Recent Developments In HSR Reform

The Amendments Explained

The new rules go into effect February 1, 2001.

Thresholds. The principal impact of the new legislation is to raise the minimum dollar value of the size-of-transaction test from $15 million to $50 million. The 15 percent size-of-transaction threshold has been eliminated. No transaction resulting in an acquiring person holding less than $50 million in assets and/or voting securities of an acquired person will be reportable. In addition, transactions valued at more than $200 million will be reportable irrespective of the size of the parties. The existing $10 million/$100 million size-of-person test will continue to be applied for transactions valued between $50 million and $200 million. And, all of these thresholds will be adjusted based on changes in gross national product beginning in fiscal year 2005.

Eliminating the size-of-person test entirely for acquisitions valued greater than $200 million has some potentially significant ramifications. For example, acquisitions of acquired persons with low total assets (less than $10 million) but substantially higher (greater than $200 million) market capitalizations may now be reportable. This is most significant for new economy companies that may not have many assets but significant share values. Elimination of the size-of-person test will also render leveraged buyout transactions reportable notwithstanding the fact that the acquiring person has less than $10 million in total assets or annual net sales where the target is a large corporation.

Filing Fees. Prior to the amendments, the acquiring person in all reportable transactions had to pay a $45,000 filing fee. Now, the fees are staggered depending on the value of the transaction.

In addition, the filing fee tiers will be adjusted annually beginning in 2005 for changes in the gross national product.

Time Periods. Under the new rules, the standard waiting period extension following substantial compliance with a second request will be 30 days (instead of 20 days). The 10-day period for cash tender offers and bankruptcy transactions is not changed. In addition, if the end of any time period falls on a Saturday, Sunday, or legal holiday, the period will be extended to the end of the next day that is not a Saturday, Sunday, or legal holiday.

Potential Rule Changes. These amendments will also require certain conforming amendments to the HSR rules. The FTC anticipates the following changes:

Conforming the notification thresholds listed in 16 C.F.R. § 801.1(h) to be consistent with the proposed legislation: $50 million; $100 million; $500 million; 25 percent of the voting securities of an issuer if valued at greater than $1 billion; and 50 percent of voting securities.

A transition rule to address filings made under the "old" thresholds that still have some of the five-year period for additional purchases remaining under 16 C.F.R. § 802.21.

A new rule regarding the new graduated fee schedule.

A revised Notification and Report Form and Instructions. Substantively, the FTC believes that there will be little change to the Form. Among the more important, however, are the elimination of Item 8 (Vendor-Vendee relationships), merging Item 10 into Item 1, and reorganizing Items 1-3. Items 4-7 would remain unchanged.

The FTC has also noted that it may add the following new rules:

Modifying 16 C.F.R. §§ 802.50 and 802.51 to include increases in the dollar thresholds from $15 million or $25 million to $50 million; reorganizing these sections to improve readability; and extending reportability to certain acquisitions of foreign assets by foreign persons. The FTC anticipates organizing the two sections by the type of acquisition (foreign assets in 802.50; voting securities of a foreign issuer in 802.51) rather than, as they currently are, by type of acquiring person (U.S. or foreign).

Narrowing the 16 C.F.R. § 802.2(g) agricultural property exemption by eliminating the exemption for "associated agricultural assets." The FTC has said that it believes that this will appropriately focus this exemption on real property, resolving any ambiguity that may exist in the current exemption, and, with the increase in the statutory size-of- transaction test to $50 million, will not result in a reporting requirement for transactions unlikely to affect competition.

Updating 16 C.F.R. § 802.6 to delete references to the Civil Aeronautics Board and to amend the rule to provide that in any "mixed" transactions (those that have some aspects or portions that are statutorily exempt from HSR under 15 U.S.C. §§ 18a(c)(6)-(8) because they are subject to regulatory agency premerger review and approval and other aspects that are not subject to such review), that portion not subject to advance competitive review and approval by a regulatory agency is separately subject to HSR.

These changes are subject to public comment, however, and will not be implemented immediately.

NAICS

Parties filing Notification under HSR are required to provide revenues for 1992 and the most recently completed fiscal year. Currently, revenues must be broken out by Standard Industrial Classification -- four and seven digit for 1992 and four and five digit for the most recently completed fiscal year.

In April 1997, the Office of Management and Budget announced the adoption of a new industry classification system to replace the Standard Industrial Classifications. The new system is called the North American Industry Classification System ("NAICS") and was developed jointly with Canada and Mexico so that comparable statistics could be obtained by the three NAFTA trading partners. The new system identifies new industries and reorganizes the system according to the types of production activities performed. One purpose of the reorganization is to take into account the fact that most economic activity now occurs in the service sector.

NAICS industries are identified by six-digit code, in contrast with the SIC four-digit code. The six-digit system provides for greater flexibility and allows for user needs in individual countries. The first five digits are fixed. The sixth is open for use by the individual member country.

Data for more than two-thirds of all four-digit SICs will be derivable from the NAICS system because either the industry has not changed (other than the code) or because new industries are being defined as subdivisions of old ones. Some other industries are being changed, however. Computer Equipment, for example, is being reclassified into corresponding retail trade sectors. SIC/NAICS conversion tables are available at http://www.census.gov/epcd/www/naicstab.htm.

The FTC plans on requiring filing persons to update to NAICS by July 1, 2001, and at that time change the base year from 1992 to 1997. The FTC has not yet published a formal announcement to this effect. The FTC plans to give advance notice of the change, but to offer no transitional period.

Further Information

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