FTC Issues New HSR Rules Significantly Expanding Current Antitrust Reporting Obligations

The Federal Trade Commission (FTC) voted unanimously on Oct. 10, 2024, to substantially amend the Hart-Scott-Rodino Act (HSR) premerger notification rules, HSR form and instructions, expanding the scope of information and documentation parties must submit in an HSR filing.

The Final Rule excludes several of the more onerous and intrusive requirements from the 2023 proposed rule,¹ but it is pared back only to a point and still significantly broadens the universe of information and documentation that must be reported, which will increase the cost and burden associated with preparing HSR filings.

Exemplifying the new burdens, the FTC itself estimates that HSR filings under the Final Rule will now take on average, 68 to 121 hours to prepare, up from the current average of 37 hours (i.e., at least twice as long, in some cases more than three times as long).

In addition to the new HSR rules and form updates, the FTC also debuted a new online portal through which market participants, stakeholders and the general public can submit comments on proposed transactions being reviewed by the U.S. Department of Justice (DOJ) or FTC. In the portal announcement, the FTC specifically invited comments on how proposed transactions may affect competition. Although the antitrust agencies have always solicited input from market participants and others about proposed transactions, the creation of an online portal will make it easier to submit comments directly to the DOJ and FTC.

Summary

With the Final Rule, the FTC appears to have softened its “leave no stone unturned” approach from the proposed rule and has instead adopted a relatively more focused approach to analyze and investigate mergers, boardroom decision-making, and transaction details, data and structures. The following are the key provisions from the Final Rule of which parties considering an acquisition, sale or joint venture should be aware.

Item 4(c) Documents

Documents that merging parties are required to submit under Item 4(c) of the HSR filing include "studies, surveys, analyses, and reports" prepared by or for company officers or directors "for the purpose of evaluating or analyzing the acquisition with respect to market shares, competition, competitors, markets, potential for sales growth, or expansion into product or geographic markets." The new rule expands the list of decision-makers whose access to internal company documents triggers a disclosure requirement – adding "supervisory deal team lead" to officers and directors and likely expands the scope of the internal, competition-related documents that merging parties will need to submit with their HSR filings. The new rule defines "supervisory deal team lead" as the person primarily responsible for supervising the strategic assessment of the deal (but who may not be an officer or a director). This new batch of documentation increases the antitrust agencies' visibility into the merging companies' internal views of the markets in which they operate and the transactions' potential impacts on them.

Unlike the proposed rule, the Final Rule eliminates the initially proposed requirement to submit all drafts of competition-related documents, which was a significant concern for numerous stakeholders. Though not including all drafts, the Final Rule does require submission of Item 4(c)/(d) documents shared with any member of the board of directors, in which case such document will no longer be considered a draft.

Consistent with the proposed rule, however, parties must now also submit certain competition-related business documents without regard to whether the documents relate at all to the specific transaction at issue. Merging parties will now be required to submit ordinary-course annual, semiannual or quarterly reports, produced within one year of the HSR filing, that were shared with the CEO or board of any entity involved in the transaction, if those reports analyze market shares, competition, competitors, or any product or service market. The FTC believes these reports have probative value, even though the documents may be unrelated to any specific actual or proposed transaction.

Narrative Descriptions

Under the Final Rule, parties must submit several new narrative descriptions of the transaction and the merging parties' relationships and operations.

The Final Rule drops one of the more onerous narrative descriptions from the proposed rule – information related to labor markets – that would have required extensive detail about each company's employees, including occupational categories, geographic areas where they work and, for companies that compete at the local level, street-level information (possibly entailing thousands of locations).

Although the Final Rule excludes the burdensome labor market narrative, the remaining newly required narratives – addressing Strategic Rationale, Overlap and Supply Relationships – will require significant time and effort to prepare and give the DOJ and FTC access to the filing parties' details and information that they previously lacked.

In particular, the Strategic Rationale narrative requires both the acquiring and acquired parties to describe and explain "all strategic rationales" for the transaction. In the Overlap narrative, the parties must describe and identify current or planned products or services that may overlap or compete, along with names of top customers, and must also provide related sales data, all of which the antitrust agencies will analyze to better understand potential competitive impacts. Finally, the Supply Relationships narrative requires identification of significant existing or potential supply relationships and overlaps in such relationships with top customers or suppliers, so that the DOJ and FTC can better analyze potential nonhorizontal impacts.

Organizational Structure

The Final Rule also requires parties to provide more detailed structure charts and information about related and investor entities, with some notable changes from the proposed rule's more intrusive requirements. The parties must now provide an ownership structure for the acquiring entity and minority interest-holder information for any entities invested in the acquirer's corporate chain. These requirements are intended to address the antitrust agencies' competitive concerns about the influence exerted by minority investors or others in positions of influence. The agencies also view this additional reporting as a way to expose potential violations of Section 8 of the Clayton Act, which prohibits interlocking directorates.

Importantly, parties do not need to provide employee organizational charts and do not need to disclose minority-interest holders in the acquired entity (both of which were requirements under the proposed rule).

Prior Acquisitions

The Final Rule significantly narrows the proposed rule's prior-acquisition reporting requirements but does not eliminate them. Under the Final Rule, parties must now report acquisitions that occurred in the last five years (as opposed to a 10-year lookback under the proposed rule) where the acquired entity had at least $10 million in annual net sales or total assets in the year preceding the transaction (as opposed to no asset/revenue thresholds in the proposed rule), within industries in which the merging parties have horizontal overlap. This new reporting requirement is intended to uncover serial acquisitions or "rollup" strategies that may have an anti-competitive impact in the aggregate (but not in isolation) and, also for the first time, requires information regarding relevant prior acquisitions by the acquired party.

Letter of Intent Submissions

Parties will still be permitted to submit an HSR filing based on a letter of intent (LOI) or term sheet (a welcome change from the proposed rule), but the LOI or term sheet now must be more detailed (to include transaction structure, scope of acquisition, calculation of purchase price, estimated timeline, employee retention policies and other details). Additionally, in the HSR filing certification, the filer must attest that the LOI or term sheet includes sufficient detail about the transaction's scope.

Additional Requirements

Other provisions under the Final Rule include requiring translations of any non-English documents included with the HSR filing, listing of "dba" names used, explanation regarding any existing significant agreements between the parties, update to use of 2022 NAICS codes, expanded street-level location information for certain overlaps and information regarding defense- and intelligence-related contracts.

Effective Date

The Final Rule will take effect 90 days after it is published in the Federal Register (expected shortly), and as such, stakeholders should expect the Final Rule to be effective for HSR filings made beginning in the middle of January 2025.

Stakeholders should also note that once the Final Rule takes effect, the FTC will also reinstate the Early Termination program that has been suspended since February 2021. As before, the program will be entirely within the discretion of the DOJ and FTC and limited to select transactions without overlap.

Conclusion and Takeaways

The Final Rule reflects the antitrust agencies' position that existing approaches to merger review have been too permissive and not up to the task of preventing mergers that harm consumers. Although less intrusive and onerous than the proposed rule, the Final Rule significantly broadens the universe of information and documentation that must be reported, which will increase the cost and burden associated with HSR filings. With the Final Rule expected to take effect in mid-January 2025, mergers and acquisitions stakeholders and parties should take steps now to become familiar with the Final Rule's requirements and consult with antitrust counsel. As always, Holland & Knight's experienced HSR attorneys and Antitrust Team are available to discuss the Final Rule, its potential applicability to certain transactions, and the reporting and filing process itself.

Notes

¹ See Holland & Knight's previous alert, "Killing Deals Softly: FTC Proposes 107-Hour Increase in Hart-Scott-Rodino Burden," June 28, 2023.

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