second request remains outstanding to that person. 
Such date will be 18 months from the date of the initial notification 
(which typically would be approximately 17 months from the issuance of 
the second request). The Commission is not aware of any second request 
compliance ever having taken that long. Even in instances where the 
parties may have reason to delay their second request response for some 
period of time,\4\ eighteen months should provide them ample time. 
Beyond that time, the Commission believes that a more up-to-date 
notification should be provided, triggering a new waiting period.
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    \4\ For example, the transaction may be subject to approval by a 
regulatory agency, which might take longer than HSR review. In that 
situation, the parties may not want their notification to expire 
before the expected regulatory agency approval is received. In such 
an extreme instance, the parties could also help themselves by 
delaying making their HSR filings to coincide more closely with the 
regulatory agency approval.
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    This 18-month requirement is contained in Section 803.7, entitled 
``Expiration of Notification.'' Section 803.7 now has two subsections: 
(a) addressing expiration of notification when the waiting period has 
expired, and (b) addressing expiration of notification due to failure 
to comply with a second request.
    The Commission is modifying Section 803.7 rather than Section 
803.21 because the ``stale filings'' situations that the agencies have 
encountered are separate and distinct from the problem, addressed by 
the ``reasonable time'' requirement of Section 803.21, where an 
acquired person in a Section 801.30 transaction is trying to frustrate 
an acquisition. Indeed, the new rule excludes acquired persons in 
Section 801.30 transactions so as not to recreate the problem that 
Section 803.21 was designed to address. The new rule also fits well 
within the caption of Section 803.7, because it deals with expiration 
of notification.
    This amendment applies to transactions with notification pending 
with the agencies on the effective date of this final rulemaking. Thus, 
for example, if there are any pending transactions in which the 
acquiring person (or the acquired person in a non-Section 801.30 
transaction) has failed to comply with a second request within 18 
months of that person's notification, that notification will expire 
upon adoption of the rule.

Appendix: Premerger Notification and Report Form

    The Commission is also amending the Form and its Instructions to 
correct inadvertently omitted references to non-corporate interests and 
to allow the incorporation by reference to an Internet link in Items 
4(a) and (b).

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 amendments on small businesses, 
except where the Commission 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 a Hart-
Scott-Rodino filing, the premerger notification rules rarely, if ever, 
affect small businesses. Indeed, the 2000 amendments to the Act were 
intended to reduce the burden of the premerger notification program by 
exempting all transactions valued at $50 million or less.\5\ Further, 
none of the rule amendments expand the coverage

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of the premerger notification rules in a way that would affect small 
business. Accordingly, the Commission certifies that these rules will 
not have a significant economic impact on a substantial number of small 
entities. This document serves as the required notice of this 
certification to the Small Business Administration.
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    \5\ That figure is now $53.1 million, adjusted for the change in 
the Gross Domestic Product, and will be adjusted annually.
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Paperwork Reduction Act

    The Paperwork Reduction Act, 44 U.S.C. 3501-3518, requires agencies 
to submit ``collections of information'' to the Office of Management 
and Budget (``OMB'') and to obtain clearance before instituting them. 
Such collections of information include reporting, recordkeeping, or 
disclosure requirements contained in regulations. The information 
collection requirements in the HSR rules and Form have been reviewed 
and approved by OMB under OMB Control No. 3084-0005. The current 
clearance expires on May 31, 2007.
    The Commission's revisions to the Form and Rules do not 
``substantive[ly] or material[ly] modify'' the existing terms of the 
currently approved collection of information (OMB Control Number 3084-
0005) to necessitate OMB's further review and approval. See 44 U.S.C. 
3507(h)(3); 5 CFR 1320.5(g). It is highly unlikely that a Notification 
that expires under the rule change would need to be re-filed by the 
parties because the rule changes are intended to apply to situations in 
which the parties have abandoned the transaction.

List of Subjects in 16 CFR Parts 801 and 803

    Antitrust.


0
For the reasons stated in the preamble, the Federal Trade Commission 
amends 16 CFR parts 801 and 803 as set forth below:

PART 801--COVERAGE RULES

0
1. The authority citation for part 801 continues to read as follows:

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


0
2. Amend Sec.  801.1 by revising example 3 to paragraph (b)(2) and by 
revising paragraph (f)(1)(i) to read as follows:


Sec.  801.1  Definitions.

* * * * *
    (b) Control * * *
    (2) * * *
    Examples. * * *

    3. ``A'' is a nonprofit charitable foundation that has formed a 
partnership joint venture with ``B,'' a nonprofit university, to 
establish C, a nonprofit hospital corporation that does not issue 
voting securities. Pursuant to its charter ``A'' and ``B'' are each 
entitled to appoint three of C's six directors. ``A'' and ``B'' 
would each be deemed to control C, pursuant to Sec.  801.1(b)(2) 
because each is deemed to have the contractual power presently to 
designate 50 percent or more of the directors of a not-for-profit 
corporation.
* * * * *
    (f) * * *
    (1) * * *
    (i) Voting securities. The term voting securities means any 
securities which at present or upon conversion entitle the owner or 
holder thereof to vote for the election of directors of the issuer, or 
of an entity included within the same person as the issuer.
* * * * *

0
3. Amend Sec.  801.11 by revising paragraph (e)(1)(ii) to read as 
follows:


Sec.  801.11  Annual net sales and total assets.

* * * * *
    (e) * * *
    (1) * * *
    (ii) Less all cash that will be used by the acquiring person as 
consideration in an acquisition of assets from, or in an acquisition of 
voting securities issued by, or in an acquisition of non-corporate 
interests of, that acquired person (or an entity within that acquired 
person) and less all cash that will be used for expenses incidental to 
the acquisition, and less all securities of the acquired person (or an 
entity within that acquired person); and
* * * * *

0
4. Amend Sec.  801.14 by adding paragraph (c) to read as follows:


Sec.  801.14  Aggregate total amount of voting securities and assets.

* * * * *
    (c) The value of all non-corporate interests of the acquired person 
which the acquiring person would hold as a result of the acquisition, 
determined in accordance with Sec.  801.13(c).

PART 803--TRANSMITTAL RULES

0
5. The authority citation for part 803 continues to read as follows:

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


0
6. Amend Sec.  803.2 by revising paragraph (e) to read as follows:


Sec.  803.2  Instructions applicable to Notification and Report Form.

* * * * *
    (e) A person filing notification may incorporate by reference:
    (1) To a previous filing, only documentary materials required to be 
filed in response to items 4(a) and 4(b) of the Notification and Report 
Form, which were previously filed by the same person and which are the 
most recent versions available; except that when the same parties file 
for a higher threshold no more than 90 days after having made filings 
with respect to a lower threshold, each party may incorporate by 
reference in the subsequent filing any documents or information in its 
earlier filing provided that the documents and information are the most 
recent available;
    (2) To an Internet address directly linking to the document, only 
documents required to be filed in response to item 4(a) and in response 
to item 4(b) of the Notification and Report Form. If an Internet 
address is inoperative or becomes inoperative during the waiting 
period, or the document that is linked to it is incomplete, or the link 
requires payment to access the document, upon notification by the 
Commission or Assistant Attorney General, the parties must make these 
documents available to the agencies by either referencing an operative 
Internet address or by providing paper copies to the agencies as 
provided in Sec.  803.10(c)(1) by 5 p.m. on the next regular business 
day. Failure to make the documents available, by the Internet or by 
providing paper copies, by 5 p.m. on the next regular business day, 
will result in notice of a deficient filing pursuant to Sec.  
803.10(c)(2).

0
7. Revise Sec.  803.7 to read as follows:


Sec.  803.7  Expiration of notification.

    (a) One year after waiting period expired. Notification with 
respect to an acquisition shall expire 1 year following the expiration 
of the waiting period. If the acquiring person's holdings do not, 
within such time period, meet or exceed the notification threshold with 
respect to which the notification was filed, the requirements of the 
act must thereafter be observed with respect to any notification 
threshold not met or exceeded.

    Example: ``A'' files notification that in excess of $100 million 
(as adjusted) of the voting securities of corporation B are to be 
acquired. One year after the expiration of the waiting period, ``A'' 
has acquired less than $100 million (as adjusted) of B's voting 
securities. Although Sec.  802.21 will permit ``A'' to purchase any 
amount of B's voting securities short of $100 million (as adjusted) 
within 5 years from the expiration of the waiting period, A's 
holdings may not meet or exceed the $100 million (as adjusted) 
notification threshold without ``A'' and ``B'' again filing 
notification and observing a waiting period.

    (b) Upon failure to comply with request for additional information. 
An acquiring person's notification and, in the case of an acquisition 
to which Sec.  801.30 does not apply, an acquired

[[Page 73373]]

person's notification, shall expire eighteen months following the date 
of receipt of such person's notification if a request for additional 
information or documentary material remains outstanding to such person 
(or entities included therein, officers, directors, partners, agents or 
employees thereof), without a certification as required by Sec.  
803.6(b), on such date. If either person's notification expires 
pursuant to this paragraph, both parties must file a new notification 
in order to carry out the transaction.

    Example: A files notification on January 15 of Year 1 to acquire 
voting securities of B. On February 15 of Year 1, prior to 
expiration of the waiting period, requests for additional 
information or documentary material are issued to A and B. Before A 
supplies the information and documentary material requested, 
business conditions change, and A and B decide not to go forward 
with the transaction. A does not withdraw its filing and takes the 
position that it will comply with the request for additional 
information and documentary material if and when the proposed 
transaction is ever revived. A's notification expires July 15 of 
Year 2, eighteen months following the date of receipt of its 
notification. If A and B wish to revive their transaction, both 
parties must file a new notification and observe the waiting period 
in order to carry out the transaction.


0
8. Revise pages III and IV of the Instructions, and pages 2 and 3 of 
the Notification and Report Form For Certain Mergers and Acquisitions, 
in the Appendix to part 803 to read as follows:

Appendix to Part 803

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[FR Doc. 05-23884 Filed 12-9-05; 8:45 am]
BILLING CODE 6750-01-P