New Merger Rules: Boon or Bane?

Newly proposed Federal Trade Commission disclosure rules could both streamline and stymie finance departments, lawyers suggest.

Under the proposal, acquirers also would no longer have to unearth the most recent balance sheets for every unconsolidated U.S. issuer within its corporate structure. That process can be difficult, particularly if a company is trying to close a deal rapidly. For instance, if a private-equity holding company consists of five funds, with each fund consisting of 20 companies, obtaining balance sheets for all of them could be laborious, the antitrust lawyer says. “Private-equity shops like to get their deals done as quickly as possible so they can start realizing the economic efficiencies from the acquisition.”

While acknowledging such benefits to companies, other lawyers seem to suggest the negatives of the proposal outweigh the positives. They seem most concerned about the increased filing of information about “associate” firms that the FTC would require. Currently, acquirers must supply information about all entities in which they own a 50% or more stake. But they don’t have to include information about companies they own part of but don’t control.

As a result of that situation, the FTC and the DoJ “do not receive the information they need to get a complete picture of potential antitrust ramifications of an acquisition,” according to the proposal. The new rules would change all that by requiring an acquirer to provide information on the revenue it derives from both controlled and noncontrolled companies associated with it. Instead of providing the revenue information by company, however, it would have to categorize the data by industry under the North American Industry Classification System, the standard method used by federal statistical agencies.

Overall, the FTC proposal would “expand dramatically the information and documents” that filers must supply “regarding affiliated entities under common management,” according to a Morrison and Foerster client alert.

Despite their disagreements about the general effect of the proposal, attorneys agree that one provision packs a particular peril: filers must provide analytical reports created by investment bankers or industry consultants about the competition, sales growth, and product or geographic expansion of target companies issued up to two years before the HSR filing.

If the prose of dealmakers or consultants in such reports has been hyperbolic, it could attract regulatory scrutiny by the FTC or the DoJ, the lawyers fear. The authors of third-party reports “need to understand that what they write down is going to be discovered by the agencies,” says Robins. “They have to be careful to write accurately and not say things like ‘this is a great transaction because we’re going to be able to screw consumers’ or whatever.”

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