On June 27, 2023, the U.S. Federal Trade Commission (the “FTC”), with the concurrence of the U.S. Department of Justice (the “DOJ”, and together with the “FTC”, the “Agencies”) proposed sweeping changes to the rules for filing premerger notifications under the Hart-Scott-Rodino Act (“HSR”).1 If adopted, the FTC’s proposal would dramatically increase the time, expense and burden of making HSR filings.
According to the notice issued by the FTC (the “Notice”),2 the Agencies conducted a comprehensive review of the premerger notification process and concluded that the information currently reported in an HSR filing “is insufficient for the Agencies to conduct an effective and efficient initial evaluation of a transaction’s likely competitive impact on all of those who might be affected,” and that certain required information currently submitted with HSR filings “is not as helpful as originally intended.” To address these concerns, the Agencies have proposed changes to the premerger notification process that would significantly expand the scope of information and documentation that parties would be required to submit in connection with HSR filings.
Background
HSR requires that parties to certain mergers and acquisitions notify the Agencies if the proposed transaction satisfies certain statutory tests (i.e., “size of transaction test” and “size of person test”). In connection with this notice, current rules require that the parties provide the Agencies with a basic description of the proposed transaction, certain deal-related documents, information concerning the parties’ corporate structure and subsidiaries, and a description of the parties’ sources of revenue (categorized by NAICS code). Following the submission of this notice and information, the parties must wait until the expiration or termination of a specified waiting period (usually 30 days) before consummating the transaction. The notice, reporting and waiting period requirements are intended to enable the Agencies to evaluate whether a proposed transaction may violate antitrust laws. For certain transactions that raise significant antitrust concerns, the Agencies may request additional information through a “second request”, which extends the waiting period before the transaction can close. Second requests are rare; in 2021, the Agencies issued second requests for less than 2% of the 3,520 transactions submitted to the Agencies.3
Proposed Changes
If adopted, the proposed changes to the rules would require that parties provide a much broader scope of documentation and information in connection with HSR filings, including some information that today is required only if the Agencies issue a second request. These enhanced disclosure requirements would apply to all transactions submitted to the Agencies under HSR, even those without any substantive antitrust issues.
The following is a non-comprehensive list of the additional information that parties would be required to submit in connection with an HSR filing under the proposed rules:
- Additional details regarding the structure of the proposed transaction, including diagrams and descriptions of the strategic rationale and timeline for the transaction.
- For transactions with signed agreements, parties would be required to submit all agreements, schedules, exhibits and appendices and all other agreements among the parties, including agreements that are unrelated to the proposed transaction.
- For transactions without signed agreements, parties would be required to provide detailed term sheets. Parties would no longer be able to file based solely on an indication of interest, non-binding letter of intent, or agreement in principle.
- Narrative descriptions of the competitive overlaps and relationships (including supply arrangements) among the parties or certain affiliates.
- Detailed description of the corporate structure of the parties (including information regarding limited partnerships and other investment vehicles) that could require private equity firms and other financial investors to provide additional disclosures regarding their direct and indirect minority equity holders and holdings.
- Information on the parties’ foreign subsidies, grants, loans, tax concessions and other preferential policies.
- Details regarding previous acquisitions (including transactions that did not require notice under HSR).
- Certain business plans or strategic documents that were not created in connection with the proposed transaction.
- Detailed description of the parties’ revenue/sales, not only by NAICS code, but also identifying which divisions, lines of business, subsidiaries, etc. generate which revenue streams. Parties would also need to provide a narrative description of certain future/pre-revenue products.
- Description of the parties’ overlap-related sales data, customer lists, restrictive covenants, licensing arrangements, and more granular detail on franchises and geographic overlap.
- Pre-and post-closing worker information, categorized by occupation and geographic location.
- Identification of penalties or findings issued by the Department of Labor, National Labor Relations Board or the Occupational Safety and Health Administration (OSHA).
Timing and Practical Effects
The Notice was issued in the Federal Register on June 29, 2023, and remains subject to public comment until August 28, 2023. Following the public comment period, the Agencies will evaluate the public feedback and issue final rules. The timing for implementation of the final rules is uncertain, but given the magnitude of the proposals and the current timeline for comments, any new rules are unlikely to take effect before 2024.
The proposed rules would impose a substantial burden on filing parties, and we expect that the time and expense required to prepare an HSR filing would increase significantly. In the Notice, the Agencies estimate that the average time required to prepare an HSR filing under the new rules would be 144 hours, which represents a 389% increase over the current average of 37 hours. If some or all of the proposed changes become final, parties will need to adjust their transaction timelines for 2024 to factor in the additional time and costs to prepare their HSR filings and consider engaging HSR counsel early in the transaction process. Private equity firms, strategic acquirors and other companies that anticipate entering into future mergers or acquisitions should consider implementing plans for tracking and capturing required data and identifying relevant documents and related information to prevent delay in completing transactions.
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