The Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR), codified at 15 USC § 18a, is the federal antitrust law that requires parties to certain large mergers, acquisitions, joint ventures and other corporate transactions to file premerger notification and report forms with the Federal Trade Commission (FTC) and United States Department of Justice Antitrust Division, pay a filing fee, and wait a prescribed time period (usually 30 days) before their transactions can close. The purpose of the HSR Act is to give the federal agencies sufficient time to review transactions for potential competitive concerns before they close.

Anyone who has been through an HSR filing knows that HSR is a very rigorous process that demands scrupulous adherence to complicated rules and requirements. In most cases, the filing period expires quietly without any concerns identified by the agencies. Sometimes, however, and despite parties’ diligent efforts to comply, one or more problems may be identified in the parties’ filings. In the best case, a minor issue will result in a call or email from the FTC’s Premerger Notification Office (PNO) asking the filer to correct the deficiency. Assuming the minor issue is fixed promptly, the filing proceeds as if nothing happened, with no interruption in the waiting period. More serious transgressions will result in a “bounce” which means the filing will be disregarded and the filers must start all over again. A “bounce” is not only embarrassing; it can also wreak havoc with the timing of a transaction, and cause significant additional costs, such as a new HSR filing fee. As serious as a bounce is, there is an even greater penalty: civil monetary sanctions. The current daily monetary penalty for each day of HSR noncompliance is $50,120. And after that comes the ultimate penalty: a government lawsuit seeking to undo the merger.

As part of her remarks at the American Bar Association’s Antitrust Spring Meeting, FTC Bureau of Competition Director Holly Vedova gave a succinct reminder of three basic principles of HSR compliance. These basic principles are quoted below from the FTC’s website:

1. “Submit all 4(c) documents, period full-stop.”
2. “Consider if changes in the merger agreement require a new filing.”
3. “An HSR filing cannot be made on a hypothetical deal.”

Our perspective on each principle follows.

Principle 1: You REALLY must produce all 4(c) documents.

If you remember nothing else about HSR, remember this. Item 4(c) is the question on the HSR form that requests certain documents, and Item 4(d), is its next of kin, dealing with documents created by third parties. Filers must produce, without fail, all documents that analyze the notified transaction with respect to certain topics. These topics are competition, competitors, markets, market shares, potential for sales growth, and expansion into product or geographic markets. This seems simple enough, but as experienced HSR practitioners know, this is where the bulk of filing parties’ time will be spent. Collecting and analyzing 4(c) and 4(d) documents is both an art and a science, requiring judgment, skill, and expertise. As the FTC warned on March 31:

• “If we discover, for instance in a Second Request production, that there is a 4(c) document that was not submitted with the HSR filing, the PNO can bounce the original filing if the waiting period has not expired. This is true even if the agency has issued Second Requests: if the newly revealed 4(c) document changes the scope of the agency’s investigation, the PNO may require a new filing and the agency may issue a new Second Request.”

The coast is not necessarily clear once the waiting period has expired. The FTC goes on to warn:

• “There are also consequences if we discover the 4(c) document after the waiting period has expired, for example when it is submitted with an HSR filing on another deal. In some cases, the PNO will require a corrective filing for the original deal, and the violation of the HSR requirements could lead to an enforcement action to impose civil penalties. Those penalties can be significant, as the Bureau is committed to vigorously enforcing the HSR Rules. Further, if the omission caused the Agencies to not take action to stop a merger, we can still seek to undo the illegal transaction.”

Given the high risks here, the perils of an incomplete 4(c) and 4(d) search cannot be exaggerated. Counsel and client must be aligned on the scope of the search and the process that will be followed. When counsel and client are aligned, the likelihood of damaging or even fatal missteps should be reduced.

Principle 2: If the deal changes, you may need to make another filing.

Let’s say A and B have spent months negotiating a merger agreement, which they sign. Counsel make the HSR filing on that agreement. Two weeks after filing, the deal has changed in some material way, such that the notified agreement is no longer a truly accurate description of the deal. Now what?

This again is a matter of judgment and experience because there is no definition of “material” in this context. Some relevant indicators of materiality may be parties, structure, and consideration. The FTC cautions:

• “If there are material changes in the terms of the proposed transaction before the HSR waiting period has expired, the parties should contact the PNO to discuss whether a new filing is required. After consulting with agency staff reviewing the HSR filing, the PNO may require parties to amend their original filing and submit updated deal documents as well as a new certification. If the changes are significant enough, the PNO may require a new filing with all new information and documents (including refresh on Item 4 documents), which would trigger a new waiting period.”

While the HSR Act does not prohibit the parties from continuing to negotiate, the practical consequences of continued negotiation can be costly and time consuming from an HSR perspective. This is particularly true when parties file HSR on a letter of intent, and not on a definitive agreement. Counsel and client must be fully aligned on exactly what the deal is before HSR is filed. At the very least, if the deal changes, the certifications that the parties include in their HSR filings attesting to their good faith intention to complete the notified transaction may no longer be accurate.

Principle 3: No hypothetical deals allowed.

HSR can only be filed on an agreement. The agreement can take myriad forms, including a letter of intent or an agreement in principle, but the agencies will only review HSR filings based on actual agreements. As noted above, the parties file certifications attesting to their good faith intention to complete the transaction being notified, and a transaction that is being filed on an “indication of interest” or other similarly uncertain document will not pass muster. Counsel must therefore ensure not only that the deal being notified is “the” deal but that it is a “real” deal and not purely hypothetical.

Conclusion

Director Vedova’s reminders are not new information, but are well worth repeating (and memorizing) as counsel and their clients face an increasingly challenging antitrust enforcement landscape.