Premerger Notification; Reporting and Waiting Period Requirements

FEDERAL TRADE COMMISSION

16 CFR Part 803

Premerger Notification; Reporting and Waiting Period Requirements

AGENCY: Federal Trade Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This notice proposes amendments to the Premerger Notification

and Report Form that parties to certain mergers or acquisitions are

required to file with the Federal Trade Commission and the Assistant

Attorney General in charge of the Antitrust Division of the Department

of Justice before consummating such transactions. The reporting

requirement and the waiting period that it triggers are intended to

enable the 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.

During the fifteen years the rules have been in effect, the Federal

Trade Commission, with the concurrence of the Assistant Attorney

General in charge of the Antitrust Division, has amended the premerger

notification rules several times to improve the program's effectiveness

and to lessen the burden of complying with the rules. The present

proposed revisions to the Premerger Notification and Report Form

(hereinafter ``the Form'') are also intended to improve the program's

efficiency in insuring a prompt, thorough, initial investigation of the

competitive implications of proposed acquisitions. The proposed

amendments are designed to improve the premerger notification program

by requiring persons to submit certain new and more up-to-date

information. The proposed revisions will also reduce the burden of

compliance by raising the thresholds of several items consistent with

the agencies' information needs. The burden reduction proposals will

decrease the amount of information that must be provided and the search

costs associated with providing that information.

DATES: Comments must be received on or before July 12, 1994.

ADDRESSES: Written comments should be submitted to both (1) the

Secretary, Federal Trade Commission, room 136, Washington, DC 20580,

and (2) the Assistant Attorney General, Antitrust Division, Department

of Justice, room 3214, Washington, DC 20530.

FOR FURTHER INFORMATION CONTACT: Victor L. Cohen, Attorney, or John M.

Sipple, Jr., Assistant Director, Premerger Notification Office, Bureau

of Competition, room 303, Federal Trade Commission, Washington, DC

20580. Telephone: (202) 326-3100.

SUPPLEMENTARY INFORMATION:

Regulatory Flexibility Act

Each of these proposed changes to the Form is designed to improve

the effectiveness of the premerger notification program. The Commission

has determined that none of the amendments is a major rule, as that

term is defined in Executive Order 12291. The amendments will not

result in: An annual effect on the economy of $100 million or more; a

major increase in costs or prices for consumers, individual industries,

Federal, State, or local government agencies, or geographic regions; or

significant adverse effects on competition, employment, investment,

productivity, innovation or the ability of United States-based

enterprises to compete with foreign-based enterprises in the domestic

market. None of the proposed amendments expands the coverage of the

Form in a way that would affect small business. Therefore, pursuant to

Section 605(b) of the Administrative Procedure Act, 5 U.S.C. 605(b), as

added by the Regulatory Flexibility Act, Public Law 96-354 (September

19, 1980), the Federal Trade Commission certifies that these proposals

will not have a significant economic impact on a substantial number of

small entities. Section 603 of the Administrative Procedure Act, 5

U.S.C. 603, requiring a final regulatory flexibility analysis of some

rules, is therefore inapplicable.

Paperwork Reduction Act

The Hart-Scott-Rodino Premerger Notification rules and Form contain

information collection requirements as defined by the Paperwork

Reduction Act, 44 U.S.C. 3501-3518. These requirements were reviewed

and approved by the Office of Management and Budget (OMB Control No.

3084-0005). Because the proposed amendments would affect the

information collection requirement of the premerger notification

program, the proposed amendments have been submitted to OMB for review

under Sec. 3504(h) of the Paperwork Reduction Act. These provisions are

described more fully in the Notice of Application to OMB under the

Paperwork Reduction Act, which also is being published in the Federal

Register today. Comments on the Commission's submission may be directed

to the Office of Information and Regulatory Affairs, Office of

Management and Budget, Washington, DC 20503, Attention: Desk Officer

for the Federal Trade Commission.

Background

Section 7A of the Clayton Act (``the Act''), 15 U.S.C. 18a, as

added by Sections 201 and 202 of the Hart-Scott-Rodino Antitrust

Improvements Act of 1976, requires parties to certain acquisitions of

assets or voting securities to notify the Federal Trade Commission

(hereafter referred to as ``the Commission'') and the Assistant

Attorney General in charge of the Antitrust Division of the Department

of Justice (hereafter referred to as ``the Assistant Attorney General''

or ``the Department'') before consummating the acquisition. The parties

must then wait a certain designated period before the consummation of

such acquisition. The transactions to which the advance notice

requirement is applicable and the length of the waiting period required

are set out respectively in subsections (a) and (b) of Section 7A. This

amendment to the Clayton Act does not change the standards used in

determining the legality of mergers and acquisitions under the

antitrust laws.

The legislative history suggests several purposes underlying the

act. Congress wanted to assure that large acquisitions were subjected

to meaningful scrutiny under the antitrust laws prior to consummation.

To this end, Congress clearly intended to eliminate the large

``midnight merger,'' which is negotiated in secret and announced just

before, or sometimes only after, the closing takes place. Congress also

provided an opportunity for the Commission or the Assistant Attorney

General (which are sometimes hereafter referred to collectively as the

``antitrust agencies'' or the ``enforcement agencies'') to seek a court

order enjoining the completion of those transactions that either agency

deems to present significant antitrust problems. Finally, Congress

sought to facilitate an effective remedy when a challenge by one of the

enforcement agencies proved successful. Thus, the Act requires that the

antitrust agencies receive prior notification of significant

acquisitions, provides certain tools to facilitate a prompt, thorough

investigation of the competitive implications of these acquisitions,

and assures the enforcement agencies an opportunity to seek a

preliminary injunction before the parties to an acquisition are legally

free to consummate it. The problem of unscrambling the assets after the

transaction has taken place is thereby eliminated.

Subsection 7A(d)(1) of the act, 15 U.S.C. 18a(d)(1), directs the

Commission, with the concurrence of the Assistant Attorney General, in

accordance with 5 U.S.C. 553, to require that the notification be in

such form and contain such information and documentary material as may

be necessary and appropriate to determine whether the proposed

transaction may, if consummated, violate the antitrust laws.

Subsection 7A(d)(2) of the act, 15 U.S.C. 18a(d)(2), grants the

Commission, with the concurrence of the Assistant Attorney General, in

accordance with 5 U.S.C. 553, the authority (A) to define the terms

used in the act, (B) to exempt from the act's notification and waiting

period requirements additional persons or transactions which are not

likely to violate the antitrust laws and (C) to prescribe such other

rules as may be necessary and appropriate to carry out the purposes of

section 7A.

The Commission, with the concurrence of the Assistant Attorney

General, promulgated implementing rules (``the rules'') and a

Notification and Report Form and issued an accompanying Statement of

Basis and Purpose, all of which were published in the Federal Register

of July 31, 1978, 43 FR 33450, and became effective on September 5,

1978.

The rules are divided into three parts, which appear at 16 CFR

Parts 801, 802, and 803. Part 801 defines a number of the terms used in

the Act and rules, and explains which acquisitions are subject to the

reporting and waiting period requirements. Part 802 contains a number

of exemptions from these requirements. Part 803 explains the procedures

for complying with the act. The Notification and Report Form, which is

completed by persons required to file notification, is an appendix to

Part 803 of the rules.

Changes of a substantive nature have been made in the premerger

notification rules or Form on ten occasions since they were first

promulgated. See, 44 FR 60781 (November 21, 1979); 45 FR 14205 (March

5, 1980); 46 FR 38710 (July 29, 1981); 48 FR 34427 (July 29, 1983); 50

FR 38742 (September 24, 1985); 51 FR 10368 (March 26, 1986); 52 FR 7066

(March 6, 1987) (all of these changes included revisions in the Form);

52 FR 20058 (May 29, 1987); 54 FR 21427 (May 18, 1989) and 55 FR 31371

(August 2, 1990).

The current set of proposals to change the Form is designed to

improve the program's effectiveness by requiring the submission of

certain additional information that will be very useful to the agencies

in the performance of their initial antitrust reviews of proposed

transactions. The proposals also include several modifications that are

intended to reduce the burden of completing the HSR Form consistent

with the agencies' antitrust enforcement needs. The Commission invites

interested persons to submit comments on the appropriateness of the

proposed changes to the Form and its instructions.

Proposed Changes in the Instructions and Form

a. Transactions Subject to the Bankruptcy Code

Section 363(b) of the Bankruptcy Code, 11 U.S.C. 363(b), provides

for a waiting period of ten days for transactions in which a trustee in

bankruptcy files notification of a proposed acquisition as an acquired

person. Since 11 U.S.C. 1107 provides that a debtor-in-possession

essentially has the same powers as a trustee in bankruptcy, a debtor-

in-possession also may file notification as an acquired person and

thereby invoke the ten-day waiting period. Due to the very limited time

provided for the initial review of such transactions, it is important

that the Commission and the Department quickly and easily identify

transactions to which the Bankruptcy Code provisions apply. For this

reason, the Commission proposes to modify the preamble found on page

one of the Form to include the question:

Is this filing being made as an acquired person by a trustee in

bankruptcy or a debtor-in-possession subject to Section 363(b) of the

Bankruptcy Code, 11 U.S.C. 363(b)? yes /________/ no /________/

b. Notification for an Acquisition That Has Taken Place

Several times each year, persons file premerger notifications for

acquisitions that have been consummated prior to filing notification

and observing the appropriate waiting period. Usually, such persons

call the Commission's Premerger Notification Office (``PNO'') promptly

after discovering the violation. Many of these violations are

determined to be inadvertent, the result of simple negligence. The PNO

advises persons who have consummated an acquisition in violation of the

Act to file a corrective filing as soon as possible and to submit a

detailed, written explanation signed by a company official explaining

how the violation occurred and the steps that will be taken to ensure

future compliance with the filing requirements. The letter of

explanation need not accompany the corrective filing. The submission of

a corrective, compliant notification will, in most instances, stop the

accruing of civil penalties after the waiting period has expired.

The PNO has established procedures for processing corrective

filings and conducting an informal inquiry to determine whether to

refer the violation to the appropriate litigation office for

investigation and a possible civil penalty action. The PNO procedures

are designed to monitor persons who have violated the Act to identify

repeat offenders. For this reason, it is important that filings for

acquisitions that have already been consummated be easily identified

and assigned to the persons who monitor and process such violations.

Sometimes, persons who file corrective filings do not identify them as

pertaining to an acquisition that has already been consummated.

Consequently, their filings are not always assigned to the persons who

have the expertise to handle these matters. To identify corrective

filings easily to ensure that they are assigned to the appropriate

person for review, the Commission proposes to modify the preamble found

on page one of the Form to include the question:

Is this filing being made for an acquisition that has already been

consummated? yes /______/ no /______/

c. Transactions Subject to Foreign Governmental Regulation

To enforce their antitrust statutes, many foreign governments

require, or provide for voluntary submission of, premerger notification

comparable to that required by the Form. Their thresholds for

notification overlap to varying degrees with those of section 7A.

Accordingly, parties to a merger or acquisition may file notification

with, and need clearance from, more than one sovereign authority. The

potential for multiple notifications has grown because of the increase

not only in merger enforcement organizations, but also in the number of

transactions involving firms based in different countries and/or which

do business in more than one country.

Bilateral and multilateral efforts have been undertaken to foster

communication and cooperation between antitrust authorities in order to

assist them in determining whether proposed acquisitions violate their

respective antitrust laws and avoid conflict in enforcement of those

laws. Bilateral agreements between the United States and Australia,

Canada, the European Commission and Germany provide for, inter alia,

timely notification of investigations which involve important interests

of the signatories, sharing of non-confidential information, and, where

possible, coordination of investigations. A 1986 Recommendation of the

Organization for Economic Cooperation and Development (OECD) similarly

provides for timely notification and information sharing among the OECD

members. Further efforts toward cooperation and even convergence of

premerger notification requirements have been recommended by the

American Bar Association in the 1991 Report of its special Committee on

International Antitrust.

Cooperation and potential coordination may be hindered by the

inability of antitrust authorities to learn as early as possible of the

fact of the submission of premerger notification to another

jurisdiction. This deficiency is complicated by the lack of uniformity

among the nations' premerger notification provisions as to the timing

of the submission of notification. As a result, submission of

notifications to different jurisdictions at different times often

occurs.

To provide for timely alert of multiple notifications of a

particular transaction in order to foster cooperation between the

notified jurisdictions and thereby assist the Commission and the

Department in determining whether such transaction would violate the

antitrust laws, the Commission proposes to modify the preamble found on

page one of the Form to require a listing of the name(s) of any foreign

antitrust or competition authority that has been or will be notified of

the proposed acquisition. The proposed language reads as follows:

If, to the knowledge or belief of the person filing notification, a

foreign antitrust or competition authority has been or will be notified

of the proposed acquisition, list the name and country or other

jurisdiction of each such authority and the date notification was made

or is anticipated to be made:

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d. Calculation of the Percentage of Assets in Item 3

At present, the instructions to item 3 require both the acquiring

and acquired persons to state the percentage of assets, percentage of

voting securities and the aggregate total dollar amount of assets and

voting securities that will be held by the acquiring person as a result

of the acquisition. Determining the percentage of assets held has

proven to be difficult for acquiring persons because they generally are

not aware of the book value of the assets or the total book value of

the acquired person's assets, which is the information needed to make

the required calculation. On the other hand, acquired persons can

readily ascertain the percentage of their total assets being acquired.

For this reason, the Commission proposes to amend item 3(a) to require

only the acquired person to determine the percentage of assets of the

acquired person that will be held as a result of the acquisition.

Some filing persons have expressed uncertainty regarding the

information that item 3(b) requires. Item 3(b) seeks to obtain

information regarding the percentage of voting securities of the issuer

or issuers whose voting securities will be held as a result of the

acquisition. Thus, if voting securities of more than one issuer will be

held as a result of the acquisition, percentages should be provided for

each issuer. The Commission proposes to add clarifying language to the

instructions in item 3(b).

Accordingly, the Commission proposes to modify the instructions to

item 3 to read as follows:

Assets and voting securities held as a result of the acquisition

(item 3(a) to be completed by the acquired person only; items 3(b) and

3(c) to be completed by both the acquiring and acquired persons).

State:

Item 3(a)--the percentage of assets of the acquired person (see

Sec. 801.12(d));

Item 3(b)--the percentage(s) of voting securities of each issuer

(see Sec. 801.12(a));

Item 3(c)--the aggregate total dollar amount of assets and voting

securities of the acquired person to be held by each acquiring person

as a result of the acquisition (see Secs. 801.13 and 801.14).

e. Elimination of Document Identification in Item 4(a)

At present, the instructions to item 4(a) of the Form permit filing

persons to merely identify documents filed with the Securities and

Exchange Commission (SEC) in lieu of their actual submission as

attachments to the Form when copies of the documents are not ``readily

available.'' Fortunately, filing persons rarely use this proviso and

generally submit the required SEC documents with their Forms. If filing

persons failed to submit these documents, it would hinder the ability

of the Commission and the Department to complete their antitrust

reviews within the limited time periods provided by the act.

Accordingly, the Commission proposes to delete the following

instruction presently included as the last sentence in item 4(a):

Alternatively, if the person filing notification does not have

copies of responsive documents readily available, identification of

such documents and citation to date and place of filing will constitute

compliance.

f. Submission of 4(c) Documents Prepared by or for Partners

Item 4(c) of the Form requires reporting persons to submit all

studies, surveys, analyses and reports that were prepared by or for any

officer or director (or individuals exercising similar functions in the

case of an unincorporated entity) for the purpose of evaluating or

analyzing the proposed acquisition with respect to market shares,

competition, competitors, markets, potential for sales growth or

product or geographic market expansion. Item 4(c) also encompasses

officers or directors of any entity included within the reporting

person. See 43 FR 33450, 33525 (July 31, 1978).

Item 4(c) documents often provide valuable insights into possible

product and geographic markets as well as the competitive purposes and

projected competitive consequences of the proposed transaction. As

such, item 4(c) documents are often essential to Commission and

Department attorneys in making preliminary determinations of product

and geographic markets and their initial evaluations of the potential

competitive effects of a proposed acquisition. In addition, item 4(c)

documents also have been very useful to the agencies in preparing

requests for additional information and documentary material.

At present, the instructions to item 4(c) require the submission of

documents ``which were prepared by or for any officer(s) or director(s)

(or, in the case of unincorporated entities, individuals exercising

similar functions) * * *.'' Item 4(c) applies to all entities included

within the reporting person and, thus, to partnerships. However, it has

been argued that partnerships do not have item 4(c) documents because

they contain no individuals exercising functions similar to officers or

directors (partnership interests generally ``do not entitle the owner

of that interest to vote for a corporate ``director'' or ``an

individual exercising similar functions''). See 16 CFR 801.1(b),

example 2, and 52 FR 20058, 20062 (May 29, 1987). The Commission

believes that documents prepared by or for partners of a partnership

and persons responsible for managing the affairs of a partnership are

likely to contain the same types of market information found in

documents prepared ``by or for officers or directors'' of a

corporation. For this reason, the Commission proposes to amend item

4(c) to require the submission of documents prepared by or for partners

of a partnership. However, the Commission is concerned about the burden

that such a requirement may impose on limited partners in a limited

partnership. There are often numerous limited partners in a limited

partnership, and it is the Commission's understanding that limited

partners are principally passive investors because, generally, they

must refrain from participation in the conduct of the partnership in

order to limit their liability. Uniform Limited Partnership Act

(U.L.A.), section 1. Indeed, the Commission has observed that often the

limited partners are pension funds, insurance companies and similar

types of investors.

In contrast, general partners in a limited partnership and partners

in a general partnership are normally the decisionmakers who

participate in the day-to-day management of a partnership. Uniform

Limited Partnership Act (U.L.A.), section 6. Consequently, they are

likely to create, or have created for them, documents that meet the

criteria of item 4(c). On the other hand, limited partners in a limited

partnership are likely to have in their possession primarily item 4(c)

documents which are also within the control of the general partners.

The Commission believes that any benefit that may be derived from

requiring a search for and submission of item 4(c) documents by limited

partners is outweighed by the additional burden that such a requirement

would impose.

Accordingly, the Commission proposes to amend item 4(c) to require

the submission of documents prepared by or for general partners of a

limited partnership and partners of a general partnership. These

changes are contained in the proposed item 4(c) language that follows

section g.

g. Submission of Documents Relating to Businesses or Products of

Parties to the Transaction

The Commission and the Department have received certain types of

documents in response to requests for additional information that the

Commission believes would be very useful to the agencies in conducting

their initial assessment of the possible competitive effects of a

proposed transaction. These documents describe or analyze the

businesses of, the products manufactured by or the services provided by

the parties to the transaction or relate to the possible integration of

operations.

In this regard, the Commission's experience with filings has

demonstrated that it is sometimes difficult to identify the specific

products produced by the filing persons using the information presently

required by the Form. The SIC codes do not always provide the

specificity needed to determine the products or services of the filing

persons. As a result, the agency cleared to review the transaction may

spend much of the waiting period trying to determine if the filing

persons manufacture products that actually compete. The agency is then

left with less time to reach conclusions about other antitrust issues,

such as entry, that are necessary to determine whether the acquisition

raises serious antitrust concerns. Documents that discuss or analyze

the businesses, products or services of the parties to the transaction,

if submitted when the filings are made, may, in some cases, obviate the

need for the issuance of a request for additional information and

documentary materials. Such request would otherwise be needed to

resolve the competitive issues that the agency lacked the time to

resolve during the initial waiting period.

To provide the agencies with additional documentary material to

analyze the competitive effects of a proposed acquisition, to assist

the agencies in resolving all competitive issues during the initial

waiting period and, in some cases, to eliminate the need to issue a

request for additional information and documentary materials, the

Commission proposes to modify item 4(c) to require the submission of

documents that discuss, describe or analyze (1) the businesses of, the

products manufactured or the services provided by the acquiring person

and the business enterprise being acquired (as represented by the

assets or issuer whose voting securities are being acquired) or (2) the

possible integration of the operations of the acquiring person and the

business enterprise being acquired. Documents covered by the change are

limited to documents that are considered to be within the traditional

criteria of item 4(c) noted above and are prepared by or for any

officers or directors (or, in the case of unincorporated entities,

individuals exercising similar functions or general partners of a

limited partnership and partners of a general partnership) for the

purpose of discussing, evaluating or analyzing the proposed

acquisition.

Although the amendment expands the categories of documents that

filing persons are required to submit, the Commission believes that the

documents may help to clarify information that the parties report in

item 7(a) concerning the SIC product code overlaps. For transactions

that pose no antitrust concerns, these documents are likely to enhance

the ability of the agencies to expedite their review and grant early

termination of the waiting period when requested.

Accordingly, the Commission proposes to amend item 4(c) of the Form

to read as follows:

Item 4(c)--All studies, surveys, analyses, or reports or documents

which were prepared by or for any officer(s) or director(s) including

officers or directors of any entity within the filing person (or, in

the case of unincorporated entities, individuals exercising similar

functions or, in the case of a limited partnership, any general

partner(s) of such partnership and, in the case of a general

partnership, the partners of such partnership) for the purpose of

discussing, evaluating or analyzing the acquisition with respect to (i)

market shares, competition, competitors, markets, potential for sales

growth or expansion into product or geographic markets; (ii) the

businesses of, products manufactured by or services provided by the

acquiring person and the business enterprise being acquired (as

represented by the assets or issuer whose voting securities are being

acquired); or (iii) the integration of the operations of the acquiring

person and the business enterprise to be acquired.

h. Submission of Solicitation Documents

Pursuant to the requirements of item 4(c), filing persons often

submit a variety of documents, including offering memoranda, analyses

by investment bankers and similar documents prepared by consultants and

investment firms for the purpose of soliciting expressions of interest

from prospective purchasers. These documents often provide detailed

information on the operations and the market position of the acquired

person.

On occasion, counsel for a filing person has contended that

investment bankers' books or other types of offering documents prepared

by third parties as general selling documents are not covered by item

4(c) because they were not prepared for the specific acquisition for

which a filing is being made. This position appears to be based, in

part, on the statement in the Statement of Basis and Purpose (``SBP'')

that the ``reporting person must submit only those documents prepared

in connection with the reported acquisition.'' 43 FR 33450, 33525 (July

31, 1978). The Commission did not intend, nor does it interpret, this

language to mean that only documents prepared after the acquiror has

been identified qualify as item 4(c) documents. Rather, it is the

Commission's view that such documents were ``prepared in connection

with the reported acquisition'' even though at the time of preparation

the specific acquiror had not been identified. Similarly, if an

acquiror is considering a number of acquisition candidates and prepares

documents which analyze various aspects of competition prior to making

its decision regarding which candidate(s) to pursue, those documents

pertaining to the candidate(s) selected are item 4(c) documents.

Counsel for filing persons also have contended that investment

bankers' books are not item 4(c) documents because it is not clear that

such documents are prepared ``by or for any officer(s) or

director(s).'' The Commission believes that such documents meet this

requirement because they are usually prepared at the direction of an

officer or director of the acquired person. Moreover, in the

Commission's view such documents of the acquiring person qualify as

4(c) documents because they are prepared for the officers or

directors--the decision-makers who will determine whether to pursue an

acquisition. The fact that investment bankers' books usually are

prepared by outside consultants also has no bearing on whether such

documents are covered by item 4(c). As the Commission made clear in the

SBP when the premerger notification rules were promulgated, item 4(c)

documents include ``documents prepared by any person, including

consultants, for officers and directors.'' See 43 FR 33450, 33525 (July

31, 1978). The Commission proposes to amend item 4(c) by adding new

item 4(c)(ii) which will make clear that the submission of investment

bankers' books and similar documents prepared in connection with the

sale of the acquired person or any portion of the acquired person is

required. However, this new section is not limited to documents

``prepared by or for any officer(s) or director(s)'' of the acquiring

or the acquired person. Documents of this type have provided valuable

information to the agencies in connection with their antitrust reviews

and the agencies should not be precluded from receiving these documents

simply because they were not prepared expressly for officers or

directors.

Accordingly, the Commission proposes to add a new subsection to

item 4 to be identified as item 4(c)(ii) and to renumber item 4(c) to

item 4(c)(i). Proposed item 4(c)(ii) will read as follows:

Item 4(c)(ii)--All investment bankers' books, offering memoranda,

and similar documents which have been prepared by any person for the

purpose of soliciting expressions of interest from prospective

purchasers of the assets or entity to be acquired.

i. Submission of an Index for Item 4(c) Documents

At present, persons filing documents required by item 4 of the Form

may provide an optional index for the documents submitted. An index to

item 4 documents has proven to be valuable to both the Premerger

Notification Office staff as well as to litigation staff in expediting

their reviews of proposed acquisitions, especially when numerous

documents are submitted.

In order to facilitate the review process, the Commission proposes

to require the submission of an index of documents submitted in

response to items 4(c)(i) and 4(c)(ii). Such indices will better enable

the Commission and the Department to keep track of item 4(c) documents.

They also will enable the agencies to determine whether filing parties

have inadvertently omitted any documents identified as item 4(c)

documents.

Accordingly, the Commission proposes to add the following language

to the general instructions to item 4, amended to require the

submission of an index identifying all item 4(c)(i) and 4(c)(ii)

documents:

Persons filing notification must provide an index of documents

being submitted pursuant to Items 4(c)(i) and 4(c)(ii). With respect to

each document, provide the name of the document, the date of

preparation, and the name and title of the document's authors and

recipients.

j. Acquisition of the Assets of an Insurance Carrier

Item 5 of the Form requires insurance carriers, i.e., persons

deriving revenues in 2-digit SIC major group 63, to supply revenue

information only for industries not within SIC major group 63 and

instructs such persons to complete the Insurance Appendix to the Form

when voting securities of an insurance carrier are to be acquired. If

the proposed acquisition is not of voting securities but of assets that

generate insurance revenues within 2-digit SIC major group 63, the

current instructions do not require the filing person to complete

either item 5 or the Insurance Appendix. To correct this omission, the

Commission proposes to modify item 5 and the Insurance Appendix to

require insurance carriers to complete the Insurance Appendix if the

acquisition is of assets that generate insurance revenues.

Accordingly, the Commission proposes to revise item 5 and the

Insurance Appendix instructions to the Form to read as follows:

Item 5--Insurance Carriers (2-digit SIC major group 63) should

supply the information requested only with respect to industries not

within SIC major group 63. If voting securities of an insurance carrier

or assets that generate insurance revenues in 2-digit SIC major group

63 are being acquired, the filing person should complete the Insurance

Appendix to this Form.

Appendix To Notification and Report Form: Insurance

Insurance carriers (2-digit SIC major group 63) are required to

complete this Appendix if voting securities of an insurance carrier

or assets that generate insurance revenues in 2-digit SIC major

group 63 are being acquired directly or indirectly.

k. Products Added

Item 5(b)(ii) of the Form requires the filing person to identify

(by 7-digit SIC code or in the manner ordinarily used by such person)

each product within 2-digit SIC major groups 20-39 (manufactured

products) which it has added or deleted subsequent to 1987 (the current

base year), indicating the year of addition or deletion and stating the

total dollar revenues it derived in the most recent year for each

product added. Products added by reason of mergers or acquisitions of

entities are not included and are reported in items 5(a) and 5(b)(i).

Some filing persons have asserted that item 5(b)(ii) does not

require the inclusion of products added, either through new product

innovation or through the purchase of assets including production

facilities, after the most recent year for which the filing person

reports revenues in item 5(b)(iii). For example, such persons assert

that if the revenues reported in item 5(b)(iii) are for calendar year

1992, then they need not report in item 5(b)(ii) any new product

developed in 1993 which generated revenues under an SIC code not

previously used by the filing person. This interpretation of the

current language of item 5(b)(ii) would permit filing persons to omit

potentially important information that is not called for elsewhere on

the Form. It might allow an SIC code overlap to go unreported, as well

as information about the filing person's ability to manufacture the new

product.

The Commission believes that the language of item 5(b)(ii) does not

permit this limited reading. However, the Commission proposes to amend

item 5(b)(ii) to make explicit that all manufactured products added or

deleted after the base year must be reported. The amendment will alert

filing persons that they must provide the ``most current information

available'' about their production activities to enable the agencies to

better assess the competitive effects of a proposed transaction. See 43

FR 33450, 33529 (July 31, 1978).

The Commission also proposes to modify item 5(b)(ii) to clarify the

procedure for reporting revenues derived during the base year by

entities acquired by filing persons after the base year. The current

instructions to item 5 require that a filing person report in response

to items 5(a)-(c) any revenues derived during the base year by an

entity that the filing person later acquires by merger or acquisition.

However, the instructions to item 5(b)(ii) require only the reporting

of products added by merger or acquisition in item 5(b)(i), which calls

for revenues by 7-digit SIC manufacturing product codes, and not item

5(a), which asks for base year revenues by 4-digit SIC manufacturing

and non-manufacturing industry codes. The amendment adds language to

item 5(b)(ii) to indicate that base year revenues for these added

products should be included in response to both items 5(a) and 5(b)(i).

Since the present language in item 5 applies only to the

acquisition of an ``entity'', it does not cover asset acquisitions.

However, the Commission's staff has adopted the position that if an

asset is acquired after the base year and is accompanied by books and

records sufficient to provide responses to items 5 (a) through (c),

then such responses must be provided. If such books and records do not

accompany the purchased asset, then, if the asset engages in

manufacturing, it must be included in the response to item 5(b)(ii) as

a product added by the reporting person. The Commission is in agreement

with the staff's treatment of asset acquisitions and has modified item

5 to reflect this position.

Accordingly, the Commission proposes to modify the general

instructions to item 5 and item 5(b)(ii) to read as follows:

Persons filing notification should include the total dollar

revenues for 1987 derived by all entities, or generated by assets (for

which books and records necessary to supply such revenues are

available) even if such entities or assets have become included within

the person since 1987. For example, if the person filing notification

acquired assets in 1989, along with the books and records necessary to

supply 1987 revenues generated by the assets, it must include those

revenues in Item 5(a) and, if a manufactured product, in item 5(b)(i).

Item 5(b)(ii)--Products added or deleted. Within 2-digit SIC major

groups 20-39 (manufacturing industries), identify each product of the

person filing notification added or deleted subsequent to 1987,

including products added after the most recent year for which period

revenues are reported in the response to item 5(b)(iii). Indicate the

year of addition or deletion and, for products added, state the total

dollar revenues derived in the most recent year, and, for products

added after the most recent year, for the time period, if any, the

product has derived revenues. Also include products added by the

acquisition of assets engaged in manufacturing (2-digit SIC major

groups 20-39) for which books and records sufficient to provide

revenues for the base year were not also acquired. Products added

should be identified by the appropriate 7-digit SIC product code unless

the person is unsure of the proper code, in which case the person can

identify the product in the manner it ordinarily uses.

Do not include products added since 1987 by reason of the

acquisition of an entity in operation in 1987 or of assets accompanied

by the books and records sufficient to provide 1987 revenues for such

assets. Dollar revenues derived from such products should be included

in response to Items 5(a) and, if a manufactured product, 5(b)(i).

However, if an entity acquired after 1987 by the person filing

notification (and now included within the person) itself has added or

deleted any manufactured products since 1987, these products should be

listed in Item 5(b)(ii). Products deleted by reason of dispositions of

assets or voting securities since 1987 should also be listed in Item

5(b)(ii).

l. Foreign Manufactured Products

Section 803.2(c)(1) of the rules, 16 CFR 803.2(c)(1), instructs

filing persons to provide information in response to items 5, 7, 8 and

9 and the Insurance Appendix ``with respect to operations conducted

within the United States.'' Areas included in the United States are

defined in Sec. 801.1(k), 16 CFR 801.1(k). Filing persons are not

required to submit SIC code information on a detailed manufacturing

basis for products they manufacture outside the United States even if

they sell the products in the United States. For example, if a filing

person manufactured a product in 1987 in Canada, imported it into the

United States and sold that product at the wholesale or retail level,

the filing person would report revenues derived from those sales in

item 5(a) using a wholesale or retail 4-digit SIC code. The filing

person would not be required to identify in either item 5(a) or item

5(b)(i) the product it manufactured in Canada using the descriptive 4-

digit SIC code or the 7-digit SIC product code for manufactured

products that would have been required if the product had been

manufactured in the United States. Similarly, if the filing person

derived revenues in the most recent year from sales of the product in

the United States, the person would report those revenues in item 5(c)

using the appropriate 4-digit wholesale or retail code. The filing

person would not report those revenues in item 5(b)(iii) using the

appropriate 5-digit SIC product class code for manufactured products as

it would have if the product had been manufactured in the United

States.

The 4-digit SIC wholesale and retail codes reported in items 5(a)

and 5(c) do not identify the SIC manufacturing codes applicable to the

products manufactured abroad that are sold by the manufacturer in the

United States. Consequently, the agencies have found it very difficult,

using the information presently required by the Form, to determine

whether a filing person that manufactures products outside the United

States but sells them in the United States may be involved in

manufacturing activities similar to those of another party to the

transaction.

The Commission believes that 7-digit SIC product code information

concerning products manufactured outside the United States that are

sold in or into the United States at the wholesale or retail level

would be very helpful to the agencies in performing their initial

antitrust review. This information has become more important over the

last decade as foreign imports and their effect on the nation's economy

have increased. For this reason, the Commission proposes to modify the

Form to require filing persons to identify the 7-digit SIC product code

(manufacturing industries) for each product they manufacture outside

the United States and sell in the United States at wholesale or retail.

Since this provision requires persons to identify codes and not report

revenues, it should only impose a minimal additional burden on filing

persons. The proposed revision would require filing persons to identify

the 7-digit SIC product codes for such foreign manufactured products

only for the most recent year.

Accordingly, the Commission proposes to add a new item 5(c)(ii) to

the Form and to change the designation of present item 5(c) to 5(c)(i).

New proposed item 5(c)(ii) reads as follows:

Item 5(c)(ii)--Identification of 7-digit SIC product codes for

certain foreign manufactured products. Provide the 7-digit SIC product

code for each product manufactured outside the United States by the

person filing notification for which the person reported revenues in

Item 5(c)(i). The 7-digit SIC product codes to be provided are those

that the person would use to identify the products if the person had

manufactured the product(s) in the United States. Revenues for such 7-

digit codes need not be provided.

m. Increases in Reporting Thresholds in Items 6(b) and 6(c)

At present, item 6(b) of the Form requires the reporting person to

identify shareholders holding five percent or more of the voting stock

of any entity included within the reporting person (including the

ultimate parent entity) having total assets of $10 million or more. For

each shareholder, the reporting person must list the issuer, the class,

the number and the percentage of each class of voting securities held.

Item 6(c) requires the reporting person to list its minority voting

stock holdings of five percent or more in any issuer having total

assets of $10 million or more.

Item 6 is designed to obtain information to ``alert the enforcement

agencies to situations in which the potential antitrust impact of the

reported transaction does not result solely or directly from the

acquisition, but may arise from direct or indirect shareholder

relationships between the parties to the transaction.'' See 43 FR

33450, 33531 (July 31, 1978). For example, items 6(b) and 6(c) may

reveal situations in which ``a person known to be a competitor or

customer or supplier of one of the parties is also a significant

shareholder of the other party, or when the acquiring party holds stock

in a competitor or customer or supplier of the acquired company or vice

versa.'' Id.

The Commission has reviewed its use of the information submitted in

response to items 6(b) and (c) and has determined to propose an

increase in the thresholds from five percent to ten percent. Subsection

(c)(9) of the Act exempts most acquisitions of ten percent or less of

an issuer's voting securities, so long as the acquisition is made

solely for the purpose of investment. Although the Commission and the

Department of Justice have issued requests for additional information

to reporting persons who proposed to acquire less than ten percent of

an issuer's voting securities, it does not appear that disclosures of

stock holdings of less than ten percent by filing persons in response

to items 6(b) and 6(c) of the Form have raised competitive concerns

sufficient to result in the issuance of any second requests.

Increasing the reporting thresholds to ten percent is also likely

to reduce significantly the compliance burden of certain filing

persons, such as nonpublic and foreign firms. Generally, nonpublic and

foreign firms are not required to report their holdings regularly as

publicly-held companies in the United States are required to do.

Consequently, such firms appear to have difficulty gathering the

information needed to respond accurately to items 6(b) and 6(c) at the

five percent thresholds.

Accordingly, the Commission proposes to revise items 6(b) and 6(c)

of the Form to read as follows:

Item 6(b)--Shareholders of person filing notification. For each

entity (including the ultimate parent entity) included within the

person filing notification the voting securities of which are held (See

Sec. 801.1(c)) by one or more other persons, list the issuer and class

of voting securities, the name and headquarters mailing address of each

other person which holds ten percent or more of the outstanding voting

securities of the class, and the number and percentage of each class of

voting securities held by that person. Holders need not be listed for

issuers with total assets of less than $10 million.

Item 6(c)--Holdings of person filing notification. If the person

filing notification holds voting securities of any issuer not included

within the person filing notification, list the issuer and class, the

number and percentage of each class of voting securities held, and

(optional) the entity within the person filing notification which holds

the securities. Holdings of less than ten percent of the outstanding

voting securities of any issuer, and holdings of issuers with total

assets of less than $10 million, may be omitted.

n. Reporting of 5-Digit SIC Code Overlaps

At present, item 7 of the Form requires the filing person who has

knowledge or belief that it and any other party to the acquisition

derived revenues in the most recent year from any of the same 4-digit

SIC industry codes to list the overlapping SIC codes and to provide its

description. If the transaction involves the formation of a joint

venture or other corporation, the filing person must indicate the

common 4-digit SIC codes in which it derives revenues and in which the

joint venture will derive revenues as well as the common codes it has

with other parties to the transaction. The Commission proposes to amend

item 7 in two ways.

First, the Commission proposes to require filing persons to

identify and provide geographic market information for overlapping 5-

digit SIC product class codes as well as 4-digit SIC codes for

manufacturing operations (SIC major groups 20-39). The Commission has

found that many of the 4-digit SIC codes within SIC major groups 20-39

are too broad for proper product line determinations. Because many

products are often included within a particular 4-digit SIC code, it is

difficult to determine based on 4-digit information whether the parties

to the transaction produce competing products. However, 5-digit SIC

codes delineate specific product classes that are less inclusive than

the 4-digit SIC codes that classify products by manufacturing industry.

Modifying item 7 to include overlapping 5-digit SIC codes will provide

more detailed geographic market information about a more narrowly

defined class of products that the filing persons produce in common.

For example, the 4-digit SIC code, 2834 - Pharmaceutical Preparations,

is sub-categorized into nine different 5-digit SIC codes. Thus, for the

most part, while the information received in response to item 7 has

been very useful, the Commission believes that information regarding

geographic markets at the 5-digit SIC code overlap level will improve

the agencies' initial antitrust review.

Second, the Commission proposes to amend item 7 to require filing

persons to include SIC code overlaps and geographic market information

for products added and facilities that began operations after the

period for which revenue information was provided in response to items

5(b)(iii) and 5(c). At present, Item 7 requires a filing person to

identify overlaps from operations in which it derived revenues ``in the

most recent year.'' If a filing person interprets this language

narrowly to mean only overlaps for operations in which it reported

revenues in items 5(b)(iii) and 5(c) for the most recent year (for

which it has compiled twelve months of revenue information), overlaps

which exist due to products or facilities added after that period would

not be identified. The Commission is aware of at least one instance in

which a filing person failed to report geographic market information

for a retail establishment it opened and from which it derived revenues

after the year for which it reported revenues in item 5(c). The failure

to disclose such locations in responding to item 7 compromises the

agencies' ability to make a complete assessment of the potential

competitive effects of a proposed acquisition. For this reason, the

Commission proposes to amend item 7 to clarify that filing persons are

required to report product overlap and geographic market information

current to the date of filing.

In addition, consistent with the proposal described above, the

Commission proposes to amend current item 7(c)(iv), which will be

renumbered item 7(c)(v). This item requires filing persons to provide

the street addresses, arranged by state, county and city or town, of

establishments in certain industries, e.g., retail trade, for which the

competitive effects in local geographic markets may be of concern. The

Commission proposes to amend renumbered item 7(c)(v) to make clear that

the listing of establishments must include establishments acquired or

constructed since the end of the most recent year for which period

revenues are reported in item 5(b)(iii).

The Commission therefore proposes to amend item 7 to require: (1)

The disclosure of SIC code overlaps and geographic market information

at the 5-digit product class level as well as the 4-digit industry

level in SIC major groups 20-39; (2) the listing of SIC code overlaps

and geographic markets resulting from products added or businesses

entered into since the end of the most recent year for which revenues

are reported in item 5(b)(iii) or item 5(c)(i); and (3) in newly

numbered item 7(c)(v), the listing of establishments acquired or

constructed since the end of the most recent year for which period

revenue information was provided in response to items 5(b)(iii) and

5(c). The proposed amendments read as follows:

Item 7--If, to the knowledge or belief of the person filing

notification, the person filing notification derived dollar revenues in

the most recent year (and/or in the period from the end of the most

recent year to the date of filing of this Notification and Report Form)

from any 4-digit SIC code or, within SIC major groups 20-39

(manufacturing industries), from any 4-digit industry or 5-digit

product class code in which any other person who is a party to the

acquisition also derived dollar revenues in the most recent year or

since the end of the most recent year (or in which a joint venture or

other corporation will derive dollar revenues), then for each 4-digit

(SIC code) industry and each 5-digit (SIC code) product class:

Item 7(a)--List the 4-digit (industry) and 5-digit (product class)

SIC codes and the description for the industries and product classes;

Item 7(b)--List the name of each person who is a party to the

acquisition who derived dollar revenues in the 4-digit industry and 5-

digit product class code;

Item 7(c)(i)--For each 4-digit industry and 5-digit product class

code within SIC major groups 20-39 (manufacturing industries) listed in

Item 7(a) above, list the states (or, if desired, portions thereof) in

which, to the knowledge or belief of the person filing notification,

the products in that 4-digit industry and 5-digit product class

produced by the person filing notification are sold without a

significant change in their form, whether they are sold by the person

filing notification or by others to whom such products have been sold

or resold;

Item 7(c)(v)--For each 4-digit industry within SIC major groups 52-

61, 70, 75, 78, and 80 (retail trade, banking, and certain services)

listed in Item 7(a) above, provide the street address, arranged by

state, county and city or town, of each establishment from which dollar

revenues were derived in the most recent year or since the end of the

most recent year, including establishments acquired or constructed by

the filing person since the end of the most recent year.

o. Submission of Geographic Market Information for Health Care

Facilities

At present, item 7 does not always provide the enforcement agencies

with the geographic market information needed to assess the potential

anticompetitive effects of acquisitions involving health care

facilities. The problem results from the use of different 4-digit SIC

codes to report the revenues derived from owned versus managed health

care facilities. Persons who derive revenues from the ownership and

operation of health care facilities report their revenues in item 5

under one of six different 4-digit SIC codes in industry groups 805 and

806. In contrast, persons who manage health care facilities but do not

own the facility report revenues derived from their management services

under 4-digit SIC code 8741-Management Services. Consequently, since

filing persons use different 4-digit SIC codes to report revenues

derived from owned and managed health care facilities, they are not

required to identify these operations as overlaps in item 7(a). Thus,

if one party to an acquisition derived revenue from the ownership and

operation of a general medical hospital (4-digit SIC code 8062) in the

most recent year and the other party derived revenue from the

management of a general medical hospital (4-digit SIC code 8741) in the

same metropolitan area, the parties would not be required to identify

these operations as an overlap in item 7 or to provide geographic

market information.

The Commission believes that information concerning the operation

of both owned and managed health care facilities is essential to the

agencies' ability to perform an initial antitrust review of health care

acquisitions. As the Commission found in Hospital Corporation of

America, 106 F.T.C. 361 (1985), aff'd, Hospital Corporation of America

v. Federal Trade Commission, 807 F.2d 1381 (7th Cir. 1986), cert.

denied, 481 U.S. 1038 (1987), management contracts greatly enhance the

ability of a firm to coordinate behavior between its owned hospitals

and the hospitals it manages, thereby increasing the likelihood of

anticompetitive consequences. For this reason, the Commission held that

including the management contracts to be acquired from Hospital

Affiliates within Hospital Corporation of America's market shares

presented a more accurate picture of HCA's post-acquisition market

power.

The importance of receiving information concerning management

contracts in the health care area is further supported by the fact that

approximately eight percent of the nation's community hospitals are

operated under management contracts, often by hospital companies that

both manage hospitals for others as well as operate hospitals which

they own. See American Hospital Ass'n, Guide to the Health Care Field

(1992) and Hospital Statistics (1992-1993 ed.). However, geographic

information for managed health care facilities is not readily available

on a current basis from these or any other published sources. Thus, it

is important that the enforcement agencies receive with the HSR filing

overlap and geographic market information concerning health care

facilities that are owned, as well as those that are managed, by the

filing parties.

Accordingly, the Commission proposes to amend item 7 to require

reporting persons to identify managed and owned health care operations

as overlaps and to provide appropriate geographic market information.

To accomplish this, the Commission proposes to add a special

instruction to item 7 that will treat reporting persons that operated a

health care facility under a management contract in the most recent

year as having derived revenues from that facility in that facility's

4-digit SIC code. For example, if the acquiring person in a reported

transaction owned and operated a general medical hospital in the most

recent year and reported revenues under 4-digit SIC code 8062 and the

acquired person managed a general medical hospital under a management

contract in the most recent year, the parties would be required to

identify in item 7(a) an overlap in 4-digit SIC code 8062. In addition,

each person would be required to provide, in response to renumbered

item 7(c)(v), the street address, arranged by state, county and city or

town, for each general medical hospital it owned or managed. This

special instruction will apply only to establishments listed within SIC

industry group 805, Nursing and Personal Care Facilities, and SIC

industry group 806, Hospitals. Accordingly, the Commission proposes to

add the following language to the instructions to item 7.

For purposes of Item 7, a person that operates, under a management

contract an establishment included within SIC industry group 805,

Nursing and Personal Care Facilities, or within industry group 806,

Hospitals, shall be deemed to derive revenues from that establishment

in the establishment's 4-digit SIC code, whether or not the person is

entitled to share in the establishment's revenue, or is otherwise

compensated for its management services. An establishment is deemed to

be operated under a management contract by a person if that person has

been delegated by another person, or governmental unit, the contractual

authority and responsibility to administer or supervise the operations

of all, or substantially all, of the establishment, whether or not the

operator is subject to the supervision of that or any other person or

unit.

p. Submission of County Geographic Market Information

Item 7(c)(ii) of the Form requires filing persons to identify the

states in which they derive revenues for overlapping 4-digit SIC codes

within major groups 01-17 (agriculture, forestry, fishing, mining,

construction and transportation industries) and 40-49 (communications,

electric, gas and sanitary services). Based on the agencies' review of

past transactions in these industries, the Commission has determined

that the agencies need more detailed geographic market information for

the communications industry (major group 48), which includes cable

television services. Many franchises and licenses in the communications

industry are issued on a local (county or city) basis rather than on a

state-wide basis. Comparison of county services will provide

information as to whether competition exists or is likely to exist in

this industry. Submission of county information will help the agencies

in determining the possible competitive effects of a proposed

transaction within the limited time provided by the act.

Accordingly, the Commission proposes that county as well as state

information be provided by filing persons whenever a 4-digit SIC code

within 2-digit major group 48 has been identified as an SIC code

overlap in response to item 7(a) of the Form. To accomplish this, the

Commission proposes that item 7(c)(ii) be changed to exclude SIC major

group 48 and that (1) a new item 7(c)(iii) be added to the Form to

require the filing person to identify the counties and states in which

it derived revenues for 4-digit SIC codes in major group 48; and (2)

present items 7(c)(iii), 7(c)(iv), 7(c)(v) and 7(c)(vi) be renumbered,

respectively, 7(c)(iv), 7(c)(v), 7(c)(vi) and 7(c)(vii). The proposed

modification of item 7(c)(ii) and the proposed new item 7(c)(iii) read

as follows:

Item 7(c)(ii)--For each 4-digit industry within SIC major groups

01-17, 40-47 and 49 (agriculture, forestry and fishing, mining,

construction, transportation, electric, gas and sanitary services)

listed in Item 7(a) above, list the states (or, if desired, portions

thereof) in which the person filing notification conducts such

operations;

Item 7(c)(iii)--For each 4-digit industry within SIC major group 48

(communications) listed in Item 7(a) above, list the states and the

counties within such states in which the person filing notification

conducts such operations or, if the person filing notification conducts

operations in all counties within a state, the identity of such states.

q. Increase in Reporting Threshold for Vendor-Vendee Relationships

At present, item 8 of the Form requires filing persons that are

also vendees to provide certain information if the acquiring and the

acquired persons maintained a vendor-vendee relationship during the

most recent year with respect to any manufactured product that the

vendee either resells, consumes in, or incorporates into, the

manufacture of a product. If the proposed acquisition involves the

formation of a joint venture or other corporation, item 8 requires each

person forming the entity to identify any manufactured product it

purchased from any other such person which will be supplied to the

joint venture or other corporation. If the aggregate annual sales of

the manufactured product do not exceed $1 million, the filing person

need not list the product in item 8. The intended purpose of item 8 is

to ``identify certain instances in which a reported acquisition may

result in vertical foreclosure or an increase in vertical integration

in an industry.'' See 43 FR 33450, 33533 (July 31, 1978).

The Commission is aware that the $1 million threshold can make

complying with item 8 burdensome. Responding can be particularly

difficult for a large firm without a centralized accounting system that

tracks the sales and purchases of each of its many divisions and

subsidiaries. Consequently, such a firm may need to undertake a

significant records check to determine whether it had sales or

purchases of over $1 million of product from the other person to the

transaction in order to supply the data called for by item 8.

The Commission proposes to increase the threshold in item 8 to

require the reporting of vendor-vendee relationships when aggregate

annual sales or purchases of a manufactured product during the most

recent year exceed $5 million. In 1978, the Commission declined to

raise the threshold to $5 or $10 million because it was concerned that

a reporting floor higher than $1 million would exclude some highly

significant vertical relationships. See 43 FR 33450, 33534 (July 31,

1978). However, the Commission's experience in reviewing filings and

investigating proposed transactions in recent years has indicated that

acquisitions in which either party makes product purchases from the

other party under $5 million rarely, if ever, present risks of vertical

foreclosure or increased vertical integration in a given industry. In

addition, this threshold should simplify filing persons' reporting

obligations because even large firms with numerous operations are

likely to be able easily to identify customers that purchase this

volume of product. Vendees that must supply the data required by item 8

also will likely know if they acquired products exceeding $5 million

from a single source of supply.

Accordingly, the Commission proposes to modify item 8 of the Form

to read:

Manufactured products are those within 2-digit SIC major groups 20-

39. Any product purchased from the vendor in the aggregate annual

amount not exceeding $5 million, or the manufacture, consumption or use

of which is not attributable to the assets to be acquired, or to the

issuer whose voting securities are to be acquired (including entities

controlled by the issuer), may be omitted.

r. Reporting of Prior Acquisitions

At present, item 9 requires the acquiring person to list certain

prior acquisitions when both the acquiring person and the acquired

issuer or the acquired assets had attributable to them revenues of $1

million or more in the most recent year in the same 4-digit SIC code.

The acquiring person is required to list only prior acquisitions made

within the previous five years of more than 50 percent of the voting

securities or assets of entities which had annual net sales or total

assets greater than $10 million in the year prior to the acquisition.

The purpose of item 9 is ``to assist the agencies in identifying

any prior acquisitions by the acquiring person that may suggest a

pattern of acquisitions in a particular industry by that person.'' 43

FR 33450, 33534 (July 31, 1978). Item 9 has been useful to the agencies

in monitoring competition within industries. Responses to this item

have provided information relating to acquisitions for which a

premerger filing was not made as well as information regarding possible

violations of the Act for failure to file notification.

As stated above, item 9 currently requires information regarding

prior acquisitions involving common 4-digit SIC codes in which both the

acquiring person and the issuer or assets to be acquired derived

revenues of $1 million or more in the most recent year. In 1987, the

Commission decided not to adopt a suggestion to raise the $1 million

threshold to $10 million ``because the agencies sometimes find overlaps

of less than $10 million in a given 4-digit SIC code to be of

significance.'' 52 FR 7078 (March 6, 1987) The Commission explained

that this is particularly true when the parties compete in small local

markets and when the acquiror has a large market share. Id. However,

based on the Commission's experience in reviewing acquisitions since

1987, the Commission has observed that acquisitions in which either

party currently derives revenues of less than $5 million in the same 4-

digit SIC industry code seldom present competitive concerns. Thus,

information about the acquiring person's prior acquisitions involving

such industries is of limited value, either in analyzing the

transaction for which the acquiring person is currently filing

notification, or for monitoring competition in the given industry. For

this reason, the Commission proposes to raise the $1 million threshold

presently found in item 9 to $5 million.

The Commission also proposes to clarify the language in item 9

which provides that ``only acquisitions of more than 50 percent of the

voting securities or assets of entities'' need be listed. With respect

to asset acquisitions, this language has been read to mean that only

acquisitions of more than 50 percent of the assets of an entity need be

listed. While the more than 50 percent threshold is justified for

voting securities acquisitions, it appears to have no basis from an

antitrust perspective as applied to assets. In many cases, filing

parties often have recognized this incongruity and have included in

their response to item 9 acquisitions of assets that did not constitute

more than 50 percent of the acquired entity's assets; strict

application of the more than 50 percent requirement to assets would

permit nearly all prior acquisitions from large, multi-divisional

corporations to go unreported in item 9. Accordingly, the Commission

proposes to modify the instructions to item 9 to make clear that asset

acquisitions are not subject to the 50 percent test.

In addition, the Commission proposes to modify the language of the

``more than 50 percent'' test as applied to the acquisition of voting

securities to a ``50 percent or more'' test consistent with the

Commission's definition of control of an issuer. See 16 CFR 801.1(b).

Accordingly, the Commission proposes that the instructions to item

9 be revised, in part, as follows:

Item 9--Previous acquisitions (to be completed by acquiring

persons). Determine each 4-digit (SIC code) industry listed in Item

7(a) above, in which the person filing notification derived dollar

revenues of $5 million or more in the most recent year and in which

either (1) the issuer to be acquired derived revenue of $5 million or

more in the most recent year (or in the case of the formation of a

joint venture or other corporation, where the joint venture or other

corporation can be expected to derive revenues of $5 million or more),

or (2) revenues of $5 million or more in the most recent year are

attributable to the assets to be acquired.

For each such 4-digit industry, list all acquisitions made by the

person filing notification in the five years prior to the date of

filing. List only acquisitions of (1) 50 percent or more of the voting

securities of an issuer which had assets or annual net sales of $10

million or more in the year prior to the acquisition or (2)

acquisitions of assets valued at $10 million or more at the time of

their acquisition.

By direction of the Commission.

Donald S. Clark,

Secretary.

[FR Doc. 94-14316 Filed 6-13-94; 8:45 am]

BILLING CODE 6750-01-P