Featured Expert Contributor, Antitrust & Competition Policy – Federal Trade Commission

Gerald A. Stein, a former attorney at the Federal Trade Commission, is a partner with Davis Wright Tremain LLP in its Washington, DC office. Kaley L. Fendall is a partner in the firm’s Portland, OR office.

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For the first time in over 45 years, the Federal Trade Commission (in collaboration with the U.S. Department of Justice, Antitrust Division) announced final changes to the Hart-Scott-Rodino Act (“HSR Act”) premerger notification rules and to the Premerger Notification & Report. These changes likely will go into effect mid-January 2025 (90 days after publication in the Federal Register); any HSR filings submitted after the effective date will have to comply with the new form.

While the changes to the form are explained in a 460-page document, we briefly summarize some of the key highlights below.

Key Highlights

  • The changes to the HSR rules and form will significantly increase the burden, time, and expense necessary to prepare and submit HSR filings, requiring filing parties to provide substantially more information and documents.
  • Once the new HSR rules and form are effective, the agencies will resume granting Early Terminations (which has been suspended since February 2021) for those transactions that they can quickly determine pose no competitive issues.
  • The FTC established a new online portal for the public to submit comments on pending transactions. While interested parties have always had the ability to reach out to the agencies to comment on transactions, the online portal will make it easier for parties (and likely encourage them) to do so.
  • The changes to the HSR rules and form do not revise the HSR filing thresholds or fees—the current thresholds and fee amounts remain the same until revised annually by the FTC.

New Key Filing Requirements

  • The parties’ document collection efforts will be significantly more burdensome, as several new categories of documents will need to be submitted with the HSR filing. Parties will now be required to submit:
    • Transaction-related documents prepared by or for the “supervisory deal team lead,” which is the individual who has “primary responsibility for supervising the strategic assessment of the deal” (not just documents created by or for officers and directors).
    • Ordinary course strategic documents that are provided to the CEO or Board of Directors (such as business or strategic plans), not just documents that are generated in contemplation of or to analyze the potential transaction.
    • English-language translations for all foreign-language documents included with the initial HSR filing.
  • Parties will be required to provide significantly more information about both horizontal overlaps and vertical relationships, including:
    • Descriptions of any overlapping products or services (including both current and future overlaps). For each, parties will be required to provide (a) sales revenue information; (b) categories of customers; and (c) a list of their top 10 customers.
    • Descriptions of any supply relationships between the parties or with competitors of either party. For each supply relationship identified, the parties will need to provide detailed information about the relationship, including a list of the products or services supplied to the other party, the value of those sales, and top 10 customers or suppliers for each relevant product or service.
  • While the current HSR form only requires one narrative description of the transaction, the new HSR rules require several additional narrative descriptions, including the strategic rationale for the transaction, the ownership structure of the acquiring person, the anticipated business of a newly formed entity, and overlapping products and services (as described above).
  • Parties must now disclose information about the buyer’s investors, such as the doing-business-as or street name of minority investors that are related to master limited partnerships, funds, or investment groups.
  • The acquiring person will now be required to disclose officers or directors who also serve in similar roles at companies in overlapping industries.
  • While acquiring persons are currently required to disclose information about prior acquisitions, the new HSR form broadens the criteria for prior transactions that must be disclosed and also requires the acquired person to report certain prior acquisitions.
  • Parties will also now be required to make disclosures where they have received subsidies from certain foreign entities or governments, or where the parties have current or awarded defense or intelligence contracts with U.S. defense or intelligence agencies.
  • While maintaining the existing practice of allowing parties to file on an executed letter of intent or term sheet, the new rules set forth minimum requirements for what must be included in a term sheet to be used for an HSR filing.

Final Key Takeaways

  • Preparing HSR notices will take significantly more time—please plan accordingly and build in more time to prepare and submit a filing.
    • While the FTC estimates that the new forms will take three to five times as long to prepare as the prior forms, most practitioners believe that it will take far longer than that, depending on the size and complexity of the transaction and number of responsive documents that need to be reviewed and produced.
  • The revised HSR rules and form require the production of significantly more documents—including from the deal team lead and ordinary course strategic documents. Parties should remain vigilant at the outset when preparing any deal-related and ordinary course documents and should coordinate with antitrust counsel to ensure that any documents generated will not increase the parties’ risk during agency review.
  • Start planning now! Although some commentators predict legal challenges to these changes (including challenges that the changes are outside of the FTC’s authority), we believe that these rules will sustain such challenges.