Tuesday, May 15, 2018

Premerger notification: Reportable interest


Premerger notification: Reportable interest: FTC: Antitrust: Competition:

FTC
By Premerger Notification Office Staff
May 15, 2018
Republication

If your HSR compliance program tracks only those acquisitions that require a payment, you may miss a variety of reportable acquisitions, leading to liability and fines for failures to file. In most situations, you have to file notification under the Hart-Scott-Rodino Act before you pay to purchase voting securities, assets, or certain non-corporate interests. As a result, many HSR compliance programs kick in when someone has to write a check. Below we flag some examples of situations in which you may need to file – a compliance program that won’t catch these isn’t doing its job.
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.
Reorganization
When a partnership or LLC reorganizes into a corporation, or vice versa, you might have a reportable acquisition of voting securities or non-corporate interests as a result. For example, suppose partnership P plans to reorganize to become corporation C and distribute a different number of voting securities in C to partners of P in exchange for their partnership interests. If you are a partner, you may have to file and wait before you receive shares of C, even though you are not writing a check and did not take any action to effect the reorganization.
Employee compensation
Employees, particularly executives, may receive a portion of their compensation in the form of voting securities of the company they work for, and these stock awards may be reportable events. For example, if you know that you will receive voting securities or restricted share awards (RSAs) from your employer that entitle you to vote the shares and receive dividends, you may have to file and observe the waiting period before you receive them. On the other hand, if you acquire restricted stock units (RSUs), which do not carry the right to vote, you may have to file and wait not before you receive them, but before the shares vest. For example, in 2007 Brian L. Roberts, the Chief Executive Officer of Comcast Corporation, paid a civil penalty because he failed to file and wait before RSUs he had received vested and resulted in him holding voting securities above the HSR reporting threshold.



No comments:

Post a Comment