On October 10, 2024, the Federal Trade Commission (FTC) announced a unanimous 5-0 vote to finalize changes to the Hart-Scott-Rodino (HSR) premerger notification program, including changes to the HSR form and associated instructions, with the Department of Justice (DOJ) concurring with the final rule. Under the HSR Act, parties to transactions are required to notify the FTC and DOJ of most transactions valued above the size-of-transaction thresholds – currently $119.5 million – and observe a waiting period before closing. The new HSR rules do not alter the filing thresholds, nor do they change the substantive merger review process – rather, the new rules focus on the premerger notification process and what information must be produced with an HSR filing.
According to the DOJ and FTC, the current HSR form “has not kept pace with the realities of how businesses compete today,” and the changes are meant to address “significant gaps in the information” generated under the current rules. The new HSR rules should go into effect in mid-to-late January 2025, after which any transactions notifiable under HSR must use the new HSR form.1 The FTC also has announced that it will resume granting “early terminations” of HSR filings once the new rules go into effect, and that it will introduce an “online portal” for third parties to submit comments or complaints about proposed transactions.
The new HSR rules contain dramatic differences from what was initially proposed by the FTC in June 2023, alleviating many of the more onerous requirements. But the new rules retain many other additional reporting requirements not in the current HSR form – many of which are significant and will increase the time required to prepare the HSR filing. Some of the most notable changes include:.
- Narrative descriptions of competitive overlaps, supply relationships, deal rationale and ownership structure of the acquiring firm.
- Broader production of “business documents,” including deal-related documents that analyze competition from the “supervisory deal team lead” in addition to officers and directors as well as regularly prepared reports provided to the CEO or the board that analyze competition in any overlap.
- Translation of foreign language documents.
- New disclosure requirements targeting private equity (PE), such as required disclosure of information about minority shareholders, limited partners and other entities apart from the ultimate parent entity.
- New minimum requirements for filing based on a letter of intent or term sheet.
Resources to help navigate the changes
To help companies navigate the changes to the HSR rules, this client alert includes the following additional resources:
- Our FAQ addressing possible queries related to the final rule.
- An appendix with a table summarizing the changes to the rules, along with implications for filing parties.
FAQ regarding the new HSR rules
When will the new requirements go into effect?
Any reportable transaction filed on or after a soon-to-be announced date that’s likely to be in mid-to-late January 2025 must be filed under the new HSR rules.
I’m currently working on a transaction that is likely to be HSR reportable – are there things I need to consider as I negotiate my deal?
Parties currently considering transactions that they may sign after (or shortly before) the new HSR rules go into effect should carefully consider how the new HSR rules may impact certain deal terms. In particular, parties should consider the following:
Timing between signing and filing
Today, parties often require that the HSR filing be made within five or 10 days of deal signing. For simple transactions with no overlaps, the additional time to draft the HSR filing under the new HSR rules should be minimal (i.e., a day or two). However, for more complex transactions or those with competitive overlaps (or supply relationships) it may be prudent to allow for additional time between signing and filing the HSR. In such circumstances, parties may consider allowing for the HSR to be filed “as soon as reasonably practical” after signing – as is often done for foreign filings – or, if including a requirement to file within some number of days, allowing for the HSR filing date to be extended upon mutual agreement by outside counsel.
Filing on a letter of intent
If parties intend to complete a transaction, but the deal signing and the filing of the HSR could slip past the HSR implementation date, parties may consider filing on a letter of intent or term sheet prior to the implementation of the new HSR rules. Doing so could allow the merging parties to file under the less onerous HSR requirements while they finalize the transaction documents.
Document creation
As with all transactions, the merging parties should be cognizant of the documents they are creating in the context of considering a deal, so as not to create documents that could be misinterpreted. In addition, if there is an overlap, the merging parties should identify ordinary course documents or documents that went to the board that may need to be produced as part of the HSR filing – and factor such documents into the substantive antitrust analysis.
Deal lead
Because parties now will be required to produce documents from the “supervisory deal team lead,” parties should consider identifying that person early in the process, then letting that person know that they have been identified as the deal team lead and that their documents will need to be produced with the HSR filing under the new HSR rules.
I’ve heard the new HSR form requires a description of competitive overlaps and supply relationships – what will that entail?
One of the more significant changes to the new HSR rules is that parties must now provide a brief description of the product or services that both parties currently or plan to offer (the “overlap description”), as well as a description of any vertical supply relationships (the “supply relationship”).
For the overlap description, parties must describe current product or service overlaps “based on documents created in the ordinary course of business.” For example, if a merging party’s ordinary course documents list the other party as a competitor for a particular product, then that overlap will need to be described. Filers also must provide sales figures for these products or services from the most recent year and identify customer categories (e.g., retailer, distributor) and the top 10 customers by dollar value.
For the supply relationship, filers must describe products, services, or assets (including data) supplied to the other party or to businesses that use such products to compete with the other merging party. Filers must provide sales or purchase figures for the most recent year for any such products, services or assets, as well as the top 10 customers by dollar value.
In addition to the requirement that the merging parties describe the competitive relationship between them, the new HSR rules now will require the parties to describe each strategic rationale for pursuing the transaction. The strategic rationale should be based on the rationale(s) “discussed or contemplated” by the filing party’s officers, directors, or employees, and should identify documents produced with the filing that reference such rationales.
Are the HSR requirements the same for buyers and sellers?
No. Under the new HSR rules, the information required from buyers and sellers differs much more than before. Unlike buyers, sellers are not required to describe their ownership structure, identify certain officers and directors, identify foreign jurisdictions where notification is required, or describe other agreements that may exist between the buyer and seller not related to the transaction.
Will certain industries – such as tech, life sciences or defense – be more impacted than others?
The changes are not targeted at any specific industries and should not result in significant differences in how the HSR filing is made based on the filing parties’ industry. However, for certain industries, such as certain technology segments, the determination of whether products may be competitive – and will thus require a description of the overlaps and products – can sometimes be more difficult to determine than in traditional manufacturing segments. In these instances, it will be important for clients and outside counsel to work together closely to draft a response regarding any potential substantive overlaps or supply relationships. Additionally, companies in technology markets should take particular care in drafting documents so as not to suggest a potential overlap where one does not otherwise exist, as doing so could require further explanation in the narrative overlap section of the new HSR form.
For transactions in the defense industry, if the merging parties have an overlap or supply relationship, each party must identify nonclassified details regarding any contracts or pending requests for proposals (RFPs) with the Defense Department or other US intelligence agencies and produce such information with the HSR filing.
Will I need to produce additional documents under the new HSR rules?
Yes. The new HSR rules will require most parties to produce additional documents as the rules call for the collection of a wider range of documents from an expanded set of people.
First, certain types of competition related documents, so-called Item 4 documents, that currently only need to be collected from officers and directors of the filing parties will now also need to be collected from each party’s “supervisory deal team lead,” defined as an individual who has primary responsibility for supervising the strategic assessment of the deal, and who is not an officer or director. Expanding the document collection to include Item 4 documents prepared by or for the supervisory deal team lead could significantly expand the volume of documents collected, reviewed and produced with the filing.
Second, the HSR rules will now require parties to produce “all regularly prepared [business] plans or reports […] that analyze market shares, competition, competitors, or markets pertaining to any product or service of the acquiring person also produced, sold, or known to be under development by the target” that were provided to the CEO within one year of the date of filing. Additionally, all similar plans or reports prepared or modified within the last year that were provided to the board of directors also must be produced.
The new requirements expanding scope documents:
- Increase the need for parties to be careful in creating internal documents so as not to create documents that could be misleading or misconstrued.
- Raise the potential for parties to unintentionally miss or fail to produce such documents, thus increasing a filing party’s need to conduct a careful review and search for required documents prior to filing.
Can I still I pull and refile? How do the new rules impact that process?
Yes, the acquiring party (buyer) may still pull and refile. It remains the case that the seller does not have an obligation to supplement its initial filing. In addition, the updated HSR rules no longer require updated financials.
As with the previous rules for a pull and refile, the buyer is required to supplement its Item 4 documents. Under the new HSR rules, the types of documents that may count (and people that may need to be collected from) have expanded and will require additional care to ensure all required information is produced when refiling. In addition, a pull and refile will now require the buyer to provide updated transaction agreements, as well as any updated foreign subsidy information.
How much longer will it take to prepare the HSR filing under the new rules?
The time required to complete the HSR filing will vary more significantly by deal than it did under the prior HSR requirements. For deals without a competitive overlap or supply relationship, the new HSR rules will not greatly extend the amount of time required to complete the form. However, the changes could significantly impact larger transactions with multiple overlaps or supply relationships that require substantive descriptions and additional documents. According to the agencies the new HSR rules will increase the time required for a filer to prepare an HSR by 68 hours on average – with an average low of 10 hours for the simplest filings and an average high of 121 hours in transactions involving competitive overlaps or supply relationships.
Do I now need to produce information on certain foreign subsidies?
Yes. As part of the Merger Filing Fee Antitrust Modernization Act, Congress required that merging parties disclose foreign subsidies (or a commitment to provide a subsidy in the future) from any “foreign entity or government of concern.” Parties also must provide a brief description of any such subsidy. The exact definition of “foreign entity or government of concern” refers to other statutes, which may shift as the underlying statutes are amended, but the current definition identifies China, Iran, North Korea and Russia.
What were some of the most onerous requirements from the proposed rule that were not adopted in new HSR rules?
The new HSR rules appear to be a compromise between those who wanted more onerous requirements and those who did not believe significant updates to the HSR process were required. As a result, certain proposals from the original notice of proposed rulemaking were not adopted, including:
- A timeline of key dates for closing the proposed transaction.
- Creating organization charts for the purpose of filing a notification.
- Information about other interest holders.
- Drafts of submitted documents.
- Information about employees and board observers.
- Geolocation information.
- Information on prior acquisitions involving entities with less than $10 million in sales or revenues or consummated more than five years prior to filing.
- Information about steps taken to preserve documents or use of messaging systems.
Is early termination back?
Yes. The agencies announced that with the new filing requirements, they now will have information to better determine whether a transaction may require a closer look to assess the potential competitive effects. Thus, they are re-implementing early termination, which allows the agencies to clear transactions that do not present any potential concern prior to the expiration of the 30-day waiting period.
I heard about a new portal that will allow the public to file concerns about transactions – what is it and what impact will it have on deals?
In addition to rolling out new HSR filing requirements, the agencies announced a new online portal that allows customers, competitors and the general public to submit comments about a proposed transaction. For transactions that do not present any potential competitive harm, the portal is unlikely to have any impact. Similarly, for those transactions likely to receive a second request, complaints through the portal are unlikely to significantly alter the agencies’ investigations. However, it is possible that if customers, trade groups, or even employees complain about a transaction with minimal overlaps or supply relationships, the agencies may request additional information that they may otherwise not have asked for.
Additionally, because the portal appears to allow for anonymous complaints, it is possible that competitors or other market participants may use it to cause delays or raise other issues for merging parties, even if such concerns are not well-founded.
Are HSR filings still confidential?
Yes. HSR filings will remain confidential, and the agencies will not be allowed to disclose filings unless the parties request early termination, and the agencies grant the request. The FTC publishes on its website all transactions that receive early termination.
I don’t have a deal currently under consideration, but are there things I should be doing now to prepare for the new HSR rules?
As noted above, the new HSR rules will require the production of additional documents, including certain ordinary course documents and other information on competitive overlaps. Thus, the new HSR rules should serve as a reminder that companies should maintain good document hygiene and be cautious about creating documents that could be misconstrued or misinterpreted.
Appendix
Key filing requirements: Changes and impacts
This chart highlights some of the key changes from the new HSR rules at a high level, but it does not address every specific change. If you have questions, please reach out to your Cooley’s antitrust contact or one of the lawyers listed at the end of this alert.
Notes
- The effective date in mid-to-late January 2025 assumes that there are no legal challenges to the new HSR rules that delay implementation.
- Select 801.30 transactions, such as the acquisition of shares on a public exchange by a minority shareholder, are exempt from this requirement.
- As with the overlap description, select 801.30 transactions are exempt from this requirement for supply relationships.
- The acquired person and acquired entity are not subject to these reporting requirements.
- For limited partnerships that are minority investors, previously the entity only needed to disclose the identity of the general partner; however, the new HSR rules require the acquirer to disclose the identity and percentage holding of limited partners for the acquiring party and certain described related entities (the “covered” entities) that have or will have “the right to serve as, nominate, appoint, veto, or approve board members, or individuals with similar responsibilities, of any covered entity, or of the general partner or management company of a covered entity.” Such disclosure also is required by the acquired entity, but only if the limited partner will continue to hold an interest in the acquired entity or any entity within the acquired entity as a result of the transaction.
