The Federal Trade Commission (FTC) unanimously passed a landmark rulemaking that significantly alters reporting requirements under the Hart-Scott-Rodino (HSR) Antitrust Improvements Act of 1976, as amended.1 Though less burdensome than the rule originally proposed by the FTC and Department of Justice in June 2023, the Final HSR Rules announced on October 10 significantly expand the types of information and documents that parties must submit with their HSR notifications, including, for example, by introducing for the first time a requirement that parties submit certain ordinary-course documents and narrative descriptions of their competitive activities. Unless enjoined by a federal court, the Final HSR Rules will go into effect 90 days after publication in the Federal Register.
To avoid delays in filing and completing transactions once the Final HSR Rules go into effect, companies considering future transactions should be aware of the types of information and documents that they must provide under the new filing regime and consider whether they need to introduce new information-collection practices now. In this alert, the Wilson Sonsini antitrust team provides information about the Final HSR Rules and analysis on how companies can be ready for their next HSR filing.
What’s New in the Final HSR Rules and How Companies Can Prepare
- Be cognizant that certain ordinary-course documents and transaction-related documents from the supervisory deal team lead will be included with HSR filings.
In a departure from the existing HSR filing regime, which only requires parties to produce documents prepared to analyze the transaction, the Final HSR Rules require certain filing parties to produce ordinary-course plans and reports that were provided to the chief executive officer (CEO) and board of directors of the target or acquiring entity (and entities they control or are controlled by) if those documents analyze market shares, competition, competitors, or markets relating to products or services for which the filing parties have current or potential future competitive overlap. For documents provided to the CEO, this requirement is limited to documents that are regularly prepared, which the rulemaking clarifies are those prepared at regular intervals (e.g., annually, semi-annually, or quarterly), and not special reports or documents prepared at more frequent intervals. Parties must provide responsive documents that were created within one year prior to filing.2
In addition to the ordinary-course documents described above, filing parties will need to continue to provide certain documents prepared to analyze the transaction with respect to topics such as market shares, competition, competitors, markets, potential for sales growth, or expansion into product or geographic markets. Currently, filers need only provide such documents if they were prepared by or for an officer or director. The Final HSR Rules expand this requirement to include documents created by or for the supervisory deal team lead, which is defined as the individual who has primary responsibility for supervising the strategic assessment of the deal and who would not otherwise qualify as an officer or director.3
Filing parties should work with antitrust counsel to identify the appropriate supervisory deal team lead and ensure their files are searched for responsive HSR documents. Parties should also proactively identify the ordinary-course plans and reports responsive to this request and be cognizant that the documents may be reviewed by the agencies as part of a future HSR filing.
- Work with counsel early to begin drafting narrative responses regarding competitive overlap and supply relationships.
The Final HSR Rules require filing parties to provide narrative descriptions about the transaction and the parties, as listed below.
- Transaction Rationale: Parties to certain transactions must identify each strategic rationale for the transaction discussed by the filing person or any of its officers, directors, or employees. To the extent the rationale for the transaction is different between the ultimate parent entity and the acquiring or acquired entity, separate rationales should be described. Filing parties must also cite to documents included with their filings that confirm or discuss the stated rationale.4
- Competitive Overlap: The acquiring person and target must include a description of current or planned products or services that currently or will compete with the current or planned products or services of the other party. Importantly, the narrative may be limited to planned products or services referenced in business documents submitted with the HSR filing. In addition to identifying the overlapping products or services, filing parties must provide sales information for the last year, a description of each category of customers for the product or service, and a list of top customers. In describing areas of competitive overlap, the Final HSR Rules state that parties should provide a statement of business fact instead of taking a position on antitrust-relevant markets.5
- Supply Relationships: The parties must describe products, services, or assets that the acquiring person or target sell to or purchase from the other party or any competitor of the other party. In each case, the narrative requirement is limited to sales and purchases that represent at least $10 million in revenue in the most recent year. In addition to the narrative description of supply relationships, the filing parties will need to provide sales amounts, top customers, purchase amounts, and top suppliers for each identified supply relationship.6
Filing parties should take care to ensure information provided in their narrative responses aligns with information provided in other parts of the HSR filing. The rulemaking indicates that agency staff may request additional clarification from filing parties and possibly restart the HSR waiting period if they identify information in the party’s HSR filing that directly contradicts aspects of the narrative responses.7 In order to ensure timely and accurate narrative responses, parties should coordinate with their antitrust counsel during due diligence to confirm the extent of competitive overlap and supply relationships and collect necessary sales and customer information.
- Be aware of new categories of information that filing parties must provide and proactively collect information as needed.
The Final HSR Rules introduce several new categories of information, described below, that filing parties must produce and add additional elements to existing requirements in the current HSR form. Parties that may enter into an HSR-reportable transaction in the near future should work with antitrust counsel to identify responsive materials for the new categories of information in advance of the effective date of the Final HSR Rules. Parties, including those that frequently enter into transactions that require HSR filings, should consider implementing new information-collection practices to ensure they have updated information prior to each filing. The new information that will be required with HSR filings going forward includes:
- Officers and Directors:
-
The Final HSR Rules require the acquiring person to provide information about officers and directors; however, the required information has been scaled back from the expansive request included in the proposed rules. The requirement is limited to acquiring persons, which will be required to provide information about officers and directors of certain entities and individuals, but only if those officers and directors hold similar positions in another entity that generates revenue in the same NAICS code or has operations in the same industry as the target. The request is further limited to entities within the acquiring person that are responsible for developing or selling products for which there is competitive overlap or a supply relationship with the target, and for the acquiring entity, other entities it directly or indirectly controls or is controlled by, and entities within the acquiring person that have been or will be created as a result of the transaction.8 When responding to this request, the acquiring person must provide the name of the officer or director and the entities on which that director serves.9
- Subsidies, Countervailing Duties, and Defense Contracts:
Filing parties must provide a brief description of any subsidies received from foreign entities or governments of concern, which include China, Iran, North Korea, and Russia,10 as well as whether products produced in a covered nation under 42 U.S.C. 18741(a)(5)(C) are subject to countervailing duties or an investigation for countervailing duties. Finally, filing parties to certain transactions must disclose pending requests for proposals or awarded procurement contracts with the U.S. Department of Defense or any member of the U.S. intelligence community that are valued at $100 million or more if the proposal or contract involves areas of competitive overlap or supply relationships with the other party.11
- Additional Information About Minority Shareholders, Ownership Structure, Controlled Entities, and Minority Holdings:
Citing an increase in the complexity of structures of acquiring persons and the lack of information required in the existing HSR form about minority holders that sit between the acquiring entity and its ultimate parent entity (UPE),12 the Final HSR Rules expand the list of entities for which the acquiring persons must disclose minority shareholders. While the existing HSR form requires the acquiring person to identify minority shareholders of only the acquiring entity and its UPE, the Final HSR Rules require such information about the acquiring entity, entities that directly or indirectly control or are controlled by the acquiring entity, and entities that have been or will be created to effectuate the transaction.13 Acquired persons will need to provide minority shareholder information for the acquiring entity and entities it controls only if the entity will continue to hold an interest in the acquired entity or the acquiring person post-transaction.14 The Final HSR Rules also increase the amount of information that must be provided for limited partnerships by requiring filing persons to identify minority interest holders beyond the general partner if the limited partners will have certain rights related to the board of directors (or similar bodies) of entities related to the acquiring entity.15
Acquiring persons will need to describe the ownership structure of the acquiring entity and, for transactions where the UPE is a fund or master limited partnership, provide any existing organizational charts (though parties are not required to prepare an organizational chart for this purpose).16
With respect to controlled entities that must be disclosed in Item 6(a) of the current HSR filing form, filing persons must continue to list the name and city/state/country of entities controlled by the acquiring person and acquired entity, excluding those with total assets of less than $10 million. However, the Final HSR Rules require most filers to organize the list of controlled entities by operating business and provide the names under which the entities do business.17
Parties should also maintain information about the activities of entities in which they hold a minority interest of 5 percent or more. The Final HSR Rules require the acquiring person (along with its associates) and target to affirmatively list only those minority shareholdings that derive revenue in the same NAICS code or industry as the other filing party.18 Previously, parties could satisfy this request by providing all minority shareholdings regardless of whether they operated in the same industry as the other party. Parties must also include the name by which the entity does business, if known.19
- Ensure that transaction-specific agreements provided with the HSR filing comply with the new rules, especially for filings made before a definitive agreement has been signed.
Citing concerns that preliminary agreements provided with some filings do not contain enough information to allow the agencies to assess the transaction, the Final HSR Rules require parties filing HSR before signing a definitive agreement to provide a copy of a dated document that provides sufficient detail about the scope of the transaction. In order to provide sufficient detail, the agreement should include some combination of the following terms: identity of the parties, structure of the transaction, scope of what is being acquired, purchase price, estimated closing timeline, employee retention policies, post-closing governance and transaction expenses, or other material terms.20 By contrast, a preliminary agreement that only indicates the parties intend to commence negotiations may not be sufficient.21
While parties can continue to file HSR before a definitive agreement has been finalized, the rulemaking makes clear that parties may not be able to make a filing as early in the deal process as the current HSR rules allow.22 Parties that intend to file HSR before the definitive agreement has been signed should work with antitrust counsel to ensure that they have a dated document that provides the level of detail required in the Final HSR Rules prior to filing.
Parties should also be aware that the Final HSR Rules require filing parties to include a more robust set of transaction agreements than the current HSR filing form, including all documents that constitute the agreement between the parties and that will be in effect as of closing. In the existing HSR form, filers need to include only certain schedules with their filings.23 Acquiring persons must also indicate whether there are other existing agreements between the acquiring person and target, but need not provide a copy of any such agreements.24
- Allocate enough time to prepare the filings by working with counsel early to identify the scope of responsive information and documents.
The rulemaking estimates that parties will spend an average of 68 additional hours preparing an HSR filing, with a range of 10 to 121 additional hours per filing.25 The amount of time a given party needs to prepare their filing will vary, however, because the new rules require different amounts of information depending on the competitive activities of the filing parties, the type of transaction, and which party is submitting the filing. For example:
- Transactions Without Competitive Overlap or a Supply Relationship: Certain information requirements in the new HSR regime are dependent on the existence of competitive overlap or supply relationships between the filing parties. Acquiring persons and targets that do not generate revenues in the same NAICS codes, do not have competitive overlap to disclose in their narrative responses, and do not have a supply relationship will not need to provide: an overlap narrative response; supply relationship description; information about officers and directors; regularly prepared plans and reports; prior acquisitions; geographic information; author information for submitted documents; and defense and intelligence contracts.26
- Select Transaction Types: The Final HSR Rules limit the types of information that parties to so-called “Select 801.30 Transactions” must provide. Select 801.30 Transactions are transactions that do not involve the acquisition of control, do not have a transaction agreement, and are listed in 16 C.F.R. 801.30 (which generally includes transactions that may not require the consent of the acquired person), such as open market purchases, conversions, or the vesting of equity awards. For these transactions, filing parties need not provide: transaction rationale narrative; organizational diagram; regularly prepared plans and reports; transaction agreements; narrative overlap and supply relationship descriptions; and information about defense and intelligence contracts.27
- Acquired Persons: The new HSR filing requirements also distinguish between the acquiring and acquired persons, with the latter excused from certain requirements in the Final HSR Rules. For example, acquired persons need not provide: information about minority shareholders other than roll-overs; ownership structure description and chart; information about officers/directors; a list of international antitrust notification; transaction diagram; or other agreements between the parties.28
Parties should be mindful of the additional time that will be required to prepare HSR filings by negotiating appropriate deadlines in their transaction agreements and beginning the process of compiling their HSR notification early in the transaction timeline.
- Have a plan to provide translations of certain documents.
After the Final HSR Rules go into effect, filing parties will need to provide English-language translations of all foreign-language documents included with their filings. This is a departure from existing HSR filing rules, which required parties to provide translations only to the extent they already exist. Filing parties will not be required to use a particular method of translation, but the translations must be readily understood, materially accurate, and complete.29
- Produce certain drafts of responsive documents.
The Final HSR Rules eliminated the requirement in the proposed rules that parties provide all drafts of responsive transaction-related documents. However, filing parties must still provide copies of draft documents that were submitted to members of the board of directors. Citing concerns that the agencies are receiving documents that have been edited to remove references to competition, the rulemaking states that drafts must be provided even if the document was sent to a single board member and not the entire board.30
- Be mindful of information-sharing best practices when preparing HSR filings.
Parties should continue to follow antitrust information-sharing guidelines during the pre-close period by placing guardrails on the exchange of competitively sensitive information. The Final HSR Rules make clear that the parties should not exchange confidential information in order to coordinate responses to the new HSR filing requirements, including when preparing narrative responses describing competitive overlap between the parties.31 Parties can coordinate their filings through outside counsel to ensure competitively sensitive information is not improperly shared within the companies.
What Stays the Same:
Although the Final HSR Rules present a seismic shift in the quantity of information and documents that most parties will need to include with their HSR filings, the final rulemaking will not impact certain aspects of the HSR filing regime.
- No changes to HSR rules regarding reportability or filing fees.
The Final HSR Rules do not change current HSR thresholds or rules regarding when HSR filings are triggered or applicable exemptions. Likewise, the filing fee thresholds, which were first introduced in 2022 and are adjusted annually, are not impacted by the new rulemaking. The changes made by the Final HSR Rules concern only the content of filings when the HSR thresholds are triggered.
- No information about employees or labor markets.
While the proposed rules released last year included requirements for parties to provide detailed information about their employees, including identifying the number of employees in the largest Standard Occupational Classification codes, the final rulemaking completely eliminated any labor information from the new HSR filing form. In doing so, the rulemaking cites commenters to the proposed rulemaking who argued that including labor information in the HSR form would significantly increase the burden on filing parties. Instead of requesting specific employee information in the HSR filing, the agencies will rely on other information provided with the filings, including the narrative description of competitive overlap and ordinary-course documents, to assess the potential impact of the transaction on labor markets.32
Other Important Takeaways
- Agencies lift suspension of early termination.
The FTC press release issued in conjunction with the Final HSR Rules states that the agencies will remove their categorical suspension on granting early termination of the HSR waiting period, which the FTC announced in February 2021, citing an unprecedented volume of HSR filings.33 While the agencies will have discretion over when to grant early termination, the press release states that the Final HSR Rules will provide additional information to the agencies that will help inform the processes used in deciding when to terminate the waiting period prior to its expiration. As before, if either filing party requests early termination and it is granted, notification will be published in the Federal Register and on the FTC Premerger Notification Office (PNO) website.
- Changes to refiling process.
Previously, acquiring parties who opted to withdraw and refile their HSR notifications were required to provide a refresh of all Item 4 documents, including transaction-related documents and financial reports. Under the Final HSR Rules, parties that refile their notifications need not provide updated financial statements, but must provide an updated set of transaction agreements and updated information about subsidies. As before, refiling parties must provide any newly created transaction-related documents with their refiled notification.34
- Online portal for public comment on proposed transactions.
In conjunction with its announcement about the Final HSR Rules, the FTC introduced a new public portal where market participants and the general public can provide comments directly to the FTC about transactions that are under review and how they may impact competition.
[1] Federal Trade Commission Final Rule on Premerger Notification; Reporting and Waiting Period Requirements (October 10, 2024) (“Final HSR Rules”), https://www.ftc.gov/system/files/ftc_gov/pdf/p110014hsrfinalrule.pdf.
[2] Final HSR Rules, at 274-286.
[3] Final HSR Rules, at 204.
[4] Final HSR Rules, at 435, App’x B – Acquiring Person, p. 8.
[5] Final HSR Rules, at 311-317.
[6] Final HSR Rules, at 326-332.
[7] Final HSR Rules, at 308.
[8] Nonprofit entities organized for a religious or political purpose are exempt from this requirement.
[9] Final HSR Rules, at 241-54, App’x B – Acquiring Person, p. 5.
[10] Final HSR Rules, at 177.
[11] Final HSR Rules, at 457.
[12] Final HSR Rules, at 215.
[13] Final HSR Rules, at 211-233.
[14] Final HSR Rules, at 232.
[15] Final HSR Rules, at 224-31.
[16] Final HSR Rules, App’x B – Acquiring Person, p. 5.
[17] Final HSR Rules, at 235.
[18] Final HSR Rules, at 345-47.
[19] Final HSR Rules, at 346-47.
[20] Final HSR Rules, at 288-90.
[21] Final HSR Rules, at 182.
[22] Final HSR Rules, at 183.
[23] Final HSR Rules, at 288.
[24] Final HSR Rules, at 292.
[25] Final HSR Rules, at 379-80.
[26] Final HSR Rules, at 151-52.
[27] Final HSR Rules, at 148-49.
[28] Final HSR Rules, 149-50.
[29] Final HSR Rules, 188-92.
[30] Final HSR Rules, at 270-73.
[31] Final HSR Rules, at 310.
[32] Final HSR Rules, at 332-34.
[33] https://www.ftc.gov/news-events/news/press-releases/2021/02/ftc-doj-temporarily-suspend-discretionary-practice-early-termination.
[34] Final HSR Rules, at 193.
