Sellers Seek New Antitrust Protections in Agreements under HSR Associate Rules | Practical Law

Sellers Seek New Antitrust Protections in Agreements under HSR Associate Rules | Practical Law

A recent merger agreement included a unique clause that stated the buyer was being required to make a representation relating to its compliance with the new Hart-Scott-Rodino associate rules.

Sellers Seek New Antitrust Protections in Agreements under HSR Associate Rules

Practical Law Legal Update 4-521-4027 (Approx. 3 pages)

Sellers Seek New Antitrust Protections in Agreements under HSR Associate Rules

by PLC Antitrust
Published on 17 Sep 2012 • USA (National/Federal)
A recent merger agreement included a unique clause that stated the buyer was being required to make a representation relating to its compliance with the new Hart-Scott-Rodino associate rules.
A recent merger agreement between Legend Parent, Inc. and Mmodal Inc. included a unique clause stating that Legend, as buyer, was being required to represent its compliance with the new Hart-Scott-Rodino Antitrust Improvements Act (HSR Act) associate rules. Legend and Mmodal were each required to make a premerger filing in connection with Legend's proposed acquisition of Mmodal. Under the associate rules, Legend must disclose in its HSR form any overlaps between the business to be acquired and certain:
  • Individuals or entities (known as associates) related to, but not controlled by, Legend's parent.
  • Controlled (50% or more) and minority (5% to 50%) holdings of associates.
The agreement included a representation by Legend that neither it, the acquisition vehicle, the guarantor nor any of their affiliates owned more than a 5% interest in any competitor of the business to be acquired.
Although the seller has no reporting obligations under the associate rules, it is in its best interest for the buyer's associate disclosure to be complete and accurate. Submission of an inaccurate or incomplete HSR form, including one that does not disclose relevant information about associate overlaps, may result in both:
  • A delay in clearance under the HSR Act.
  • Civil penalties of up to $16,000 per day.
Because filing parties cannot close until they receive HSR clearance, a delay in clearance can also mean a delay in the closing of the transaction.
The associate rules create a substantial obstacle for buyers with many subsidiaries or investments. In this case, the buyer was ultimately controlled by JPMorgan Chase & Co. (see FTC, Transaction Granted Early Termination). JPMorgan is the parent of hundreds of subsidiaries operating in more than 60 countries. Mmodal likely included the clause in the merger agreement to both:
  • Decrease the likelihood of a delay in closing.
  • Reduce the risk of potential civil penalties.
Sellers may come to rely on this type of representation for protection against potential violations of associate rules, particularly if the buyer's large number of subsidiaries make compliance with the rules difficult.
For a detailed overview of the associate rules, see Practice Note, Associate Rules: Hart-Scott-Rodino. For resources to assist with identifying the types of transactions that require HSR forms and with proceeding through the filing process, see Hart-Scott-Rodino Act Toolkit.