On October 10, 2024, the Federal Trade Commission (FTC) unanimously approved a final rule that makes sweeping changes to the substance of premerger notifications required under the Hart-Scott-Rodino (HSR) Act. The new rules are set to take effect 90 days after they are published in the Federal Register—meaning they could take effect as early as January 9, 2025—and will significantly broaden the scope of information and documentary materials that filing parties must submit to the FTC and the Department of Justice (DOJ). By the FTC's own estimate, the average time required to prepare an HSR filing will increase by nearly threefold—from 37 to 105 hours on average, and significantly more for transactions involving overlapping products or supply relationships.
As Venable previewed last year during the pendency of the proposed rulemaking, these changes are the culmination of the first top-to-bottom review of the HSR process in 46 years.
The HSR Act generally requires parties to file notifications (an "HSR filing"), along with a filing fee, with the FTC and DOJ when a proposed transaction—such as a merger, joint venture, stock or asset acquisition, or exclusive license—meets certain dollar thresholds, which are adjusted annually. Most commonly, a filing is required if the parties meet both the "size-of-person" and "size-of-transaction" tests. Currently, the lower size-of-person threshold is $23.9 million, and the size-of-transaction threshold is $119.5 million. If a filing is required, the transaction cannot close while the statutory waiting period runs (generally 30 days) and the federal antitrust agencies review the transaction.
Under the current rules, when an HSR filing is required, each of the merging parties must submit information regarding the entities involved and the structure of the transaction, revenues by North American Industry Classification System (NAICS) code, and certain documents, such as balance sheets, annual reports, and certain planning and evaluation documents that pertain to the proposed transaction. Although the final version of the new rules is pared down from the agencies' initial proposal,[1] the new rules still significantly broaden the scope and complexity of information required in HSR filings moving forward. Among the most notable changes, filing parties will now be required to:
- Describe any rationale for the transaction and submit any documents that confirm or discuss such rationale
- Disclose information concerning parties' board members and officers and their positions in other companies
- Disclose additional documents from the supervisor of each side's deal team (as opposed to only those documents prepared by or for officers and directors)
- Produce certain business plans and documents relating to competition, including key information about products and services under development that are not yet generating revenues
- Identify and describe business lines in which the parties to a transaction compete against each other
- Provide lists of top customers in areas of overlap between the parties
- Identify and describe certain supply relationships between the parties to the transaction
- Produce existing transaction diagrams
- Disclose information about prior acquisitions on both the buy-side and sell-side for certain transactions within the last five years, which is a new obligation for sell-side HSR filers, and
- Disclose more information related to minority ownership interests
Along with these changes, the FTC also announced the launch of a new online portal for market participants, stakeholders, and the general public to submit comments on proposed transactions that may be under review by the FTC. In addition, the FTC announced that it is lifting its "temporary suspension on early termination of filings" under the HSR Act—a practice that has been suspended since early 2021.[2] Typically, parties to a transaction are required to wait 30 days after submitting their HSR forms before they can close on the proposed transaction. For transactions without competition concerns, if "early termination" is requested by the parties and granted by the agencies, the parties can close before the 30 days run. Grants of early termination are entirely at the discretion of the FTC and DOJ, and comments issued along with the new rules by FTC Chair Lina Khan indicate that grants of early termination are likely to be limited. Specifically, Khan noted that merging parties "are not entitled to early termination"[3] and "question[ed] the wisdom of using agency resources on a discretionary function [like early termination] while resource constraints impede [the FTC's] ability to fully execute on [] mandatory functions."[4]
Going forward, given the major shift brought by these changes, it is crucial for companies considering potential reportable transactions to contact HSR counsel as early as possible to ensure that the HSR process does not unduly delay the deal during the transition to the new HSR rules or otherwise. Merging parties should plan to allow sufficient time to prepare their HSR filings at the outset and to allot more resources than they may be accustomed to for the collection of documents and other materials needed to complete HSR filings.
[1] Notably, the final rule eliminates disclosure requirements regarding labor market and employee information, draft transaction documents, and organizational charts of authors and recipients of responsive documents submitted with the HSR filing.
[2] FTC Finalizes Changes to Premerger Notification Form, October 10, 2024 (https://www.ftc.gov/news-events/news/press-releases/2024/10/ftc-finalizes-changes-premerger-notification-form?utm_source=govdelivery).
[3] Statement of Chair Lina M. Khan Joined by Commissioner Rebecca Kelly Slaughter and Commissioner Alvaro M. Bedoya Regarding the Final Premerger Notification Form and the Hart-Scott-Rodino Rules Commission File No. P239300 and Regarding the FY2023 HSR Annual Report to Congress Commission File No. P859910, October 10, 2024 (https://www.ftc.gov/system/files/ftc_gov/pdf/khan-slaughter-bedoya-statement-regarding-final-premerger-notification-form-hsr-rules-fy2023-hsr-annual-report-to-congress.pdf).
[4] Id.
