The Business Counselor Blog™

New 2012 Notification Requirements for Hart-Scott-Rodino Filings

New notification filing requirements for the Hart-Scott-Rodino Act go into effect in February and this month's report describes the new rules and provides a brief overview of the entire filing process.

New Horizontal Merger Guidelines Released by Federal Regulators

The proposed terms of any merger transaction must be reviewed in light of the potential impact of federal and state antitrust laws and the two main federal regulatory bodies--the Federal Trade Commission and the U.S. Department of Justice--have periodically issued administrative guidance with respect to mergers and other transactions that might be covered by Section 7 of the Clayton Act and thus vulnerable to review and challenge under federal antitrust laws.  The latest guidelines were just recently issued and are briefly summarized in this month's report.

May 2009 Review of Major M&A Developments

This week I'm passing along the latest issue of the Review of Major Developments in Mergers, Acquisitions and Divestitures prepared with my colleague Robert Brown from Greenebaum Doll & McDonald, LLC.

Blog Added to Thomson West Key Author Website

The Business Counselor Blog (TM) has just been aded to the library of legal blogs maintained by Thomson West at its Key Author Website.  Check out all the great materials you can find on a wide range of legal and business topics. 

I've also attached a copy of the latest issue of Corporate Acquisition Ideas, a Thomson West publication prepared in conjunction with my colleague Robert L. Brown.  This month we discuss a variety of topics such as whether a claim for board of director's breach of fiduciary duties is barred by the statute of limitations, the effect of change-of-control bonus on calculation of earnout and the effect of new accounting rules on deal structures and due diligence. 

Recent Developments in M&A - February 2009

In this post I pass along the latest issue of the newsletter on Recent Developments in Mergers and Acquisitions compiled by my colleague Robert Brown for Thomson Reuters—Westlaw.  Several topics are covered including a summary of an interest recent empirical study that suggests that certain “go-shop” provisions may serve to satisfy a board’s Revlon duties.

Recent M&A Developments - January 2009

Happy 2009! Let's hope it's a better year than the last.

Today we lead off with the latest edition of the regular monthly update on recent developments affecting mergers, acquisitions and divestitures prepared with my colleague Robert Brown for Thomson Reuters/Westlaw. In this issue we consider a variety of topics including the ability of a state to subpoena a company in a securities investigation even if the company has not solicited or sold to its residents, whether operating as a passive investment company and conducting limited business activities will justify judicial dissolution of a company under Delaware law, the emergence and availability of series LLCs, SEC expansion of the scope of primary liability under rule 10b-5 by redefining the term "make" to include an underwriter providing a prospectus containing terms that were not made by the underwriter, but which the underwriter knew or was reckless in not knowing were false, consequential damage waivers in acquisition agreements, and new credit card rules and proposed overdraft protection program designed to protect credit and banking consumers.

Recent Developments Affecting Mergers, Acquisitions & Divestitures

Today we begin presenting a regular monthly update on recent developments affecting M&A and divestiture transactions prepared with my colleague Robert Brown for Thomson Reuters/Westlaw.

Japan Issues New Antitrust Guidelines on Business Combinations

The Japan Fair Trade Commission (JFTC) issued revised Guidelines on the Application of the Anti-Monopoly Act to Reviewing Business Combination (Revised Guidelines).  The draft of the Revised Guidelines contains several key provisions that propose significant changes to the current Merger Guidelines.  If adopted, these changes are likely to have important implications for transactions that are subject to review by the JFTC.  The Revised Guidelines expand the current “safe harbor” standards for mergers involving competitors, and the JFTC’s proposed safe harbors are generally more permissive than similar thresholds used by U.S. and European enforcement agencies.  This potentially widens the number of transactions that can avoid an in-depth review by the JFTC and be presumed lawful. Specifically, when the market concentration levels fall within certain thresholds and the transaction results in sufficiently low changes in the concentration level, the JFTC will presume that the transaction does not pose any antitrust concerns.  To qualify for “safe harbor” treatment, a transaction must meet one of the following thresholds: (1) the HHI for the relevant market is 1,500 or less; (2) the HHI for the relevant market is between 1,500 and 2,500, and the transaction does not result in an HHI increase greater than 250; or (3) the HHI for the relevant market is more than 2,500, but the HHI increase due to the transaction is 150 or less.  HHI denotes “Herfindahl Hirschmann Index,” which can be obtained by summing up the square of the market share of every firm in the relevant market.  By way of comparison, the U.S. antitrust agencies presume that a merger that increases the HHI by more than 50 to a level in excess of 1,800 will result in significant anticompetitive effects.  Similarly, the European Commission’s market concentration safe harbors use slightly lower thresholds than the levels proposed by the JFTC.

The prior “safe harbors” used by the JFTC had been criticized for their complicated structure.  For instance, some of the current thresholds only created a presumption that the transaction would not give the combined firm the ability to exercise unilateral market power.  The new safe harbors described above, however, also create a presumption that the transaction is unlikely to result in increased coordination among the remaining firms in the marketplace.

The Revised Guidelines also recognize that the relevant geographic market may extend beyond Japan’s borders when competition from overseas suppliers restrains pricing behavior within Japan.  Because a cross-border or worldwide market is now more clearly accepted as a possible geographic market definition, there is a greater likelihood that mergers involving one or more firms with a strong Japanese presence will be approved when there is evidence that the parties face competition in areas outside Japan.

Finally, the Revised Guidelines adopt the so-called “SSNIP Test” (or the “hypothetical monopolist test”) for determining the relevant market definition.  This is a standard followed by other enforcement agencies, including the U.S. Department of Justice and the Federal Trade Commission.  The Revised Guidelines also specifically set out a two-year time period for examining whether competition from new entrants or foreign imports is likely to occur and thereby eliminate any concerns about a transaction’s impact on competition.

The Revised Guidelines contain a more detailed explanation of the types of information that the JFTC is likely to evaluate when analyzing a transaction.  While the current Merger Guidelines enumerate a handful of factors the agency usually considers, including the positions of the parties and their competitors in the market, imports, entry, pressure from adjacent markets, overall business capability, efficiency, and financial soundness of the parties’ corporate group, the Revised Guidelines provide additional details that offer firms planning an M&A transaction (or seeking to block a transaction) greater guidance on the types of information and evidence that the JFTC is interested in receiving during its evaluation of the transaction. 

The content in this post has been adapted from material that will appear in Going Global: A Guide to Building an International Business (2008) and is presented with permission of Thomson/West.  Copyright 2008 Thomson/West.  For more information or to order call 1-800-762-5272.

New Take-Over Bid Rules in Canada

An effort to acquire shares of a public company in Canada may be subject to the “take-over bid” requirements in provinces that have adopted take-over rules.  In general, the take-over rules will apply when there is a bid for at least 20% of the issued voting shares or “equity” shares (essentially non-voting common shares) of any class or series of the issuer.  In British Columbia, for example, the provincial take-over rules apply to offers to purchase equity or voting securities that, along with the offeror's existing shares, will constitute 20% or more of the outstanding securities. The 20% threshold can be met individually or by persons acting jointly or in concert. If a bidder ends up holding less than 20% of the relevant class of shares the action will not be considered to be a take-over bid even if the bidder has acquired effective control over the issue.  In turn, any transaction that would result in the bidder holding more than 20% will be subject to the take-over rules even if the transaction does not result in a change of control with respect to the issuer. 

As is the case with other provincial take-over rules, the Act requires a take-over bid circular (or issuer bid circular) and a director's circular to be sent along with the offer within a specified time.  The circular must be delivered to the target and filed with securities regulators (although it is not subject to pre-clearance review) and must include certain prescribed information regarding the bid and the shareholdings and past dealings by the bidder and related parties in the shares of the target. The Act also sets minimum contents, restricts acquisitions made by offerors and requires special reporting. 

While the take-over rules apply to acquisitions of large blocks of shares, Canadian securities legislation also include “early warning” rules that impose disclosure requirements for acquisitions of 10% or more of the voting or equity shares of an issuer.  Various exemptions from the statutory take-over bid rules may be applicable in limited circumstances, most notably the exemption for purchases made by “private agreement” with a small number of sellers that meet strict requirements as to the number of participants and the purchase price.

In 2007 the Canadian Securities Administrators (the umbrella association of securities regulators across the country) adopted regulatory initiatives that harmonized and consolidated the existing provincial rules governing take-over bids.  The new rules, which apply to bids commenced after February 1, 2008, are set forth in:

• Multilateral Instrument 62-104 – Take-over Bids and Issuer Bids, which governs the conduct of take-over bids and issuer bids in all provinces and territories in Canada, except Ontario;
• Part XX of the Securities Act (Ontario) and OSC Rule 62-504 – Take-over Bids and Issuer Bids, which governs the conduct of take-over bids and issuer bids in Ontario only; and
• National Policy 62-203 – Take-over Bids and Issuer Bids, which provides interpretive guidance with regard to certain provisions of the bid regime and the conduct of parties involved in a bid.

The new bid regime does not materially alter the existing Canadian requirements described above relating to the methods and timing of take-over bids and the primary focus of the initiative is harmonization and consolidation to eliminate local variations, resolution and clarification of various technical issues, and codification of certain discretionary exemptions.  In addition, the new bid regime includes an exemption for foreign take-over bids that would apply if all of the following conditions are satisfied:

• At the date when the bid is commenced, less 10% of the securities that are subject to the bid are held by security holders with an address in Canada and the offeror reasonably believes that security holders in Canada beneficially own less than 10% of such securities;
• The published market where there has been the greatest volume of trading in the securities during the 12 months preceding commencement of the bid was not in Canada;
• Security holders in Canada have the right to participate in the bid on terms that are at least as favorable as the terms applicable to all security holders; and
• If materials relating to the bid are sent to security holder such materials must be sent to security holders in Canada and if a notice or advertisement is published in lieu of materials the notice or advertisement must be filed and published in at least one major daily newspaper in the local jurisdiction in Canada.

The content in this post has been adapted from material that will appear in Going Global: A Guide to Building an International Business (April 2008) and is presented with permission of Thomson/West.  Copyright 2008 Thomson/West.  For more information or to order call 1-800-762-5272.

Revised Jurisdictional Thresholds for Section 7A of the Clayton Act

Under the federal Hart-Scott-Rodino Act, notification must be provided (unless there is an applicable exemption) if:

1. At least one of the parties (i.e., either the acquiring or the acquired person) is engaged in commerce or in any activity affecting interstate commerce (the "commerce" test");
2. One party to the transaction has annual sales or assets of at least $100 million and the other party $10 million (the "size of person" test) (the $100 million and $10 million thresholds will increase as provided in the indexing procedures described below); and
3. As a result of such acquisition, the acquiring person will hold voting securities or assets worth in the aggregate more than $50 million (increased as provided in the indexing procedures described below) (the "size of transaction" test).

Regardless of whether the transaction falls within any of the above-listed requirements, notification is also mandated if the transaction meets the commerce test and, as a result of the acquisition, the acquiring person would hold voting securities or assets worth in the aggregate more than $200 million (increased as provided in the indexing procedures described below). On the other hand, $50 million (increased as provided in the indexing procedures described below) is an absolute floor on reporting--if an acquiring person would not hold voting securities or assets valued at greater than the then-applicable threshold in the size-of-transaction test, the acquisition is not reportable.

All of the dollar-amount thresholds described above are subject to indexing commencing in 2005 based on annual changes in the gross national product. Accordingly, for transactions consummated on or after February 28, 2008 the thresholds referred to above had increased as follows: $10 million to $12.6 million; $50 million to $63.1 million; $100 million to $126.2 million; and $200 million to $252.3 million. As general rule of thumb, unless a specific exemption applies, notification must be made for all acquisitions valued at more than $63.1 million if either party has at least $126.2 million in annual net sales or total assets and the other has at least $12.6 million in annual net sales or total assets.  The size-of-person test is not applicable in cases where the value of the securities or assets being acquired equals or exceeds $252.3 million. A filing fee, ranging from $45,000 to $280,000, depending on the size of the transaction, must be paid in connection with filings under the HSR Act.

The content in this post has been adapted from material that will appear in Going Global: A Guide to Building an International Business (April 2008) and is presented with permission of Thomson/West.  Copyright 2008 Thomson/West.  For more information or to order call 1-800-762-5272.