Proposed HSR Rules Affect Investment Firms/Master Limited Partnerships And Minority Acquisitions

• Published date: 08 October 2020
• Law Firm: Shearman & Sterling LLP
• Author: Mr David Higbee, Jessica K. Delbaum, Ben Gris and Jonathan Cheng

Overview

The U.S. Federal Trade Commission (FTC) and U.S. Department of Justice Antitrust Division ("DOJ" and collectively, the "Agencies") recently proposed changes¹ to two aspects of the Hart-Scott-Rodino Act ("HSR Act").² The proposed rules are subject to public comment and are unlikely to come into effect for at least a few months to a year or even longer.

The proposed changes (i) impose new information and aggregation reportability requirements primarily aimed at investment firms using multi-fund structures for investments and master limited partnerships ("MLPs") (the "Proposed Aggregation Rules")³ and (ii) create a new exemption for acquisitions of ten percent or less of an issuer's voting securities unless the acquirer falls within one of the enumerated exceptions to the exemption (the "Proposed De Minimis Exemption" and collectively, the "Proposed Rules"). The Proposed De Minimis Exemption does not replace the existing Investment Only Exemption,⁴ but rather a new, standalone exemption. Neither of the Proposed Rules will come into effect for at least a few months and likely even longer.

In addition to the Proposed Rules, the Agencies seek public comments on seven broad-ranging topics, suggesting that the Agencies may target specific rulemaking in these areas in the future. This update discusses only the topics that appear to have the most direct impact on the Proposed Rules.

Immediate Timing Implications

Even if no changes to the Proposed Rules are made following the public comment period, the approval timeline ranges from four months to one year or longer.

The Proposed Rules are subject to a 60-day public comment period that could result in Agencies making material changes, or even deciding not to implement either or both of the Proposed Rules. The Agencies are also required to provide another 30-day notice before any final rules (if either or both Proposed Rules are implemented) become effective.

As a data point, when the Agencies last announced and implemented new rules in 2010-2011, which introduced the concept of "associates" (e.g., requiring limited information from different funds under common operational or investment management but not within the same filing "person," the entity with the HSR filing obligation), the entire process from initial Agency press release until implementation of the final rules took just over one year (with the Agencies refining the "associates" definition as a result of public comments).

The Proposed De Minimis Rule

The Proposed De Minimis Rule, which, as discussed further below, is likely to be subject to further change after the public comment period, would...