The Federal Trade Commission and Department of Justice Antitrust Division recently took two significant steps to overhaul merger reviews.
Proposed changes to the Merger Guidelines that would push the envelope in certain areas have attracted much attention but largely reflect how the agencies already analyze transactions under the current administration.
By contrast, proposed changes to Hart-Scott-Rodino (HSR) Act notifications would have a dramatic impact on process and timing for all notified deals. These proposals could take effect in 2024.
The public comment period on the new HSR rules has now expired, and while the exact form of the final HSR rules is unknown, parties should take steps now to prepare given the potentially monumental impact on filing burdens and scope of scrutiny.
Three Things Companies Should Expect:
- Antitrust Advocacy in Every Deal
The agencies investigate only 8-10% of HSR filings. The proposed HSR rules, however, would require parties to submit a Competition Analysis narrative in every notified deal. This narrative would require the parties to detail deal rationale and identify actual and potential competitive overlaps and relationships (or the lack thereof) that might raise antitrust issues.
Today, affirmative advocacy explaining why the transaction will benefit – not harm – competition is necessary only for the few deals that warrant an investigation. This proposed Competition Analysis effectively would require such advocacy for all notified transactions.
- Scrutiny Beyond the Reported Deal
Today, the agencies use HSR filings to screen for antitrust issues with a reported deal. The proposed HSR rules, however, are likely to lead to antitrust scrutiny of the parties’ businesses beyond the immediate deal. In particular, filers will need to:
- Disclose details of prior non-reportable transactions in the same industry.
- Illustrate corporate ownership structures, and identify investors, lenders, board observers and others with influence over the parties.
- Submit ordinary course business plans unrelated to the instant deal.
Expect agencies to use these enhanced disclosures to scrutinize for interlocking directorates, entanglements with competitors, roll-up strategies and anticompetitive business practices.
- Significant Additional Prep Time & Expense
Under the current rules, most parties can be ready to file HSR 5-10 days after signing. The new notification requirements could take weeks to months to prepare, especially for deals that are complex or carry elevated risk. The expanded requirements also give the agencies more opportunities to “bounce” a filing for deficiency, causing the initial HSR waiting period to restart.
To avoid delays and minimize surprises, companies should work with antitrust counsel now to:
- Obtain advice at the start of deal consideration (not after key deal documents are drafted) about the issues that will need to be addressed in the Competition Analysis and other advocacy.
- Understand the scope of information the agencies will collect (including about executives and investors) in the expanded disclosures.
- Assess interlocking directorates and other potential entanglements across competing companies, including minority investments, especially for venture capital and private equity.
- Evaluate ordinary course business reviews and strategic plans before finalizing.
