Starting today, February 10, 2025, all merger filings will be subject to new Hart-Scott-Rodino (HSR) rules. The new HSR rules will fundamentally alter the premerger notification process, and substantially increase the burden on filing parties, who will need to provide significantly more information and documents with their initial filings.

Companies can take steps today to make filings under the new rules less burdensome and increase the likelihood of achieving antitrust clearance, such as collecting and regularly updating the “off-the-shelf” information needed for all filings, and engaging in earlier discussions with the legal team to identify potential overlaps and supply relationships and develop key themes around transaction rationales and impacts on competition that will need to be included in the filing.

In Depth

MAJOR CHANGES

The two biggest changes in the new HSR rules are the requirements to (1) submit new business descriptions of transaction rationales, competitive overlaps, and supply relationships; and (2) submit more business documents with the filing, including ordinary course strategic documents presented to the CEO or board of directors.

New Business Descriptions

• For all transactions, the merging parties must:
  • Describe each of the principal categories of their products and services.
  • Identify and explain each strategic rationale for the transaction discussed or contemplated (including rationales later abandoned).
• For transactions with competitive overlaps, the merging parties must:
  • Identify and describe the current products or services that compete with, or could compete with, the other party – including known planned products or services in development.
  • Submit data on sales of such products in the most recent year, a description of all categories of customer types by product (e.g., retailer, distributor, commercial, residential), and the top 10 customers for the product, and each customer category identified.
• For transactions in which the parties have supply relationships, the merging parties must:
  • Describe each product or service (1) supplied to the other party or another entity that competes with that party, or (2) purchased or otherwise obtained from the other party or another entity that competes with that party; in both cases, above a de minimis threshold.
  • Submit data on sales or purchases from the other party and/or another entity that competes with that party, and the top 10 customers or suppliers for each such product or service.

More Business Documents

• For all transactions, merging parties must include:
  • Transaction-related documents.
    • Parties must provide materials equivalent to what were formerly referred to as “Item 4 documents” and include confidential information memoranda, and documents that discuss the transaction in terms of markets, market shares, competitors, competition, synergies/efficiencies, and opportunities for sales growth/expansion into markets.
    • There is a new requirement to collect such documents not only from officers and directors, but also from the “Supervisory Deal Team Lead,” defined as the individual with the primary responsibility for supervising the strategic assessment of the transaction.
    • Draft documents presented to any board member must be included, unless the board member received such drafts in a deal team role and not in a capacity as a board member (clarified in recent “two hats” guidance from the Federal Trade Commission).
• For transactions with competitive overlaps, merging parties must also include:
  • Ordinary course Plans and Reports (from within one year of filing), even if not prepared in connection with the transaction.
    • All documents shared with the board that discuss markets, market shares, competitors, or competition for the overlap product or service.
    • All regularly prepared reports (annual, semi-annual, or quarterly) shared with the CEO that discuss markets, market shares, competitors, or competition for the overlap product or service.

OTHER KEY CHANGES

IMPLICATIONS FOR MERGING PARTIES

Earlier Antitrust Counsel Involvement is Critical 

• Assessing Overlaps
  • The data and documents needed to file differs significantly for transactions with competitive overlaps, therefore determining whether there is an overlap early in the process can significant benefit this workstream – overlap deals may require bringing more employees “in the tent” to facilitate gathering of necessary documents, data, and information.
  • Exchanging NAICS codes with other party (via antitrust counsel) should be advanced earlier in the process. Sellers should consider pushing buyers for overlap input earlier in the process because filings with even limited overlaps (and no significant antitrust issues) under the new HSR rules will, nonetheless, require substantially more preparation to file.
  • Reviewing ordinary course strategic documents that will be filed is critical, because overlap descriptions in the filing need to be consistent with such documents.
• Developing – and Documenting – Key Themes
  • More documents being submitted with the initial filing provides more opportunities for government agencies to identify and investigate potential issues.
  • It is important that these documents are accurate and based on real data/facts and avoid content that can be misconstrued in a way that could be harmful for competition reviews. Employees at portfolio companies who prepare such documents presented to the company CEO or the board should consult and share drafts with the legal team before sharing/finalizing.
  • Early discussions with the legal team to develop and document transaction rationales is important because parties must in their business descriptions, explain any inconsistencies with Business Documents.

Changes to Antitrust Provisions in Purchase Agreements

• Timing 
  • The time to prepare an HSR filing is substantially increased under the new HSR rules.
  • HSR timing provisions will need to be updated to provide greater time/flexibility (e.g., no longer a specific timeline, but a shift to “as soon as reasonably practicable”; longer timelines, such as 20 business days or 30 days).
  • Pre-signing HSR preparation is critical to be able to proceed quickly.
• Cooperation
  • With more advocacy and documents submitted with the initial filing, more robust cooperation provisions should be incorporated into purchase agreements to cover sharing of the draft filings/submissions between counsel.

STEPS THAT CLIENTS CAN TAKE NOW TO MAKE HSR FILINGS MORE EFFICIENT AND SUCCESSFUL

Companies can consider the following steps to prepare for the new filing regime:

1. With counsel, draft high-level descriptions for each active portfolio company investment or operating company, describing each of the products and/or services provided by the company.
2. Maintain a list of NAICS codes for each active operating business.
3. Develop a list of minority shareholders holding more than 5% but less than 50% of each holding company, fund, portfolio company, and/or subsidiaries.
4. Create a list of prior acquisitions within the previous five years for each portfolio company, organized by product or service lines.
5. Collect and organize all board documents and regularly prepared documents shared with the CEO that discuss markets, market shares, competitors, or competition.
6. Refresh – and expand – document creation training for employees likely to draft Business Documents.