The Federal Trade Commission (FTC) and the Department of Justice– Antitrust Division (DOJ) have proposed sweeping changes to the US-premerger notification filing process. They mark the first significant overhaul of the federal premerger notification form since 1978. They would require parties to reportable transactions to collect and submit significantly more information and documentation as part of the review process.
When final, the proposed rule changes likely delay deal timelines by months, requiring significantly more time and effort by the parties and their counsel before submitting the required notification form.
Background
The Hart-Scott-Rodino Antitrust Improvements Act of 1976 (“HSR”) requires certain persons making acquisitions of assets, voting securities, and non-corporate interests (i.e., interests in partnerships and limited liability companies) to:
File premerger notifications with the FTC and DOJ; and
Wait until the expiration or termination of a waiting period (usually 30 days) before consummating the acquisition.
Most mergers and acquisitions above $111.4 million fall under the HSR Act subject to size-of-party thresholds in some instances.
Several exemptions may apply to an otherwise reportable transaction.
The FTC or the DOJ reviews the HSR filings during the waiting period to determine whether the transaction may substantially lessen competition in violation of the antitrust laws. If any concerns have yet to be placated at the end of the waiting period, the reviewing agency may issue a Request for Additional Documents and Information, a comprehensive subpoena-like document seeking documents, data, and interrogatory responses from the filers. This expands the waiting period until both parties substantially comply with the request. The reviewing agency then has an additional 30-day period to decide whether to challenge the transaction in court.
The Proposed Changes
The Agencies released the proposed changes and rationale in a 133-page Notice of Proposed Rulemaking (Notice) published in the Federal Register. They would require parties to submit significantly more information and documentation to the agencies as part of their HSR notification form. The most notable additional information and documentation includes:
Submit additional deal documents, including draft agreements or term sheets (as opposed to just the preliminary agreement), where a definitive transaction agreement still needs to be executed.
Draft versions of all deal documents (as opposed to just the final versions).
Documents created by or for the deal team lead(s) (instead of just officers and directors); and verbatim translations of all foreign language documents.
Details about acquisitions during the previous ten years.
Identification of and information about all officers, directors, and board observers of all entities within the acquiring person, including identifying other entities these individuals currently serve or, within the two years before filing, had served as an officer, director, or board observer.
Identification of and information about all creditors and entities that hold non-voting securities, options, or warrants totaling 10% or more.
Disclosure of subsidies by certain foreign governments, including North Korea, China, Russia, and Iran.
Narrative description of the strategic rationale for the transaction, a diagram of the deal structure, and a timeline and narrative of the conditions for closing.
Identification and narrative describing horizontal overlaps, both current and planned. Identification and narrative describing supply agreements and relationships.
Identification and narrative describing labor markets, as well as submission of specific data on the firms’ workforce, including workforce categories, geographic information on employees, and details on labor and workplace safety violations.
Identification of particular defense or intelligence contracts.
Identification of foreign jurisdictions reviewing the deal.
Why?
The FTC noted that over the past several decades, transactions subject to HSR filing requirements have become increasingly complex, with the rise of new investment vehicles and changes in corporate acquisition strategies, along with increasing concerns that antitrust review has not sufficiently addressed concerns about transactions between firms that compete in non-horizontal ways, the impact of corporate consolidation on American workers, and growth in the technology and digital platform economies. When the Agencies experienced a surge in HSR filings that more than doubled from 2020 to 2021, it became impossible to ignore the changes to the transaction landscape and how much more complicated it has become to conduct an initial review of a transaction’s competitive impact. The volume of filings at that time also highlighted the significant limitations of the current HSR Form in understanding a transaction’s competitive impact.
The FTC also cited specific Congressional concerns and the Merger Fee Filing Modernization Act of 2022, saying the proposed changes also address Congressional concerns that subsidies from foreign entities of concern can distort the competitive process or otherwise change the business strategies of a subsidized firm in ways that undermine competition following an acquisition. Under the Merger Filing Fee Modernization Act of 2022, the agencies must collect information on subsidies from certain foreign governments or entities that are strategic or economic threats to the United States.”
How Will These Changes Potentially Impact HSR Filings?
As currently drafted, the changes will require significantly more time and effort to prepare the HSR notification forms.
Under the current filing rules, it typically takes parties about seven to ten days to collect the information needed for and complete the HSR notification form. Under the proposed new rules, the time to gather such information and complete an HSR notification form could be expanded by months.
What is Next?
The new rules will not go into effect until after the Agencies publish the final version of the new rules. This process will likely take several months to complete, and the new rules–or some variation–will not come into effect until then.
The proposed changes to the notification form and filing process align with the type of information that the agencies have increasingly requested from parties during the merger review process. Parties required to submit HSR filings over the next several months should be prepared to receive similar requests from the agencies, either voluntarily or through the issuance of a second request, and they should build into their deal timeline sufficient time to comply with these requests.
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