Significant proposed changes to HSR requirements would increase burdens on merging parties
On June 27, 2023, the Federal Trade Commission (FTC), with the concurrence of the Department of Justice (DOJ), announced the most dramatic changes to the Hart-Scott-Rodino (HSR) Act Notification and Report Form since the program’s inception.
If enacted, the changes would increase the burdens on parties to reportable transactions by requiring them to produce significantly more information about themselves and the proposed transaction and would likely lead to extended merger timelines and increased closing costs. The proposed changes are now subject to a 60-day public notice and comment period.
The HSR Act generally requires parties to certain mergers valued above $111.4 million to report to the FTC and DOJ for advance review and observe a 30-day waiting period prior to closing the deal. For years, parties have utilized essentially the same form to disclose the information required by the HSR Act to the FTC and DOJ. The newly proposed revisions would require the production of far more detailed information about the parties, the potential transaction, and the markets in which the parties operate. Among other things, the parties would now be required to provide, at the time of filing:
- Narrative descriptions of potential horizontal overlaps between the merging parties and their relationships with their suppliers (to evaluate any vertical implications of the merger), a discussion of the strategic rationale for the deal and a diagram of the deal’s structure, a detailed labor market analysis, and information about closing conditions and timeline
- The deal’s draft merger agreement or term sheet, as well as draft versions of all deal documents (as opposed to only final versions) and documents created by and for the deal team leads (not just the parties’ officers and directors) and
- Detailed information about the parties’ corporate history, including a history of acquisitions undertaken within the ten years preceding the filing, details on all officers and board members, and information identifying creditors and entities holding non-voting securities, options, or warrants over a certain threshold.
These proposed changes are designed to provide the FTC and DOJ with more information to analyze proposed transactions during the initial 30-day waiting period and will bring HSR filings more in line with the level of detail required for merger control filings in many jurisdictions outside of the United States. However, experience with those more detailed non-US filings points to significant practical effects of the proposed changes.
In particular, HSR filings will become more complex, time-consuming, and costly. Indeed, as the FTC itself admits in the Federal Register Notice on the proposed rule, the revisions will likely require parties to expend more than one hundred additional working hours to comply. This will have a significant impact on merger timelines, which, under the current rules, often assume very short intervals for submitting HSR filings. HSR filings will also become more substantive and likely incorporate more antitrust advocacy.
In theory, having access to far more information in HSR filings should enable the agencies to reinstate the practice of granting early termination for the vast majority of transactions that raise no antitrust concerns. Before the practice was “temporarily” suspended in 2021 due to a backlog of reported transactions and the impact of COVID-19, the agencies granted early termination in approximately half of all reported transactions, and all but 2-3 percent of all reported transactions every year were cleared without an in-depth probe. So far, the agencies have not indicated that they intend to reinstate early termination but doing so would be a meaningful step in helping to offset the delays that will result from the proposed new rules.
The proposed HSR form revisions are also noteworthy because the antitrust agencies are expected to publish new horizontal merger guidelines in the first half of July. This means that merging parties may soon face a dramatically changed merger control landscape in the US. They will be required to make more complex and substantive HSR filings, and their proposed transaction will be judged by the agencies according to a substantive standard that may involve significant departures from current practice.
For additional information, please contact any member of DLA Piper’s Antitrust team.
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