On June 27, 2023, the Federal Trade Commission (FTC) and the Department of Justice (DOJ) jointly announced a proposed overhaul of the Hart-Scott-Rodino (HSR) Act filing requirements. The proposed changes, detailed in a formal Notice of Proposed Rulemaking (NPRM), are sweeping and will substantially increase the burden and expense required to complete the HSR notification and report form. The FTC estimates that the proposed changes, if implemented, will require approximately 12-222 additional hours to complete a filing and $350 million annually in labor costs for executives and attorneys.

Background. The HSR Act and implementing rules require parties to file a notification and report form with the FTC and the DOJ to notify the agencies of certain transactions and to observe a mandatory waiting period prior to closing (usually 30 days). During the waiting period, the agencies will review the transaction to determine whether it poses no antitrust risk and can close, or whether the transaction poses a risk of harm to competition and therefore warrants additional investigation and review.

The proposed changes to the preclosing notification requirements are the most significant since the HSR Act was implemented in 1976. In a statement issued in conjunction with the NPRM, FTC Chair Lina Khan states that the proposed changes address gaps in the information that parties are currently required to submit with their filings that hinder the ability of the agencies to perform an adequate review during the initial waiting period. As discussed in greater detail below, the agencies now propose to require parties to submit extensive information with their filings relating to deal rationale, key horizontal (competitive) and vertical (e.g., supply chain) relationships between the parties, details on the parties’ organizational structure and management, and minority investors. The changes would also require the parties to provide information relating to topics of recent antitrust enforcement activity, including interlocking directorates and the labor market.

Noteworthy Changes

• New Requirements to Submit Narrative Responses About Competition and Transaction Rationale: Parties would be required to include with their filings detailed information about the transaction in the form of narrative responses that are not required in the current HSR form. As drafted, the new rules would require a competitive analysis describing the parties’ business lines, products and services, as well as any potential horizontal overlaps between the parties. For any such overlaps, the parties would need to state their sales, top customer contacts, and other information. The parties would also be required to identify any existing supply or other vertical relationships between the parties. Filers would also have to describe each strategic rationale for the transaction (including those related to competition, expansion into new markets, hiring the seller’s employees, obtaining intellectual property, or integrating assets) and timeline of key dates and closing conditions.
• Enhanced Document Production Requirements: The proposed rulemaking would exponentially increase the number of documents filing parties must include with their HSR notifications. The additional documents that would be required include periodic business plans and reports that contain information relevant to the antitrust analysis (even if those documents were not created in contemplation of the transaction being reported), all drafts of responsive documents that were provided to an officer, director, or supervisory deal team lead (the current practice is to provide only the final draft and any draft that was submitted to the board of the filing party), prior agreements between the parties (such as supply agreements, collaboration agreements, licensing agreements, etc.), a diagram of the deal structure along with a chart explaining the entities involved, and translations of responsive foreign-language documents.
• New Focus on Labor Markets: The agencies propose adding a new section to the HSR notification form that will require filers to classify their workers into occupational categories based on the Department of Labor’s Standard Occupational Classification (SOC) system so that the agencies can evaluate the effect of the transaction on labor markets. Filers would need to provide their five largest six-digit SOC classifications and identify any overlapping Economic Research Service (ERS) defined commuting zone(s) for the five SOC codes previously identified, including the number of employees in each commuting zone. The filers would also be required to report any labor violations in the last five years before the filing.
• Additional Information About Filing Parties and Directors: The new form will expand the information filers need to provide about how the ultimate parent entity (UPE) filing the notification is organized and individuals with influence over business decisions. Specifically, the changes would require filing parties to identify officers, directors, or board observers of all entities within the acquiring person and acquired entity, as well as the identification of other entities for which those individuals currently or previously served as an officer, director, or board observer. According to the NPRM, including this information in the HSR notification will allow the agencies to know of existing or potential interlocking directorates and related implications under Sections 7 and 8 of the Clayton Act. The changes would also change how filers report entities controlled by the UPE and would require the identification of additional minority interest holders and other entities that may exert influence over the parties. 

Practical Guidance. According to the agencies, the changes proposed to the HSR notification process would add significant burdens to parties filing HSR notifications. The agencies predict that, on average, the proposed changes will increase the time required to prepare an HSR notification on average by 107 hours (ranging from 12 hours to 144 hours per filing) and cost $350 million annually in additional labor costs for executives and attorneys. These changes will therefore dramatically impact transaction timing and expense. Interested parties will have 60 days after the date the NPRM is published in the Federal Register to submit comments.