[Federal Register Volume 59, Number 113 (Tuesday, June 14, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-14316]


[[Page Unknown]]

[Federal Register: June 14, 1994]


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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