For the first time in 46 years, the Federal Trade Commission (FTC) has approved extensive updates to the Hart-Scott-Rodino (HSR) Act premerger notification form and associated instructions, as well as the premerger notification rules implementing the HSR Act. These changes, which were unanimously approved by the FTC and were previewed in our July 6, 2023 alert, represent a significant development in the US merger control process and substantially increase the information, data, and documents required for HSR filings.
The FTC’s 460-page final rule and statement of basis and purpose incorporates public feedback on the FTC’s June 27, 2023 notice of proposed rulemaking. In response to comments, the final rule significantly rolled back what was set forth in the June 2023 proposed rule. According to the FTC, changes were made to minimize costs for filers and third parties while also ensuring the antitrust agencies receive necessary and appropriate information for their review process. Nevertheless, the modifications to the HSR regime contained in the final rule are still substantial and the likely costs for filers are expected to be significant.
Key Modifications under the Final Rule
- Preliminary Agreements: Documents such as executed indications of interest, letters of intent, or agreements in principle must include terms like the identity of the parties, transaction structure, scope of acquisition, purchase price calculation, estimated closing timeline, employee retention policies, post-closing governance, transaction expenses, and other material terms. The FTC estimated that about 10% of current filings using preliminary agreements do not meet this standard.
- Traditional Business Documents. Final versions of business documents are required to be submitted and include those prepared by or for a supervisory deal team lead, in addition to officers and directors. The FTC considers any “draft” document shared with any board member as “final” and responsive if all other criteria are met.
- Plans and Reports. Parties must submit ordinary course “plans and reports” that analyze markets or competition for any existing or planned overlapping products or services. Plans and reports falling within this category are those which are either (1) produced regularly (i.e., annually or quarterly) and provided to the chief executive officer, or (2) provided to the board of directors (or similar body), regardless of regularity.
- Brief descriptions of overlaps and supply relationships. Parties must submit “brief” descriptions of competitive overlaps and disclose vertical relationships (e.g., if a filing party is a supplier to or customer of the other).
- Non-English Documents. Accurate and complete verbatim translations of non-English documents must be submitted.
- Ownership Structure Information: Additional details about the ownership structure must be provided, including information on (1) limited partners who control or can participate in the management of investment vehicles, (2) structure charts, and (3) the identities of directors and officers, including their positions in other companies.
- Transaction Rationale. Parties must (1) provide the rationale for the transaction as discussed or contemplated by the filing person or any of its officers, directors, or employee, and (2) identify documents confirming this rationale.
- New Reporting Requirements. Parties must report two new types of information with respect to overlapping products or services described in the notification: (1) foreign subsidies or promised subsidies received from a foreign entity or government of concern in the two years prior to the filing, and (2) contracts with the US Department of Defense or Intelligence Community value at $100 million or more.
- NAICS Revenue Reporting. Revenue will now be reported in ranges rather than precise dollar figures. Filing parties must identify the operating entities that derive revenue in each NAICS codes. The use of NAPCS codes for manufacturing revenue will no longer be required.
- Prior Acquisitions and Merger Control Filings. Acquired companies must also report certain prior acquisitions made within 5 years of the filing.
- Pulling and Refiling. When “pulling and refiling,” parties must submit updated transaction-related documents, transaction agreements, and information about subsidies from foreign entities or governments of concern. Parties do not need to submit updated financials.
The FTC estimates that the additional time to prepare and produce filings will range from 68 to 121 hours, which is 2 to 4 times longer than the FTC’s estimate for filings under the current rules, and the additional cost will range from $39,644 to $70,543 per filing.
Once the final rule becomes effective, the FTC will lift its suspension on early termination of HSR Act filings. The final rule will become effective 90 days after publication in the Federal Register (e.g., January 2025).
The FTC’s Premerger Notification Office will provide future compliance guidance before the final rule becomes effective. Our antitrust team will continue to monitor these developments and provide updates as additional details become available.
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