The Federal Trade Commission and the Department of Justice Antitrust Division have proposed a massive redesign of the premerger notification process—one that may increase the time to complete an HSR filing from 37 to 144 hours per filing, according to the FTC’s own estimate.  The proposed revisions would be the first significant changes to the filings under the Hart-Scott-Rodino Antitrust Improvements Act since the late 1970s. If adopted, a new HSR filing would require the disclosure of much more information and documents, and greatly increase the burden on the filing parties. 

Although there is no exact indication of when the changes would take effect, it is possible that the new rules could be in place by the end of the year. Parties contemplating transactions subject to HSR reporting obligations should take into account the fact that preparing HSR filings is likely to become significantly more expensive and time-consuming in 2024.

The Agencies cite an increase in the number of HSR filings and an increased complexity in those transactions as the primary reasons for the proposed changes. The overhaul will allow them to focus their resources on transactions that may harm competition, and the new HSR filing will contain the information necessary for them “to conduct a thorough and quick evaluation” of the transaction. According to the Agencies, “the information currently reported in an HSR filing is insufficient.”

What's New?

The biggest changes proposed by the Agencies are the following:

• No more filing on letters of intent, indications of interest, or other preliminary agreements without submission of additional documents describing the transaction. Now the parties must include a term sheet or draft definitive agreement that provides sufficient detail to show the scope of the deal and confirm the transaction “is more than hypothetical.”
• The parties will have to provide more details about their corporate structure, including a list of entities organized by operating company, and any “doing business as” or “formerly known as” names.
• The acquiring party will have to disclose the identity of all minority owners of entities related to the transaction including certain limited partners. The acquiring party will also have to name any individuals or entities that may exert influence over the management or operations of the acquiring party. Such individual or entities would include creditors, holders of non-voting securities, options, or warrants, board members or observers, or managers of the acquiring party. 
• The parties will need to list all officers, directors, and board observers, and disclose whether any of those are or have been officers, directors, or board observers of any other entity. The Agencies will use this information to determine if there are any existing or potential interlocking directories.
• The Agencies will require submission of additional information about past acquisitions going back 10 years. This change reflects the Agencies’ growing concerns about the use of “roll up” strategies to acquire market share through smaller transactions that may not be reportable under the HSR Act. Currently, transactions whose size is below $111.4 million are generally not reportable under HSR rules.
• The parties will also need to take out their quills and get drafting. They will need to describe the transaction in more detail, by including narratives on:
  • all of the strategic rationales for the transaction,
  • the key dates and the conditions to closing,
  • the party’s principal categories of products and services and whether it currently competes with the other filing person, and references to submitted documents, 
  • For any overlapping service or product, providing sales and customer information, information on any sales and purchases with the other filing party or with other companies that use the products or services to compete with the other filing person,
  • the parties’ employee classification and whether there are any overlapping labor markets.
• The Agencies also want many more documents. 
  • The parties will need to submit any other agreements between them in effect at the time of the transaction or within a year prior to filing, even if the other agreements are not related to the transaction.
  • Parties will have to identify their supervisory deal team leads, that is those who have responsibility for the assessment of the transaction.  Also, the scope of 4(c) and 4(d) documents is expanded beyond just officers or directors, to include documents prepared by or for the supervisory deal team leads.
  • The Agencies believe they only received “sanitized” final drafts of 4(c) and 4(d) documents. So now, drafts of 4(c) and 4(d) documents that were provided to an officer, director, or supervisory deal team lead must be produced.
  • In a significant departure from past practice, parties will have to submit documents that do not directly relate to the consideration of the transaction, including periodic plans and reports created in the parties’ ordinary course that contain assessments of core business segments, markets, competitors, other acquisition targets, and projections about future competitive dynamics. 

Impacts of Changes

The new HSR filing will take longer to prepare. Currently, a straightforward HSR filing can take 5 to 15 days to put together. A new filing could take weeks, or longer, particularly if the transaction is complex or poses any substantive antitrust issues. In the Notice of Proposed Rulemaking, the FTC itself acknowledged that the regulations could quadruple the burden on the parties, increasing the average time to complete an HSR filing from 37 to 144 hours per filing. 

Parties need to plan for the new HSR filings well in advance. Parties need to engage antitrust counsel to start planning for an HSR filing at the very beginning of the deal process. From the inception, parties should identify the rationale for the deal and think carefully about the competitive effects the deal may have, not just on customers, but also on employees and others who may be impacted by the transaction. Given the broader obligation to produce Item 4 documents under the proposed rules, parties should be especially mindful of how ordinary course documents describe the transaction, how existing market analyses describe competition and markets related to the transaction, and how the parties will collect and retain all of these documents. 

Parties should consider risks posed by non-reportable transactions. The proposed rules impose a greater obligation to produce information about smaller transactions that were not reportable under the HSR Act.