On June 27, 2023, the Federal Trade Commission (FTC) issued a notice of proposed rulemaking that, if adopted, would significantly amend the rules and instructions governing the scope of information that must be submitted in a premerger filing under the Hart-Scott-Rodino (HSR) Act. The Antitrust Division of the U.S. Department of Justice (DOJ) concurred with the FTC’s proposed amendments to the rules and instructions.
Under the HSR Act, parties to qualifying transactions must notify the FTC and DOJ of the transaction by submitting an HSR form and certain documentary attachments and let a waiting period expire before closing.
The proposed amendments would make submission of an HSR filing a significantly more intrusive and time- and resource-intensive process.
What Types of Transactions Would Be Affected?
The proposed amendments would apply to all transactions that require submission of a premerger notification filing under the HSR Act, without regard to the type of transaction or identity of the parties. The HSR Act’s “size of transaction” and “size of parties” thresholds, which are not affected by the proposed amendments, are discussed in more detail in a Jan. 24, 2023, McGuireWoods alert.
What Do the Proposed Amendments Include?
The proposed amendments would require filing parties to submit a broader scope of information than the current HSR filing instructions require, including significantly more detail regarding the parties and transaction. Parties also would be required to disclose more deal-related documents. More particularly, the proposed amendments require submission of substantive information in areas not covered under the current rules, including:
- An explanation of the strategic rationale for the transaction.
- Narrative discussions concerning horizontal overlaps and/or vertical relationships among the parties.
- Information concerning previous transactions entered into by any of the parties going back a full 10 years.
- Projections of revenue streams.
- Ordinary course business documents containing descriptions of competitive conditions in the markets affected by the transaction.
- A description of the workers employed by each party (including classification of employees based on Standard Occupational Classification system categories).
- Information relating to research and development activity.
- Data about any subsidies the parties received from foreign governments and other entities of concern that may affect competition.
In addition to these modifications, the proposed amendments would impose critical procedural changes. One of the most significant of these changes is that filing parties would need to certify that certain individuals within the entity are actively preserving relevant documents and information related to the proposed transaction — including, for example, by suspending auto-deletion policies during the waiting period. Also, parties making an HSR filing based on a letter of intent or term sheet will need the letter of intent or term sheet to provide sufficient detail for the agencies to understand the scope of the transaction, which may require a materially more involved and lengthy negotiation period prior to filing.
When Would the Proposed Amendments Go Into Effect?
The FTC is scheduled to publish the notice of proposed rulemaking in the Federal Register on June 29, 2023. A 60-day public comment period will run through Aug. 28, 2023. The FTC will consider the comments, potentially make changes to the proposed rule based on the comments and other input, and potentially adopt a final version of the rule. There is no specific timeline for the revision/adoption process, meaning the FTC could adopt a final version of the rule shortly after the close of the public comment period.
What Do the Proposed Amendments Mean for Parties Considering Transactions?
Most critically, parties entering into transactions that require an HSR filing should expect a significantly longer and more resource-intensive process to prepare and gather the information required for the filing. The FTC estimates that preparation of the proposed HSR form would take an average of 144 hours, in contrast to the current average of 37 hours for preparation of the existing HSR form. (Note that the time to prepare any individual filing can vary widely based on the complexity of the transaction and parties. For example, the notice of proposed rulemaking estimates that the new requirements would result in “approximately 12 to 222 additional hours per filing” — quite a range.)
Second, parties should recognize that they will need to submit more details about their business, including corporate structure and the relationships among private equity entities, and about the proposed transaction as part of the premerger filing process — even for deals that clearly have no substantive antitrust issues.
Similarly, the proposed amendments would require submission of “ordinary course business documents that were not prepared specifically to evaluate the transaction but discuss premerger and future competitive dynamics and strategies broadly,” beyond the deal-focused documentary attachments required by current Items 4(c) and (d). Certain key normal course documents that were prepared in the year prior to filing and were distributed to business leaders, such as quarterly or semiannual business reports, would be required by the proposed rules, while certain other longstanding categories of responsive documents — for example, documents related to the transaction and geographic market expansion and documents prepared more than a year before filing — may no longer be responsive. Counsel familiar with the prior categories of information required by the HSR form will need to be prepared for these changes.
Third, parties considering transactions that would be governed by these new rules should consider how they would comply with the document preservation and retention obligations. Auto-deletion and related policies entered into during the ordinary course of business likely will need to be suspended to comply with the proposed amendments. Doing so will require planning ahead across departments of the filing parties.
In light of these proposed changes, parties planning to enter into HSR-reportable transactions should consult experienced counsel early in the process to meet their timing goals for filing the HSR form, starting the initial waiting period and ultimately closing the deal. McGuireWoods is preparing additional materials with more detail on the substantive changes in the proposed amendments and is ready to consult on the effects these proposed amendments may have on the merger process.