May 17, 2018

Antitrust: HSR’s Net Catches More than “Purchases”

Most companies have the need for an HSR filing on their checklist whenever they have a sizeable M&A transaction on the horizon.  But the FTC recently posted guidance on its blog reminding companies that conventional purchase transactions aren’t the only ones that may give rise to an HSR reporting obligation. This excerpt provides some examples of other transactions that may trigger a filing:

Exchange of one type of interest in a company for another – Acquisition of some kinds of interests in companies are reportable, while others are not. If you exchange one type of interest for another, that acquisition may be subject to HSR reporting and waiting requirements even though you’re exchanging one interest for another in the same company. For example, in 2013 Berkshire Hathaway exchanged convertible notes of USG Corporation for voting securities of USG Corporation. Even though both interests were in the same company, the conversion required an HSR filing. But Berkshire Hathaway’s compliance program missed it, and Berkshire Hathaway paid a civil penalty for the violation.

Backside acquisitions – When one corporation buys another, consideration often comes in the form of voting securities of the buyer. For example, Corporation A may buy Corporation B for cash and a certain number of shares in Corporation A. The payment of Company A shares to the target’s shareholders is known as a “backside transaction.” If you hold shares of company B and will end up holding shares of A as part of a backside transaction, you may have to file and observe the waiting period before acquiring these new shares.

Consolidations and acquisition of shares in Newco – In a Consolidation, when Corporation A and Corporation B combine under a Newco that will be its own ultimate parent entity, the shareholders of A and B may receive voting securities of Newco in exchange for their shares in A or B. Similar to backside transactions, if you are going to receive shares of Newco, you may have to file for the acquisition even though no money changed hands and you took no direct action to cause the acquisition or to exchange the shares.

The blog also notes that internal reorganization transactions and compensation awards may trigger HSR filings, and reminds companies to take these situations into account in designing their compliance programs.

John Jenkins