On November 12, 2024, the Federal Trade Commission (FTC) published the long-delayed Final Rule on premerger notification requirements in the Federal Register. The Final Rule, which was unanimously approved by both Democratic and Republican FTC commissioners on October 10, 2024, significantly expands the information about proposed transactions that must be submitted to the FTC and Department of Justice (DOJ) under the Hart–Scott–Rodino (HSR) Act. The FTC recently confirmed for practitioners and businesses that the effective date for the new HSR form is February 10, 2025 and that it is planning for implementation.
Implementation of the Final Rule Faces a Range of Potential Hurdles
The outcome of the recent election, however, has created new uncertainty about when, and even whether, the Final Rule will go into effect in its current form. Opposition from the business community had already led some to expect a potential legal challenge to the Final Rule. Now there are questions about whether the incoming Trump Administration may issue a regulatory freeze memorandum requesting that heads of administrative agencies postpone the effective date of regulations already published in the Federal Register but not yet in effect. Prior Administrations have implemented a 60-day freeze to ensure that “the President’s appointees or designees have the opportunity to review any new or pending regulations” before they go into effect. While the application of freezes to independent agencies like the FTC is unclear, it is likely to have some effect. The Final Rule could also be subject to congressional disapproval under the Congressional Review Act, which allows Congress to block agency rules by joint resolution within a limited time. Because the Final Rule was passed unanimously by a bipartisan vote of the FTC, however, it is unclear whether the incoming Administration or Congress will act to delay, block, or modify the new requirements.
If It Goes into Effect, the Final Rule Would Create Historic Changes to the Premerger Notification Process
The HSR Act, which generally applies to transactions valued above a minimum threshold (currently $119.5 million), requires companies to submit required information and observe a statutory pre-closing waiting period while enforcers review whether the transaction poses a threat to competition. While the Final Rule is more modest than the draft first published in June 2023, it represents the most significant revision to the HSR form and process since the law was enacted 48 years ago.
The Final Rule requires narrative descriptions of the strategic rationale for the deal as well as of the principal products and services of the buyer, and any horizontal overlaps with those of the target. It also requires submission of new categories of information that are likely to substantially increase burdens on parties, particularly companies with a history of prior acquisitions, as well as private equity buyers, which have been under increasing scrutiny by the FTC and DOJ leaders appointed by President Biden.
The FTC estimates that the changes are expected to nearly triple the time required to prepare HSR filings. Companies anticipating HSR-reportable deals should plan proactively to minimize the potential impact on deal timelines.
The Final Rule – Logistics and Practicalities
Many of the most burdensome aspects of the draft rule were pared back or rejected, but the Final Rule is still substantially more burdensome than current filing requirements. In explaining her support for the Final Rule, FTC Commissioner Melissa Holyoak, one of the two recently seated Republican commissioners who supported it, noted the Final Rule had been “scaled back dramatically.” For example, a proposal to require parties to submit detailed data related to labor markets and employees was cut. The Final Rule also eliminated the proposed requirement to produce all drafts of certain transaction-related documents, which many commentators argued would impose undue burdens on merging parties.
The HSR form will take longer to prepare. Despite these changes, the FTC estimates that under the Final Rule, the average time to prepare a new filing is expected to rise from 37 to 105 hours, a nearly three-fold increase. More complex transactions could see an even greater increase.
The Final Rule does not change which transactions are subject to HSR requirements. The Final Rule affects what information is required in the form and what documents must be submitted, but it does not affect the HSR filing thresholds (i.e., the size-of-transaction test, the size-of-person test, or any exemptions) or filing fee thresholds, which are adjusted annually based on changes in the U.S. gross national product.
Early termination is being reinstated. In a welcome change for many filers, the FTC announced it will be reinstating its long-standing practice of granting early termination of the HSR initial waiting period for transactions that do not raise any competition concerns. That process was suspended in 2021. The FTC explained, however, that the additional information submitted under the Final Rule will provide the agencies with sufficient information to quickly identify transactions that do not merit further investigation.
The FTC is launching an online portal for the public to comment on mergers. In its press release, the FTC flagged that it had a new online portal to allow the public, market participants, and stakeholders to comment on proposed mergers.
Key Provisions of New HSR Notification Form
Under the Final Rule, filers will be required to submit substantially more information and documents than currently required. The Final Rule also requires different amounts of information for different types of filings, and the requirements vary for buyers and sellers. A more abbreviated form can be used for a limited set of “select” deals, including non-negotiated transactions, such as open-market purchases of securities. New information that will be required under the Final Rule includes:
Transaction narratives
- Overlap products and services. Parties will be required to provide a brief description of principal products or services and to identify overlapping products and services (including planned ones) that compete or could compete. Additional information is needed on overlaps.
- Supply relationships description. Filers must list products, services, and assets that are acquired from or provided to the other party or a business that competes with the other party. Additional information is needed for supply relationships, although there is a de minimis threshold.
- Transaction rationale. Filers must briefly describe their rationale for the transaction. Each also must identify documents submitted with the filing that discuss the rationale and explain any inconsistencies with the offered rationale.
Business documents
- Transaction documents. Parties will be required to provide an expanded set of competition-related documents (previously commonly referred to as Item 4(c) documents):
- In addition to documents prepared by or for officers or directors, the new rule requires documents prepared by or for a “supervisory deal lead,” defined as the “individual who has primary responsibility for supervising the strategic assessment of the deal, and who would not otherwise qualify as a director or officer.”
- A proposal to require production of all drafts was cut from the draft rule. However, the Final Rule now requires production of any draft that is provided to a single director. The current guidance required such drafts only if they were provided to the full board.
- Ordinary course documents. The Final Rule requires filing regularly prepared plans and reports provided to the CEO of either party (or any of either party’s respective subsidiaries) that discuss competition or the market for any overlap products or services or planned products or services that are in development or produced by the other party. It also requires all plans and reports (prepared or modified within one year of the filing) provided to the board of either party (or any of either party’s respective subsidiaries) that discuss competition or the market for any overlap products or services or planned products or services that are in development or produced by the other party.
- Transaction agreements. All transaction agreements need to be provided (including schedules and exhibits but excluding clean team agreements). The buyer needs to report whether it has (or had in the last year) any agreements with the target and identify the type.
- Prior acquisitions. The buyer and seller need to disclose all prior acquisitions for the past five years, although there is a de minimis threshold. The Final Rule lowers the de minimis threshold for asset acquisitions that constitute a business or substantially all of a business that will also need to be disclosed. Previously, all asset acquisitions were subject to a higher de minimis threshold.
- Organization structure. Buyers need to provide additional information about their organizational structure, including listing officers and directors and listing 5% or greater minority interest holders of the buyer or any entity it controls. For a limited partnership, this requires disclosing minority limited partnerships that hold 5% or more in the buyer or an entity it controls and have management rights. Sellers may also need to provide additional information in some circumstances, such as rollovers.
- Miscellaneous. Other key changes include a requirement for filers to submit verbatim English translations of any foreign language document. Additionally, filers will need to submit information regarding foreign subsidies as well as disclose information regarding contracts with defense or intelligence agencies above a de minimis threshold.
Key Takeaways
Despite the uncertainty over the fate of the changes, acquisitive companies should consider taking steps now to be prepared for the new premerger notification regime. Under the Final Rule, the preparation of HSR filings will take substantially longer, which will need to be factored into deal timelines, particularly as companies learn to collect the new categories of information required. Repeat filers should begin preparing for the new HSR filing regime now and coordinate with antitrust counsel to develop a plan to collect the information that will be needed for the new form, provided it goes into effect.
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