U.S. antitrust agencies implement overhaul of HSR filing requirements

1. What HSR rule did the FTC issue?

On October 10, 2024, the Federal Trade Commission (FTC) issued a final rule implementing significant changes to the Hart-Scott-Rodino Act (HSR) Form and Instructions.[1]  The FTC vote to issue the final rule was 5-0, and the U.S. Department of Justice issued a press release announcing its concurrence with the new rule.  The new rule does not, however, include all of the changes proposed in the agencies’ June 27, 2023 Notice of Proposed Rulemaking.[2]  Nonetheless, the new rule expands the information and documents merging parties need to submit in their initial HSR filings, even when a reportable transaction does not pose competitive concerns.  In particular, the new rule includes in the HSR filing some of the information that the agencies historically requested either in post-filing voluntary access letters[3] or in Second Requests,[4] issued only when a transaction prompts substantive questions. The new rule does not eliminate voluntary access letters or Second Requests, but does frontload some data and documents that previously have not been provided until later in the process.

The key changes to the HSR requirements fall broadly into three categories: (1) submission of “brief” descriptive responses on topics including the parties’ transaction rationales, competing products or services (including planned pipeline products or services), and any vertical supplier relationships between the parties; (2) submission of a broader set of transaction and business documents relating to industry competitive dynamics, both specific to the transaction and as prepared in the ordinary course of business; and (3) general corporate information, including expanded information on ownership structure, officer and director activities, subsidies from foreign entities or governments, and defense or intelligence contracts.  Certain information is required only when the parties are in a competitive relationship. Under the new rule, these requirements will be triggered when the parties have not only a horizontal relationship but also a vertical relationship or even a potential horizontal or vertical relationship.

According to FTC’s accompanying press release, the final rule seeks to “respond[] to changes in corporate structure and deal-making, as well as market realities in the ways businesses compete, that have created or exposed information gaps that prevent the agencies from conducting a thorough antitrust assessment of transactions subject to mandatory premerger review.”[5]  Many of the expanded requirements in the final rule reflect the agencies’ recent investigative and enforcement priorities including, for example, non-horizontal transactions, “serial” or sequential acquisitions, private equity acquisitions, harm to nascent competition, and interlocking directorates.

The FTC also announced the creation of a new online portal to allow “market participants, stakeholders, and the general public to directly submit comments on proposed transactions that may be under review by the FTC.”[6]  Notably, although the Form and Instructions have been updated, the FTC is not making any change in the method for accepting filings at this time.  Thus, electronic filings will not be required until after the FTC has issued a separate rulemaking in the future that provides instructions and access to the new e-filing platform.

2. When does the new rule go into effect?  What transactions are subject to the new rule?

The new rule, absent litigation, will become effective 90 days after publication of the final rule in the Federal Register (which has not yet occurred) – meaning on or after January 9, 2025.  The new requirements will affect all HSR notifications filed on or after that date.

While the information required to be included in the HSR form will change, neither the threshold HSR jurisdictional requirements (e.g., the “size of transaction” and “size of person” tests) nor any HSR exemptions were changed by the new rule, so the same universe of transactions will trigger HSR filing obligations.

Because of the expanded nature and scope of information required to be submitted, merging parties may need to consider new strategies for their antitrust advocacy before the agencies, as discussed in the commentary on Question #6 below.

3. As a practical matter, how will HSR filings change?

As explained below, the new rule generally expands the types of information and documents required to be submitted by all filing parties in transactions reportable under the HSR Act.  Parties in a competitive or vertical relationship will be required to submit additional information on certain topics.  The final rule will also create separate forms for the acquiring person and acquired person to reflect different filing requirements.

Key changes that apply to all filings, regardless of competitive relationship:

Chart 1 below is a reference guide that summarizes the key changes that apply to all filings across all transactions.

Most significantly, all filing parties will be required to submit written responses beyond those required under the current HSR Instructions.  The additional required responses include descriptions of the strategic rationales for the transaction, identification of principal categories of current and planned products and services and whether they compete with the other filing person, and disclosure of existing or potential vertical or supply relationships between the filing parties, among other things. Notably, the description required is limited to a business assessment, not an antitrust analysis.

All filing parties will also need to submit a more expansive set of documents than required under the current HSR rules.  For example, the new rule includes submission of documents analyzing competitive dynamics of the transaction prepared by or for a single “supervisory deal team lead” (in addition to those documents prepared by or for officers or directors).  The new rule, however, abandons the draft rule proposal to require submission of draft versions of such documents.  The rule also mandates submission of ordinary course strategic plans relating to overlap products from the year prior to filing that were provided to the party’s Chief Executive Officer or Board of Directors.

Parties to a transaction will still be able to file HSR prior to executing definitive agreements based on a letter of intent or term sheet.  However, under the new rule, such documents will need to provide specific details about the proposed transaction including, for example, the scope of what is being acquired, purchase price, estimated closing timeline, employee retention policies and post-closing governance or other material terms.  In some transactions this additional specificity may impact the parties’ ability to file prior to execution of the transaction agreement.

As for reporting of revenues, parties will be required to report only a range of revenue by six-digit North America Industry Classification System (NAICS) code.  Manufacturing revenues will need to be reported only at the NAICS code level, not the 10-digit North American Product Classification System (NAPCS) code level.

Key changes that apply when filing parties have a (1) current or potential competitive relationship or (2) vertical relationship:

Chart 2 below is a reference guide that summarizes the additional key changes that apply when filing parties have a competitive or vertical relationship.

For any horizontal overlapping products or services between the filing parties, both filing parties will need to identify sales, categories of customers, and top customers overall and by category.  For any vertical supply relationships between the parties, filing parties will need to provide sales or purchases to or from the other filing party and to or from competitors to the other filing party.  This requirement is limited to products that represented at least $10 million in revenue in the prior year.  Likewise, both filing parties will be required to report prior acquisitions in overlapping industries.  Previously, this requirement applied only to the acquiring party.

“Select 801.30” transactions:

The final rule defines a new category of “Select 801.30” transactions. 801.30 acquisitions generally refer to non-negotiated transactions, such as open-market purchases.  The newly created category of “Select 801.30” transactions refers to 801.30 transactions that do not confer control or director rights and where there are no agreements between any entity within either party governing any aspect of the transaction.  Select 801.30 acquisitions are exempt from certain of the new requirements, such as a description of transaction rationale, description of overlapping products or services, and production of regularly prepared business plans or reports.

Early termination:

Once effective, the final rule will also lift the agencies’ current suspension of grants of early termination, which has been in place since February 2021.  Early termination refers to the agencies’ practice of terminating their investigation of a transaction prior to the conclusion of the 30-day statutory waiting period.  Reinstating early termination will allow transactions that do not present competitive concerns to close earlier, thereby reducing delays and costs for parties.

4. Do the final rules differ from the draft rules the agencies announced in June 2023?

While the final rule implements significant changes to the HSR Form, it differs in many key respects from the proposed rule the agencies announced in June 2023, almost always paring back or eliminating elements of the draft rule.

Most notably, the final rule omits requirements to disclose labor market or employee information, a potentially onerous aspect of the draft rule that would have required submission of detailed information on employee data by Standard Occupational Code and on penalties issued by federal labor and workplace regulatory agencies.  In addition, the final rule removes the requirement to submit all drafts of transaction-related documents, a requirement that would have greatly expanded the scope of required document collections for filing parties.  In that connection, documents from “supervisory deal team leads” are now limited to documents from solely one deal team lead, and not all deal team leads, as required by the draft rule.

The final rule also eliminates or limits several other aspects of the proposed rule.  For example, under the final rule, filing parties will not need to submit information regarding certain types of “interest holders” (e.g., board observers, major creditors) and will only need to identify directors of subsidiaries operating in overlapping industries, rather than all directors of subsidiaries, as originally proposed.  The final rule also reduces the narrative requirements for product overlaps, exempts certain requirements for “select 801.30” transactions, and establishes de minimis thresholds for reporting of vertical relationships.

5. What should active acquirors do now to prepare for the new requirements?

Active acquirors can take several steps to prepare for the new requirements, including implementing or updating annual director surveys, assembling descriptions of pipeline information for each business unit, or identifying or creating existing summaries of vendor contracts.  Chart 3 below is a reference guide with key steps active acquirors can take to prepare for the new requirements.

6. What impact will the new HSR form have on merging parties’ advocacy strategies?

We expect to publish a separate alert addressing how the new rule may affect parties’ advocacy strategies.  For now, we have two observations: (1) the new HSR form moves closer to the European approach of asking parties to address competitive effects in their upfront filings (although far less burdensome than a full Form CO filing in Europe), and (2) the new HSR form may allow the agencies to compare how deal documents analyze competition with how ordinary course strategy documents do so.

As in some jurisdictions, such as the European Union, parties in the United States will need to strategize about how to present the competitive effects of their deals upfront.  For example, although the new HSR form does not expressly ask for parties to identify relevant antitrust markets, it does ask the parties to take positions in written responses on key issues, including any areas where the parties believe they compete horizontally and any vertical relationships they have.  It is not yet clear to what degree parties will be able to take alternative or conditional positions on market definition and competitive dynamics in completing responses to these questions.  Further, parties will be asked to address potential competitive implications of a transaction – and identify their top customers or suppliers – before they have the opportunity to gauge marketplace reactions to a deal announcement.

Parties will also be required to submit more documents in an HSR filing than under the current rules, including certain ordinary course strategic analyses that were not previously required.  Parties will need to make sure that their written submissions and their deal documents are consistent with the broader set of ordinary course strategy files that will be produced.

7. Are there particular implications for private equity firms?  Others?

Some changes required by the new rule, such as those requiring additional information on ownership structure and prior acquisitions, may have distinct implications for certain types of filers, such as private equity firms.  We expect to address sector-specific requirements and effects of the new rule in the near future.

8. Is there a chance the new rule will not be implemented?

The final rule could potentially be challenged in court, as was recently the case for the FTC’s now-enjoined rule barring non-competes.  The final rule could be challenged on the basis that it constitutes “arbitrary and capricious” agency action, for example, on the basis that the FTC did not properly consider evidence and comments regarding the potential burdens on merging parties or any alternative proposals.[7]  The length and detail of the final rule is likely an attempt by the FTC to shield the final rule from invalidation on this basis.  The final rule could also be challenged on the basis that it exceeds the FTC’s rulemaking authority, but the HSR Act gives the FTC rulemaking authority to implement the statute so such a challenge would face significant hurdles. While litigation could potentially delay or complicate implementation of the new rule, nonetheless, we advise parties to proceed on the assumption that the rule will go into effect in early January 2025.

Key takeaways

The changes required by the new rule are extensive and expand the types of information and documents that filing parties must provide to the antitrust agencies in their initial HSR filings.

Accordingly, the new rule will increase the burden on transacting parties to prepare HSR filings, particularly where the parties have complex corporate structures or where the proposed transaction gives rise to competitive overlaps and customer/supplier relationships.  The upfront time and collection burden will be increased on all filing parties.  This change is likely to result in extended transaction timelines as transacting parties will need more time to prepare their filings. While transaction agreements today often contemplate HSR filing timelines of five to ten business days, deal teams often will need to consider incorporating more time for HSR filings, which could double or triple depending upon the specifics of the transaction at issue.  After the new rule goes into effect, we would expect parties to begin preparing HSR filings much earlier in the deal negotiation process to mitigate, to the extent possible, any incremental filing delays.

We are continuing to monitor the reception and impact of the new HSR rule and expect to issue additional alerts, including on sector-specific issues, in the near future.