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On June 27, 2023, the U.S. Federal Trade Commission (“FTC”), with the collaboration and concurrence of the Antitrust Division of the U.S. Department of Justice (“DOJ”), announced a Notice of Proposed Rulemaking (the “Notice”) that proposes extensive changes to the Hart-Scott-Rodino (“HSR”) Premerger Notification Form (“HSR Form”) requirements and instructions. The proposed rulemaking is the first time the agencies have made any meaningful changes to the HSR Form since the premerger notification regime was established 45 years ago.

The changes (if adopted as currently drafted) would transform the process of preparing the HSR Form, dramatically increasing the time and cost of notifying a merger, adding weeks (and potentially months) to the front end of the process. The new framework would require filers to provide several categories of new or additional information, including detailed reports of prior transactions, ordinary course documents assessing competition in the affected markets, and, in some instances, narrative responses requiring the creation of new information of the kind normally reserved for an in-depth investigation, a “Second Request.”

While a few of the proposed changes (e.g., narrative responses) would bring the U.S. HSR filing regime closer to some other jurisdictions, like the European Union for certain large deals, many would go beyond the scope of existing premerger notification regimes. Information provided in the HSR Form would give the agencies significantly more information to review, enabling the agencies to identify and focus on potential substantive issues earlier in the process, potentially leading to longer reviews by the agencies (e.g., parties may pull and refile more frequently).

These rules will not take effect until the FTC submits a final rule after evaluating public comments. You can submit comments on the proposed rules at Regulation.gov until August 28, 2023.

Key Proposed Changes to the HSR Form

The proposed rulemaking would require several new classes of information and documents to be submitted on Day Zero as part of the HSR Form, including expanded information about the parties and those who could exert control over them, broader requests for documents, and new requirements that the HSR submission include significant details about the transaction structure and rationale. Key changes include:

• Expansion of Documents Produced with HSR Form, including:
  • All “Item 4” documents analyzing competition created by or for an officer, director, or the supervisory deal team lead, even if that team lead is not an officer or director.
  • Drafts of Item 4 documents (the FTC noted that this is to avoid the agencies only receiving “sanitized” final versions of those documents).
  • Certain ordinary course documents, internal plans, and reports assessing business strategies, markets, or competition, requiring focus on company document retention policies.
  • An organizational chart that identifies all authors of responsive documents submitted with the HSR and all individuals searched for responsive documents.
  • Verbatim translations of all foreign language documents (not just summaries).
• Narrative Responses Regarding Competition: Filing parties would have to provide detailed narrative responses about competition, with descriptions of current or potential future horizontal overlaps and supply relationships between the parties, the strategic rationale for the transaction, and analysis of labor markets impacted by the deal (including any details on labor or workplace safety violations in previous five years).
• More Detailed Information about Prior Transactions: The acquiring and acquired parties would have to provide a list and description of all overlapping acquisitions for the 10 years before filing.
• Organizational Information about Filing Parties: Filing parties would have to provide more details about their organizations, including identifying anyone that can exert influence over the acquiring party, including certain debtholders, indirect owners, and non-voting security holders. Parties would also have to identify any subsidies from certain foreign entities or governments of concern, information about defense or intelligence contracts, and information relating to research and development activity.
  • This would include identifying all “officers, directors, or board observers (or in the case of unincorporated entities, individuals exercising similar functions) of all entities within the acquiring person and acquired entity, as well as the identification of other entities for which these individuals currently serve, or within the two years prior to filing had served, as an officer, director, or board observer (or in the case of unincorporated entities, roles exercising similar functions).”
• Pipeline and Pre-Revenue Products: The proposed rules would require filers to provide information about “pipeline or pre-revenue products” if those products create competitive overlaps. Under the current rules, filers are not required to provide information about products or services that did not derive revenue in the prior fiscal year.
• Transaction Details: The proposed rules would also require more information about the transaction, including a diagram of the deal structure along with a corresponding chart that would explain the relevant entities and individuals involved in the transaction, the timeline and conditions for closing, and lists of foreign jurisdictions reviewing deal.

Potential Best Practices for Filers

If adopted, the rules will have significant potential implications for filers. Parties would need to consider new best practices to navigate the U.S. filing regime. We would recommend the following steps for anyone with HSR reportable deals under the new rules.

• Loop in Antitrust Counsel Early in the Process, including for Non-Reportable Deals: Parties should reach out to antitrust counsel early in the deal process to help the deal team and company leadership understand possible compliance risks; assess markets, competition, and potential substantive antitrust risks; and discuss any potential issues and help minimize the risk of disruption to the deal. In addition, because the proposed rules would require additional disclosures of prior deals, the company would need to be more mindful of potential competition issues associated with every deal.
• Re-Evaluate Document Collection and Retention Policies: Filers should work with antitrust counsel to evaluate company document collection and retention policies and ensure compliance with the new rules, which would require submission of certain draft documents and ordinary course strategic and planning materials. Counsel should also help the company start early collection of the information required for the HSR Form to avoid any delays in filing.
• Anticipate Longer Times and Increased Costs to Close: Parties should build in additional time and resources for getting deals done. The FTC estimates that the time needed to comply with the HSR rules will nearly quadruple, increasing from 37 to 144 hours; if there are competitive overlaps, the FTC estimates that it would take even longer, 222 hours. Based on experience, these agency estimates may seriously undercount the additional time and costs for certain companies and deals, including for private equity funds or others regularly involved in transactions.
• Explain the Process to Company Employees Beyond the Deal Team: The amended HSR Form would require information from many different departments (such as Human Resources) and expands the population of responsive documents to include ordinary course materials created by lower-level employees. Counsel should discuss the potential implications with all employees.

What’s Next

These changes will not take effect immediately. The FTC is required to solicit and consider comments from the public about its proposal. The comment period will close on August 28, 2023, 60 days after the Notice was published in the Federal Register, and the comment period could be extended further. Considering the magnitude of the changes and the public interest shown already, this proposal will likely generate numerous comments (both in support and opposition), which the Commission will need to address in a “statement of basis and purpose” to be published alongside the final rule. The final rule will likely take several months to prepare, as the agencies will have to incorporate comments on the rule. Therefore, it is likely that the rule will not go into effect until late 2023 or early 2024.

You can view and submit comments on the docket at Regulations.gov. After the rule is finalized, parties injured by the changes could potentially challenge the rule and the procedure used in Federal Court.

The proposed changes are significant, but in the near term, the existing HSR regime will remain in place until the final rule takes effect. If you have questions about these proposed changes, please contact us, and remember, you can make your voice heard until the comment period closes on August 28, 2023.

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