Federal Trade Commission Finalizes HSR Changes

What happened?

The new HSR form, instructions, and implementing rules were announced yesterday and are set to take effect 90 days from publication in the Federal Register. 

In June 2023 the FTC issued a NPRM, drafted alongside the DOJ, announcing significant changes to the premerger notification form and instructions, as well as the rules that implement the Hart-Scott-Rodino (HSR) Act. The intent of these changes is to enable the FTC and DOJ to screen transactions more effectively and efficiently for potential competition issues during the initial waiting period and without issuing a second request. However, the resultant burden on the merging parties will be substantial, and the proposed changes will apply universally—even though a very small percentage of transactions merit additional scrutiny. 

Over a year after the initial notice, the FTC announced its unanimous 5-0 vote to finalize the changes. The FTC notes that the final changes incorporate public feedback and are significantly modified to lessen the burden on filing parties contemplated by the initial proposal. Even so, the FTC estimates the average number of additional hours required to complete a filing is 68 hours, with an average low of 10 additional hours for 801.30 transactions filed by the acquired person and an average high of up to 121 hours for buy-side filings that have overlaps or supply relationships in the target’s industry. On a positive note, the suspension of the Early Termination program will be lifted—meaning the reviewing agencies may allow transactions they determine present no threat to competition to close prior to conclusion of the initial 30-day review period, upon request.

What does this mean for Mintz clients?

• Preparation of HSR filings will require additional time, and we encourage clients to come to us as early in the transaction process as possible.
• Our document collection will be more extensive as we will need to collect additional transaction documents from the supervisor of each merging party’s deal team as well as a set of high-level business plans related to competition.
• The new form requires disclosure of investors in the buyer, including those with management rights.
• Filings will require a description of the business lines (including those in development) of each filer to help identify overlaps as well as supply relationships.
• Now both filing parties will be required to disclose prior acquisitions dating back five years.
• While the new rules continue to allow parties to file on the basis of an executed preliminary agreement, such as a letter of intent, if the agreement does not describe with specificity the scope of the transaction, filers must also submit an additional dated document, such as a term sheet or draft definitive agreement, that does contain sufficient details about the transaction the parties intend to consummate.  
• The agencies assert that the final rule will reduce the current burden on third parties, including small businesses the agencies currently rely upon to fill in existing information gaps.
• The FTC is introducing a new online portal where consumers, competitors, advocacy organizations, and others can submit comments on proposed transactions.
• Parties may still file using the old form until the new rule goes into effect.  The adoption of these rules will likely affect deal timing in some circumstances, as some people may decide there is a cost and tactical advantage of filing under the old rules before these changes become effective.

Conclusion

The vote to issue the final rule was unanimous and included both Republican commissioners, who noted how their opposition to the NPRM’s requirement for labor market information as a part of routine merger screening led to its exclusion from the finished product. The requested information would have required categorization of the merging parties’ employees using certain job codes and commuting zones, as well as geographic market information for overlaps and worker and workplace safety information. The introduction of the effect of mergers and acquisitions on labor markets in the NPRM was viewed as part of a larger push by the antitrust agencies during the Biden Administration to focus on competition in labor markets, which has met criticism from practitioners and antitrust commentators.

Commissioner Andrew Ferguson also noted that the new information requested in the final “is ‘necessary and appropriate’ to the execution of [the FTC’s] premerger review mandate under the [HSR] Act, and the burdens the disclosure requirements impose on merging firms are justified by the requirements of effective premerger review.” Commissioner Melissa Holyoak similarly wrote that the final rule “is not only consistent with the agencies’ statutory grant of authority, but will also close certain informational gaps that affect the agencies’ ability to conduct effective premerger screening.”

The final rule will be effective in the first quarter of 2025, though we predict that the new rules will face legal challenges.  In the coming weeks, we will monitor additional compliance guidance information to be issued by the FTC as we draft updated information requests and memoranda for clients engaged in transactions.  If you have questions about the new HSR rules and form, please contact one of the Mintz attorneys listed above.

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