On June 27, 2023, the Federal Trade Commission (FTC) and the Antitrust Division of the US Department of Justice (DOJ, and together with the FTC, the Agencies) announced proposed changes to the premerger notification filing form and rules under the Hart-Scott-Rodino (HSR) Act. The proposed changes, if adopted, would be a significant development in the US merger control process and would increase substantially the information, data, and documents merging parties must submit in connection with their HSR filings.

The proposed changes to the HSR form are in effect “something borrowed, something new.” Specifically, the proposals, if enacted, would:

• bring the HSR form more in line with the narrative responses on competition and markets required by the antitrust authorities in foreign jurisdictions;
• require filing parties to submit additional material up front with their filings, including non-privileged drafts of transaction documents
• import some requirements along the lines of those required in notices filed on foreign investments with the Committee on Foreign Investment in the United States (CFIUS) pursuant to the Foreign Investment Risk Review and Modernization Act of 2018, including a focus on foreign ownership and control of acquiring parties and other interest holders that may exert influence over such parties and affect the competitive landscape; and
• require filing parties to provide information relevant to the enhanced focus by the Agencies on the impact of transactions on labor markets.

These proposed changes stem from the first “top-to-bottom” review of the HSR form since it was originally promulgated nearly forty-five (45) years ago. According to the FTC, these changes are necessary (i) to implement mandates as required by the Merger Filing Fee Modernization Act of 2022, and (ii) to improve the efficiency and efficacy of the Agencies’ premerger review when screening transactions for potential competition issues within the initial statutory HSR waiting period, which is typically thirty (30) days.

While the proposed changes would create new and significant burdens for filing parties, the proposed rules do not change the requirements for determining whether a filing is required nor will they alter the statutory HSR waiting periods, as only Congress can modify those. Significantly, the changes will only go into effect when the Agencies publish the final version of the proposed rules, which likely will not occur for several months. Accordingly, HSR filings made in the near future will not be subject to these new and more robust requirements.

Key proposed changes in the FTC’s 133-page Notice of Proposed Rulemaking (link: Regulations.gov) include:

• New narrative responses that would bring the HSR filing process closer to what is required by a number of foreign competition authorities:
  • Details about the transaction, including a description of the strategic rationale for the transaction, including, for example, those related to competition with the other reporting person, expansion into new markets, hiring the other reporting person’s employees, obtaining certain intellectual property, and/or integrating certain assets into new or existing products, services or offerings;
  • Analyses of competition and overlaps of products and services, including information regarding horizontal overlaps between the parties, existing supply relationships between filing persons, third-party supply relationships; and
  • Employee information (pre- and post-closing), including information on non-competes, or no-solicitation agreements related to relevant products or services, in order to allow the Agencies to better screen for potential labor market effects arising from the transaction.

• New document submission requirements, including:
  • Draft versions of transaction-related documents prepared by or for the supervisory deal team leads, which include those individuals who functionally lead or coordinate the day-to-day process for the transaction at issue;
  • Certain high-level strategic business documents that were not created in contemplation of the transaction but still contain information relevant to the antitrust analysis, including certain semi-annual or quarterly strategic plans and reports that evaluate competition in relevant markets; and
  • The entirety of all agreements (inclusive of schedules, exhibits, etc.) related to the transaction and other agreements between the filing persons that are not related to the transaction, as well as a timetable for the transaction.
• New and more expansive information that must be provided on business structures and affiliated entities of the parties, including
  • Information about how the UPE is organized and the identity of other individuals and entities that may have influence over business decisions or access to confidential business information;
  • Expansion of information required regarding minority shareholders and other non-controlling entities;
  • Identification of all officers, directors and/or board observers of entities related to the transaction or controlled by entities involved in the transaction;
  • Reporting of NAICS Codes for pipeline or pre-revenue products that would involve overlaps with the other filing party;
  • Details regarding subsidies from certain foreign entities or governments of concern, which recent legislation (Title II of the Merger Filing Fee Modernization Act of 2022) recognized could potentially have national security ramifications; and information on existing or pending defense or intelligence contracts of the filing parties over $10 million in value so as to afford the Defense Department and Intelligence Community the opportunity to more quickly and better evaluate the competitive impact of transactions on such contracts, programs, or products or services at issue.

Certainly, the cumulative effect of these requirements, if promulgated, would increase significantly the time and cost associated with filing an HSR notification. Indeed, by the FTC’s own estimates, the average time required to prepare a filing will increase nearly four-fold from 37 hours to 144 hours per filing, with 45% of the filings requiring an additional 222 hours to prepare. However, these workload estimates must be viewed in context of the type of transaction involved. For example, for foreign acquisitions subject to CFIUS notices, a good deal of the additional information on ownership, deal rationale and government contracts already would need to be filed. Further, for large, multi-jurisdictional transactions involving foreign antitrust filings as well as an HSR notification, a good deal of the narrative information would likely need to be developed in any event. Finally, in transactions with any material issues, counsel, in their due diligence and preparation, undoubtedly would need to request certain of the additional information for the purposes of their assessments. Thus, the extent to which the changes to the HSR form and rules would result in an increase in overall deal time and expense may vary from one deal to another.

In general, and perhaps somewhat paradoxically, it would appear that smaller domestic transactions (i.e., with no CFIUS filing nor antitrust filings in foreign jurisdictions) would probably result in the most increase in net transaction time and cost associated. Accordingly, one possible consideration for the Antitrust Agencies is whether to only apply the new requirements to transactions of a certain size to limit this burden.

Our antitrust team continues to monitor these developments and will keep you apprised as additional details become available.

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