Finalized HSR rules to significantly burden merging parties

On October 10, 2024, the Federal Trade Commission (FTC), with the concurrence of the Department of Justice (DOJ), released its final rules to the Premerger Notification and Report form under the Hart-Scott-Rodino (HSR) Act. Although pared back from the original proposal from June 2023, the new rules will add significant burdens to parties whose transactions are subject to the reporting rules of the HSR Act.

The HSR ACT generally applies to transactions valued above $119.5 million (adjusted annually). Transactions that are subject to the HSR reporting requirements may not close without the parties first providing detailed information to the FTC and DOJ and observing a statutory 30-day waiting period. In justifying the new rules, the agencies argued that the prior HSR Notification and Report form, which had remained largely unchanged for over 40 years, did not provide investigating staff with enough information to properly detect potentially problematic mergers.

Among other changes, the new rules will require merging parties to provide, at the time of filing:

• Narrative descriptions of the rationale for the transaction, the parties’ businesses, details of any horizontal overlaps and supply relationships between the parties, and relevant competition dynamics
• Certain details about individual officers and directors who are or may become officers or directors of businesses that derive revenue under the same industry codes as the target business
• Information regarding whether the filing person receives subsidies or other support from foreign entities or governments of concern (such as Russia, Iran, North Korea, or China)
• A broader range of documents relating to the transaction than previously required, including (i) not only documents prepared by or for officers or directors, but also any member of the deal team, (ii) certain business plans and reports prepared in the ordinary course of business, and (iii) a complete set of transaction-specific agreements and accompanying materials, and
• Translations of foreign documents.

While increasing the filing burden for all parties overall, the final rules impose a lesser burden on sell-side filings, particularly in certain categories of transactions, such as certain open-market minority acquisitions and transactions where there is no competitive overlap or supply relationship between the parties. Unlike the original draft rule, the final rule will not require parties to provide a transaction timeline, ad hoc organization charts, certain information about other interest holders, information about the parties’ employees and board observers, geolocation information, prior acquisitions involving entities with less than $10 million in sales or more than five years old, and details about steps taken to preserve documents and messaging systems. Notably, the final rule also does not require the submission of drafts of submitted documents.

In additional good news for merging parties, the final rule continues to offer the option to request early termination of the HSR waiting period, and the Commission announced that it will lift its suspension of early termination when the final rule takes full effect.

Despite these changes from the original draft, the final rules represent a major shift from the prior regime. Merging parties will need to devote significantly more resources to gathering all of the information required by the new rules – the FTC estimates that merging parties will need to spend between 68 and 121 additional hours to prepare an HSR filing.

The new reporting regime is set to go into effect 90 days after the final rule is published in the Federal Register, which should occur within about a week. It is unclear whether the final rule will face challenges in court.

If you have any questions, please reach out to any of the authors.