Author: Steven Cernak
As we detailed in earlier posts (see here and here, for instance), the system established by the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR) was designed to get sufficient information about impending mergers to the federal antitrust agencies so they could attempt to block anti-competitive ones before consummation. The system has grown into a complex set of rules and interpretations. Earlier this month, the antitrust agencies proposed two changes to those rules, one that would require more information from some acquiring parties and another that would eliminate the filing requirement for certain transactions deemed unlikely to be anti-competitive.
“Associates” Would Become “Persons”
HSR requires a buyer — “Acquiring Person,” in HSR parlance — to provide certain information about the entities it controls and its prior acquisitions for transactions that meet HSR’s reportability standards. Under the definition of Persons, however, separate private equity investment funds under the same parent fund usually are considered separate Persons because the parent fund did not “control” them. Therefore, until recently, an investment fund making an acquisition did not need to provide information, including information regarding acquisitions or holdings, about other investment funds under the same parent fund. Also, currently, an investment fund does not need to aggregate its holdings with those of other funds under the same parent to determine HSR reportability.
In such scenarios, the agencies might not realize that another investment fund under the same parent fund holds interests in competitors of the target entity. The agencies partially corrected this situation in 2011 by defining such related investment funds as “associates” and requiring the Acquiring Person to disclose holdings of its associates in other entities that generated revenues in the same industries as the target entity.
The proposed rule would go a step further and change the definition of “Person” to include “associates.” The intended effect of such a change is to require Acquiring Persons to provide even more information about their associates when completing the HSR form. (Again in HSR parlance, such an Acquiring Person would need to disclose additional information about its associates in Items 4 through 8 of the form.) In addition, all the holdings of the Acquiring Person in the target entity, even those held by an associate, would need to be aggregated to determine if the most recent acquisition is reportable.
As a result, the agencies should have more complete information to assess the potential competitive impact of the proposed transaction. For private equity funds structured in this way, the result likely will be additional HSR filings plus the burden to collect, track, and provide additional information in each filing.
Small Transactions Would Be Exempt Regardless of Intent
While the agencies have an incentive to receive filings for all transaction that could pose competitive issues, they also have an incentive to conserve resources and avoid the review of filings for transactions that almost certainly pose no competitive threat. As a result, the HSR statute and rules have numerous exemptions for transaction types that raise few if any competitive issues.