FTC and DOJ Issue Final Rule Amending Hart-Scott-Rodino Act Premerger Notification Requirements

On Oct. 10, the Federal Trade Commission, with the concurrence of the Antitrust Division of the Department of Justice, issued a final rule amending the rules that implement the Hart-Scott-Rodino Antitrust Improvements Act and the related premerger notification forms and instructions. The final rule expands the scope of information and documents required to be disclosed for reportable transactions under the HSR Act. As a result of these changes, parties to transactions that are subject to premerger notification under the HSR Act should prepare to devote significant additional time and expense toward the preparation of HSR filings when the rule goes into effect in mid-January 2025.

Background

Under the HSR Act, parties to certain mergers and acquisitions are required to submit premerger notification forms disclosing information about the parties and the proposed transaction. Once submitted, the parties are required to wait for a set period for the FTC or the DOJ to conduct a review prior to closing the proposed transaction. The waiting period is intended to give the agencies the opportunity to identify and challenge transactions that potentially violate the antitrust laws before they are consummated.

In June 2023, the FTC proposed amendments to the HSR Act to address perceived deficiencies in the HSR Act’s premerger notification requirements. The proposed rule was intended to fill what the FTC characterized as gaps that impede the agencies’ ability to conduct a thorough review of proposed transactions during the statutory waiting period. Although the final rule is expected to impose a significant additional burden in connection with the preparation of HSR filings, it has substantially narrowed the disclosure requirements that were included in the proposed rule.

Amended Disclosure Requirements

The final rule incorporates the following new or amended disclosure requirements, among others:

• Transaction Description and Rationale. Each party must describe its business operations and briefly describe the structure of and rationale for the transaction. The parties will be required to identify any documents that discuss the stated rationale. The parties must also submit a diagram of the proposed transaction if one exists.
• Competitive Overlaps and Supply Relationships. The parties must include descriptions of any competitive overlaps and supply relationships and provide specific information related to such overlaps or relationships, including sales data, customer information, and relevant information about research and development pipelines, among others.
• Business Documents. The parties must produce certain documents that are prepared in consideration of the transaction that are in the possession of a “supervisory deal team lead” with primary responsibility for the deal, even if such individual is not a director or officer. This is a change from current rules, which request documents prepared by or shared with officers and directors only. In addition, each party is currently only required to produce transaction documents that are shared with the entire board; under the new rule, responsive documents that are shared with any single member of the board must be produced. The parties will also be required to provide certain ordinary course documents that were not prepared in consideration of the proposed transaction, including any periodic reports that discuss market shares, competition or markets of any overlapping product or service that are created within one year of filing.
• Ownership Structure. The final rule significantly expands the information that is required to be disclosed about the parties’ ownership structures, including with respect to shareholders and partners, investment funds and minority investments.
• NAICS Reporting. The requirements for NAICS revenue reporting will be amended to require reporting of revenue in ranges (instead of precise figures), identification of the operating entities that derive revenue from each code, and use of the 2022 version of NAICS codes (as opposed to the 2017 version). In addition, use of NAPCS codes for manufacturing will no longer be required.
• Existing Relationships. The parties must fill in a chart identifying existing arrangements and relationships between the parties, including arrangements such as licenses, non-competition agreements, leases, etc.
• Officers and Directors. The acquiring person must disclose certain corporate affiliations that its officers and directors hold with third-party entities that are in the same industry as the target.
• Prior Acquisitions. The final rule expands reporting requirements on prior acquisitions to require both parties (including the target) to report on all acquisitions for the past five years, excluding only acquired business with less than $10 million in assets and annual net sales.
• International Antitrust Filings. The parties will be required to indicate whether a non-U.S. antitrust authority has been or will be notified of the transaction.

Process Changes

In addition to the disclosure requirements described above, the final rule implements the following changes to the HSR filing process:

• Reinstatement of Early Termination. Once the final rule goes into effect, the FTC will lift its suspension on early termination of filings. The FTC has stated that the additional information that will be provided under the final rule will streamline the processes and procedures used to grant early terminations. It remains to be seen how frequently early termination will be granted in practice.
• Separate Forms. There will be two separate forms to be used for an HSR filing, one for the acquiring person and another for the acquired person.
• Pulling and Refiling. The final rule has changed the information that is required if parties pull and refile HSR filings, which can be done one time to briefly extend the review period without the issuance of the much more onerous Second Request.
• Filing of Preliminary Agreements. The parties will continue to be permitted to file using a preliminary agreement (such as a letter of intent), but any such preliminary agreement must contain specific information, such as a description of the transaction structure, calculation of the purchase price, an estimated closing timeline, employee retention policies, information about post-closing governance, transaction expenses and other material terms. The FTC estimates that 10% of filings that are currently made using a preliminary agreement do not satisfy this standard.
• Translation of Foreign Documents. Translation of foreign documents will be required.
• Online Portal for Comments. The FTC introduced a new online portal for market participants, stakeholders and the general public to submit comments on proposed transactions that are under review.

A new electronic filing system is also currently in development, and the FTC will issue further rulemaking detailing this initiative once complete.

Impact of Final Rule

The FTC has estimated that merging parties should expect the number of hours required to prepare an HSR filing will increase by 68 hours on average, with an average high of 121 hours for transactions involving competitive overlaps or supply relationships. However, the FTC has also stated that merging parties are likely to see a reduction in the agencies’ follow-up information requests, and the additional information included in the new applications may reduce the number of Second Requests. It remains to be seen whether such a reduction will occur in practice. Critics of the new rule have argued that the additional information will provide the agencies with more ammunition to justify initiating Second Request investigations or suing to block proposed transactions.

Merging parties that are subject to HSR filing requirements after the final rule goes into effect should expect to spend significant additional time preparing HSR filings and may need to adjust filing deadlines in deal documents accordingly.

Robinson Bradshaw attorneys are available to guide clients through the new HSR reporting process. Contact the authors for more information.