Experienced deal teams will need to examine the new rule and requirements and become familiar with the changes to HSR practice.

The Federal Trade Commission voted unanimously to issue a final rule making changes to the premerger notification process under the Hart-Scott-Rodino Act (HSR Act). This final rule follows a June 2023 notice of proposed rulemaking (NPRM) that was met with substantial criticism from the business community. The final rule responds to the comments received during the notice and comment period and dials back the NPRM considerably while still marking a significant departure from decades-long HSR practice.

Key Differences

The following represent key differences between the NPRM and the final rule:

Labor Market Information

The final rule takes away the labor market information requirements initially proposed, which would have required businesses to classify their employees by standard occupation classification and geographic market, and provide workplace safety information.

Prior Transactions

The final rule requires companies to list prior transactions within the previous five years that are valued over $10 million, which is a step back from the NPRM’s 10-year lookback with no threshold. Disclosure is expanded to require the target to disclose its acquisitions in overlapping businesses in the last five years, and the scope of overlaps includes not just NAICS code revenue overlaps but also those identified in the newly required overlap descriptions.

Drafts of Deal Documents

Though part of the NPRM, parties are not required to include draft deal documents with their HSR filing under the final rule.

Ordinary Course Documents

Fewer ordinary course documents discussing competitive overlaps are required under the final rule than would have been required under the NPRM. Practitioners were concerned that the NPRM would have required a full custodial forensic collection, which would be very burdensome. The final rule seeks to address this concern by limiting this requirement to documents discussing competitive overlaps that were created within one year of filing and were provided to the CEO, and limits the custodians to individuals who report to the CEO.

Litigation Hold and Messaging Platform

The NPRM would have required a certification that a litigation hold was issued and put in place, as well as disclosure of any messaging platforms used by the companies. These requirements do not appear in the final rule.

By dialing back the NPRM and obtaining unanimity among the commissioners, any legal challenge to the final rule will be less likely to succeed. Republican members of the FTC Melissa Holyoak and Andrew Ferguson highlighted the modifications to the NPRM as critical to obtaining their votes to approve the final rule.

The final rule will take effect 90 days after its publication in the Federal Register. Once in effect, likely sometime in early 2025, companies seeking to merge will have to provide more information to the antitrust agencies in order to obtain approval than was previously required. The FTC has announced that once the final rule comes into effect, it will reinstate the availability of early termination, which had been temporarily but indefinitely suspended during the pandemic.

Key Changes to Merger Protocol

Here are a few key changes that companies should be aware of when considering a merger:

Separate Forms for Each Party

The forms for acquired person and acquiring person are different. Consistent with existing practice, more burden is placed on the acquiring person in terms of the amount of information they are required to provide.

More Information Required

Though less burdensome than the NPRM, the final rule nevertheless imposes additional burden on merging parties. Additional documents are required, and descriptions of competitive overlaps, as well as supply relationships, are required to be included. Notably, the final rule calls for more limited brief descriptions of principal categories of products and services of the acquiring person and identification of overlaps with current or known planned products or services of the target, rather than competitive analysis of relevant markets and market shares called for in the NPRM. As to nonhorizontal relationships, there is a limitation to products, services or inputs exceeding $10 million annual revenue for identification of sales and purchase relationships. Selected tender offer transactions are exempted from several provisions requiring additional disclosures.

Translations of Foreign Language Documents

Parties are required to submit verbatim English translations of foreign language documents.

Identification of Investors and Limited Partners

The final rule requires disclosure of investors that own at least a 5 percent share in certain entities related to the acquiring person. If those entities are limited partnerships, filers must disclose limited partners that have certain management rights, such as a board seat. Minority owners (5 percent to 50 percent) anywhere in the control chain between the acquiring entity and the ultimate parent entity must be disclosed.

Organization Charts and Director and Officers Interlocks

Contrary to the NPRM, parties will not be required to create detailed organization charts. However, entities within a filing person must be listed pursuant to organizational structure and dba’s provided. Acquirers must identify any D&O overlaps in service of other companies that compete with the target.

Transaction Scope Documentation Required If No Definitive Agreement

Where the executed document submitted to establish jurisdiction is not a definitive agreement, an affidavit must attest that a dated document that provides sufficient detail about the scope of the entire transaction that the parties intend to consummate has also been submitted.

Subsidies from Foreign Entities or Governments of Concern and Defense or Intelligence Contracts

Filings under the new rules will require disclosures on subsidies from foreign entities or governments of concern, as well as information on defense or intelligence contracts.

Conclusion

Experienced deal teams will need to examine the new rule and requirements and become familiar with the changes to HSR practice. Front-loading the preparation of these materials will be paramount to ensuring timely submission of the required materials under the new rule.

For More Information

If you have any questions about this Alert, please contact Sean P. McConnell, Edward G. Biester III, Sarah O'Laughlin Kulik, any of the attorneys in our Antitrust and Competition Group or the attorney in the firm with whom you are regularly in contact. 

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.