What Happened: On June 29, 2023, the Federal Trade Commission (FTC), with the concurrence of the Antitrust Division of the Department of Justice (DOJ), published a Notice of Proposed Rulemaking that would make significant changes to the Hart-Scott-Rodino (HSR) Act premerger notification form and instructions. The proposed changes are subject to a 60-day comment period which ends on August 28, 2023. The changes would expand the nature and extent of disclosures required in premerger filings, as well as the amount of time required for compliance. The FTC estimates that an average filing under the new rules will take 144 hours to prepare, compared to 37 hours under the current rules, with more complex filings taking 259 hours. The proposed changes have no impact on HSR filings until the FTC issues a Final Rule, which could occur in late 2023 or early 2024.

The Full Story: The proposed revisions to the HSR Act form and instructions are the most sweeping revision of the filing requirements for the program since it was implemented in 1976. The new rules would apply to all transactions that require an HSR filing, regardless of whether they pose competitive issues, thus increasing the costs and burden on any party contemplating a merger or acquisition that meets filing thresholds, which currently include transactions valued at $111.4 million or more. The FTC claimed in a press release announcing the changes that more detailed disclosures will enable the antitrust enforcement agencies to “more effectively and efficiently screen transactions for potential competition within the initial waiting period” of 30 days. In an accompanying statement by Chair Lina Khan, she stated that the information required by the current HSR form is insufficient and has shortcomings, and that the proposed revisions “seek to fill key gaps” like deal rationale, transaction structure and other aspects of competition such as effects on labor markets. Khan further stated that many of the proposed changes are consistent with information collected by other antitrust authorities (e.g., UK and EU). However, there are many other proposed changes that would exceed the level of detail required by any foreign jurisdiction. If implemented, the expanded scope of additional information and documents required to be produced with HSR filings will significantly increase the burden on parties with HSR reportable transactions.

Expanded Scope of Documents:  

  • The scope of Item 4(c) documents will be significantly expanded in several notable ways to include:
    • Documents created by or for “supervisory deal team lead(s)”—in addition to documents created by or for officers or directors.
    • Drafts—in addition to final versions of Item 4(c) documents.
    • Ordinary course documents unrelated to the transaction that discuss “market shares, competition, competitors, or markets” for any overlapping product or service that were provided to the board of either company within a year of the filing date. Moreover, this ordinary course document requirement would include semi-annual or quarterly reports that were provided to either company’s CEO or direct reports.
    • An organization chart identifying all authors of the above documents, as well as the individuals searched for responsive documents.
    • All agreements between the parties to the transaction within a year of the HSR filing date.

Expanded Scope of Other Narrative and Data Responses:

  • Additional Transaction Information—Filers will be required to provide a description of the strategic rationale for the transaction, a diagram of the transaction structure, all transaction-specific agreements (including schedules and exhibits to the agreement) and a description of the transaction timeline and conditions to closing and any termination or breakup fee.
  • Filers must include a description of their own business activities and a discussion of whether and how those products or services compete with the other party. For overlapping products or services, filers will be required to provide contact information of their top 10 customers and a description of any licensing, non-compete or non-solicitation agreement related to each product.
  • Filers must include information about supply relationships, including relationships between the filing parties.
  • Prior Transactions—In areas where the buyer and seller have horizontal overlap, all prior transactions must be identified:
    • For seller—in addition to buyer.
    • For the past 10 years—instead of five years.
    • For any size—instead of transactions involving entities with $10 million in sales or assets.
  • Officers and Directors—Filers will be required to identify all officers, directors or board observers for all entities within each entity, as well as identification of other entities within which the individuals serve in similar capacities currently or for the two years prior to the filing.
  • Minority Holders—Filers that are limited partnerships will be required to disclose limited partners that hold 5% or greater—in addition to the general partner.
  • Employee/Labor Information—Filers will be required to provide employee categorization based on Bureau of Labor Statistics classifications and geographic locations. Filers will also be required to disclose certain penalties or findings of workplace safety or labor-law violations in the past five years.
  • Foreign Subsidies and Defense Contracts—Filers will be required to disclose information relating to subsidies received from countries and entities designated of concern under 42 U.S.C. 1847(a)(5)(C) (e.g., Russia, China, Iran and North Korea), as well as contracts with defense or intelligence agencies.
  • Transactions Based on Letter of Intent—Filers that have not executed a definitive agreement but seek to file on a letter of intent will be required to provide a draft agreement or term sheet that describes the proposed transaction in sufficient detail that will “allow the Agencies to understand the scope of the transaction and to confirm that the transactions is more than hypothetical.”
  • Review by other Jurisdictions—Filers will be required to identify foreign jurisdictions that are reviewing the transaction.

Document Preservation Requirement:

  • Filers would be required to certify that the company has taken “the necessary steps to prevent the destruction of documents and information related to the proposed transaction” and to identify all internal communication systems or messaging applications that could be used to store or transmit business documents.

Why It Matters: The proposed changes as drafted would dramatically increase the amount of time and effort necessary to complete HSR Act filings, both by the parties themselves and counsel. Beyond the added burden, a number of the changes introduce subjective new requirements that—while common in other jurisdictions—have no precedent in the US and may create uncertainty regarding whether a party’s filing will be deemed complete when submitted and start the waiting period. Some changes also appear intended to collect information related to other FTC and DOJ antitrust enforcement priorities, such as interlocking directorates and labor market issues. If implemented as written, the changes will significantly alter the premerger notification process.