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Premerger Notification; Reporting and Waiting Period Requirements

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Federal Trade Commission.

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Final rules.


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]


These final rules are effective January 11, 2006.

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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.

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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.

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 Start Printed Page 73371accordingly 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.

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.

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 Start Printed Page 73372of 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.

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.

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List of Subjects in 16 CFR Parts 801 and 803

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

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

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

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

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(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 § 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.

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(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.

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

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Annual net sales and total assets.
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(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

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

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Aggregate total amount of voting securities and assets.
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(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 § 801.13(c).

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

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

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

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Instructions applicable to Notification and Report Form.
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(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 § 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 § 803.10(c)(2).

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7. Revise § 803.7 to read as follows:

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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.


“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 § 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 § 801.30 does not apply, an acquired Start Printed Page 73373person'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 § 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.


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.

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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:

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Appendix to Part 803

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1.  70 FR 11502 (March 8, 2005).

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2.  70 FR 47733 (August 15, 2005).

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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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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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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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[FR Doc. 05-23884 Filed 12-9-05; 8:45 am]