On October 10, 2024, the FTC unanimously approved the final version of changes to the HSR Act filing form and HSR Rules (the Final Rules). This final version comes more than fifteen months after the agency initially proposed dramatic changes that drew concern from the business community about how burdensome HSR filings would become. The Final Rules are anticipated to be effective in mid-January 2025, 90 days after publication in the Federal Register. Although more moderate than what was proposed in some notable ways, the Final Rules will still substantially increase the amount of data and information parties must submit, which will materially increase the time, cost, and burden of HSR filings.
Key Take-Aways
- The time, cost, and burden on all filing parties will increase significantly; the Final Rules almost double the estimated average hours to prepare an HSR filing compared to the current HSR Rules, up from 37 hours to 68 hours, and this almost certainly underestimates the time required for strategic transactions.[1]
- New corporate and transaction structure information requirements may be challenging to meet, especially when that information may be in flux when an HSR filing is submitted.
- Inability to file on a simple letter of intent may extend the timeline for certain transactions.
- New narratives requiring information about current and future products or services and customer information may implicate confidentiality issues for transactions that have not yet been announced, especially when parties choose to alert customers to potential agency outreach.
- Expanded document production obligations (including the need to identify a supervisory deal team lead and the requirement to produce ordinary course business plans and reports) highlight the importance of antitrust compliance training across the organization.
- New foreign subsidy rules will take effect for the first time, requiring reporting of subsidies from foreign states of “strategic concern” (but mostly from China).
- Required disclosure of submitted or planned international merger control filings will require parties to have a handle on where else the transaction needs to be notified before filing their HSR forms in the United States.
- The Final Rules will likely lead to more enforcement, including more questions during the first 30 days and more technical HSR violations.
First, the Good News?
Companies will be relieved to learn that the Final Rules do not contain several of the most controversial proposed changes, but the silver linings may be less beneficial than they appear:
- The agencies will resume granting early termination of the HSR waiting period when the Final Rules go into effect. But at the same time, the FTC will open a new online portal that will facilitate third-party complaints about prospective transactions.
- Parties will not be required to produce all drafts of responsive documents, but they will need to turn over drafts that were provided to any member of the board of directors (or similar body). The Final Rules also include a new requirement to produce certain ordinary course business documents.
- The look-back for prior acquisitions has been kept to the current 5-year period, instead of 10 years as originally proposed, but the obligation to respond is expanded to cover the target, as well as the acquirer.
- The proposed labor market section was removed from the Final Rules, but parties still must provide information about labor market overlaps in the new narrative responses.
The Final Rules also create an exception for “select 801.30 transactions,” which excuses parties from reporting transactions involving minority equity acquisitions on the open market from shareholders where there is no agreement between the parties and the buyer does not receive board rights. This exception will apply to less than 10% of all filings, making its applicability limited.[2]
Expanded Transaction and Corporate Structure Information May Impact Deal Timelines
The Final Rules require the parties to provide significantly more information about the transaction and the parties’ corporate structures, including:
- Expanded minority shareholder information, including for LPs that have certain governance rights.
- Officer/director information for entities with competitive overlaps.
- Identification of all submitted or planned international merger control filings.
- A description of each transaction rationale, with citations to supporting documents.
- A list of all related transactions, including shareholder filings (which may be submitted separately).
Additionally, the Final Rules will restrict parties’ ability to file solely on a letter of intent. Instead, parties must submit a detailed term sheet or draft agreement that describes with sufficient detail the scope of the transaction they intend to consummate (or wait to file with a final executed agreement).
New Document Requirements Implicate Compliance Obligations
The Final Rules have three new document requirements. First, the Final Rules obligate parties to collect transaction-specific documents from a single “supervisory deal team lead,” who is an “individual who has primary responsibility for supervising the strategic assessment of the deal but would not qualify as officer or director.”[3] If officers or directors are the only ones who supervised the strategic assessment of the deal, one of them can be deemed the “supervisory deal team lead.”[4]
Second, the Final Rules require production of two categories of ordinary course documents:
- Regularly prepared annual, semi-annual or quarterly plans/reports (i) provided to the CEO; (ii) that discuss competition-related topics; (iii) relating to any overlap product; and (iv) that were prepared or modified within one year of the HSR filing.
- All plans and reports (i) provided to the Board of Directors; (ii) that discuss competition-related topics; (iii) relating to any overlap product; and (iv) that were prepared or modified within one year of the HSR filing.
Finally, the Final Rules require the translation of all non-English language documents.
As in the past, the parties must certify that all responsive documents (including the newly required ordinary course documents) were collected and produced with the HSR filing.
Narratives Reflect European Inspiration
Taking a page from many ex-US jurisdictions, like the EU and UK, the Final Rules require filing parties to provide two narrative responses with their filings:
- Overlap Description: Parties must now provide information about overlapping products or services, including revenue data and top 10 customer information. The overlap identification is a key component of the Final Rules, which triggers other reporting obligations throughout the new HSR filing.[5]
- Supply Relationship Description: For products/services that a party has supplied to or purchased from the other party, or supplied to or purchased from any competitor of the other party, parties must provide a description, sales information, and top 10 customers.
These narrative responses should contain “factual information about overlaps and supply relationships via a written answer (as opposed to documents or data).”[6] Given similarities for such narrative descriptions across merger control regimes, ensuring an aligned approach in drafting for cross-border transactions (especially for deals involving global markets) will take additional time and resources.
New Foreign Subsidy Disclosures Will Increase Parties’ Reporting Obligations
The Final Rules require parties to provide information about subsidies from foreign entities or foreign governments of concern, which currently are limited to China, Iran, North Korea, and Russia. The Final Rules also require information about goods produced in these four countries that are subject to a countervailing duty or are under investigation for countervailing duties anywhere else in the world. Given the sanctions regimes in place against Russia, North Korea, and Iran, responses to these new requests likely only will capture subsidies from China and/or goods produced in China.
Parties with experience complying with the EU’s Foreign Subsidies Regulation will be able to leverage that experience when responding to the Final Rules, given that “subsidy” is defined similarly in both. Whereas parties typically relied on finance teams to provide data for an HSR filing, now parties may need to obtain information from their export control and/or trade experts, who likely will not have had exposure to or experience with the HSR filing process.
The Final Rules also require the parties to disclose current contracts and pending RFP submissions to the U.S. Department of Defense and the U.S. intelligence community, which includes government agencies such as the Central Intelligence Agency and the National Security Administration, when (1) those contracts or pending RFPs are valued at $100 million or more and (2) the sales are generated from an overlap with the target.
The Final Rules Are Consistent with Agencies’ Antitrust Agenda
The Final Rules and supporting materials are consistent with the Biden Administration’s enforcement priorities. The Final Rules discuss at length, for example, the impacts of private investment and complicated corporate ownership structures, non-horizontal or vertical relationships, the importance of labor market information, and the need to identify innovation effects and threats to nascent competition. The Final Rules also seek information targeted at identifying serial acquisitions and potential interlocking directorates. All of these topics are ones that Biden Administration enforcers at the DOJ and FTC have championed.
What is next?
- When will the Final Rules come into effect? 90 days after being published in the Federal Register, so we anticipate the Final Rules to be in effect as soon as mid-January.
- Will this lead to more enforcement? Likely yes. The Final Rules require more information and greater compliance obligations. We anticipate the new information requirements will result in the agencies asking more substantive questions during the initial waiting period and raising more questions about parties’ technical HSR compliance. Parties also can expect increased scrutiny of other antitrust laws, such as Section 8 of the Clayton Act Section 8 (which prohibits interlocking directorates).
- Will the Final Rules be challenged in court? Potentially. The U.S. Chamber of Commerce already has put out a statement that the Final Rules will end up harming consumers.
- Could the Final Rules be overturned under the Congressional Review Act? Unlikely. The Congressional Review Act (CRA) provides that Congress must have at least 60 working days to review certain administrative rules (including the HSR Rules). When an outgoing Congress has fewer than 60 working days to review because of a change to the Congressional session (such as now), the new Congress has 15 days to pass legislation to disapprove any rule adopted within that 60-day window. If the President signs that disapproval legislation, the rules are overturned. The CRA, however, has never been used to overturn an FTC rulemaking, and it may be difficult to educate Congress about the burdens here, particularly where current Republican and Democratic Commissioners supported the Final Rules.
[1] The estimate for the final HSR Rules is based on a modest sample size of 15 current FTC and DOJ attorneys “who have recent experience preparing HSR filings in private practice.” Final Rules, p. 377.
[2] See Final Rules, p. 380.
[3] Final Rules, p. 204.
[4] Final Rules, p. 205.
[5] Additional information requirements in the event of an overlap in the Overlap Description include: (i) providing author information for Business Documents, (ii) providing Central Index Key (CIK) numbers, (iii) providing certain officer/director information, (iv) providing plans and reports that were sent to CEOs and Boards of Directors, (v) providing information about prior acquisitions, (vi) providing information about defense or intelligence contracts.
[6] Final Rules, p. 298.
