On October 10, the Federal Trade Commission (FTC), after a 5-0 vote, issued a final rule amending the Premerger Notification Rules that implement the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act). The final rule represents the most significant amendment to US premerger antitrust reporting requirements in decades and includes sweeping changes to the premerger Notification and Report Form (HSR Form). The final rule will go into effect 90 days from its publication in the Federal Register.

Under the HSR Act, parties to a transaction that satisfies certain jurisdictional thresholds and is not otherwise exempt must each file an HSR Form, which provides certain disclosures about the transaction and their businesses, and wait 30 days from filing before they can close. During the waiting period, one or both of the FTC and the Department of Justice, Antitrust Division, will review the filings to determine whether the transaction raises antitrust concerns and warrants additional scrutiny. The provisions of the final rule will increase the materials available to the agencies for their initial review by requiring disclosures on several subject matters absent from the current HSR Form, and also expand the scope of several existing disclosure requirements.

The impact of the final rule will be significant. By the FTC's estimation, the changes will increase filing preparation time by an average of 68 hours per party, with the expectation that for transactions involving competitors or parties with supply relationships, the preparation time could increase by as much as 121 hours. While considerable, the final rule represents a scaling back of the proposed rules issued by the FTC in June 2023, which, by the FTC's estimate, would have increased filing preparation time by as much as 222 hours.

While not directly related to the final rule, there are two additional points that should be emphasized. First, while the final rule speaks to the information that must be provided with a filing under the HSR Act, it does not have any effect on which transactions require a filing. Second, the FTC has indicated that once the final rule is effective it intends to lift the suspension on early termination of the waiting period that has been in place since February 2021. This should enable parties to certain transactions to get through the HSR process, and potentially close their deals, on an accelerated timeline.

Below are highlights of the most significant changes introduced by the final rule:

• Product or Service Overlap Disclosures. Parties to most transactions must describe each of their principal categories of products and services. They must also identify and provide descriptions of their existing or potential competing products and services (Overlap Description), as well as sales data (or certain categories of projections for pipeline products), customer categories and top 10 customers.
• Supply Relationship Disclosures. Parties must provide descriptions of any supply relationships between one another and between themselves and competitors of their counterparty, descriptions of the underlying agreements, and disclosure of the parties' top 10 customers or suppliers for the relevant products and services.
• Business Documents. The documents responsive to Items 4(c) and 4(d) of the current HSR Form have been rebranded as "business documents." While the scope of the disclosure is largely the same, there are several new requirements in the final rule:
  • Items 4(c) and 4(d) are limited to documents prepared by or for a board-appointed officer or director; however, certain categories of business documents under the new HSR Form are responsive if they are prepared by or for the individual supervising the party's strategic assessment of the deal, even if the individual is not a board-appointed officer or director.
  • The parties must submit regularly prepared reports from the preceding year that were provided to the CEO or board of directors and discuss overlapping products or services.
  • Foreign language business documents must be provided with a verbatim English translation.
• Executed Agreement. Non-definitive agreements, such as letters of intent, continue to satisfy the requirement that an executed agreement be in place at the time of filing. However, the final rule requires that, absent a definitive agreement, parties must provide as part of their filings a dated document that provides sufficient detail about the scope of the transaction. The document should include some combination of the following: the identity of the parties; the structure of the transaction; the scope of what is being acquired; calculation of the purchase price; an estimated closing timeline; employee retention policies, including with respect to key personnel; post-closing governance; and transaction expenses or other material terms. A detailed term sheet or draft definitive agreement would satisfy this additional requirement.
• Minority Shareholders Disclosure. The new HSR Form expands the reporting on minority shareholders or interest holders (5 percent or more but less than 50 percent) to include a broader range of entities within the acquiring person and the target.
• Entity Level Reporting by NAICS Code. In addition to reporting revenue by North American Industry Classification System (NAICS) code, the parties must provide the name of each of their operating businesses that derive revenue in each code and the business' estimated revenue range (i.e., less than $10 million; $10 million or more but less than $100 million; $100 million or more but less than $1 billion; or $1 billion or more).
• Officer and Director Disclosures. Parties must add disclosures for officers and directors who also serve in similar roles at entities with overlapping NAICS codes.
• Prior Acquisitions.
  • While acquiring persons are currently required to disclose information about certain prior acquisitions, the new HSR Form potentially captures more transactions by including those that overlap based on the new, more detailed Overlap Description, not just NAICS codes.
  • The target will now be required to report prior acquisitions to the same extent as the acquiring person.
• Foreign Subsidies and Government Contracts. Parties will now be required to disclose whether they received subsidies from "foreign entities or governments of concern," which includes China, Russia, Iran, North Korea, designated foreign terrorist organizations or any Office of Foreign Assets Control specially designated national.
• Defense and Intelligence Contracts. To the extent it relates to overlapping products or services or products or services with respect to which the parties have a supply relationship, the parties will be required to disclose whether they are bidding on, or have secured, procurement contracts with the Department of Defense or US intelligence agencies valued at $100 million or more.

Conclusion

The changes significantly expand the scope and detail of information required in HSR filings. Companies should be prepared for a more comprehensive and time-consuming filing process, potentially requiring input from a wider range of internal stakeholders and external advisors. We recommend early and frequent consultation with antitrust counsel to navigate these new requirements effectively. The expanded scope and detail required in the new HSR Form may have significant implications for antitrust risk assessment, transaction timing, and overall deal strategy.