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On June 27, 2023, the Federal Trade Commission and Antitrust Division of the Department of Justice (collectively, the Agencies) proposed plans to expand and reorganize the Hart-Scott-Rodino (HSR) Form and Instructions and the premerger notification rules implementing the HSR Act. This proposed overhaul stems from the first top-to-bottom review of the HSR Form and Instructions in 45 years and is the most recent example of increased antitrust scrutiny under the Biden Administration.
In the 133-page Notice of Proposed Rulemaking, the Agencies highlight issues they continue to encounter with the outdated HSR Form given the dynamic nature of modern markets, the importance of acquisition strategies to success and market growth, and increasing concerns that the Agencies’ review does not sufficiently address concerns with non-horizontal mergers. The Agencies emphasized that the current HSR Form leads to key gaps in information necessary to evaluate the potential competitive impact of a deal. As examples, the Agencies alluded that the HSR Form and Instructions as-is provides inadequate information about deal rationale; gives little to no details of how a particular investment vehicle is structured; and fails to capture information about key aspects of competition, such as labor markets and research and development activity. Put simply, the Agencies concluded that the current HSR Form yields insufficient information, increasing the burden on both the merging parties and the Agencies.
Proposed changes
The Agencies propose several changes to the current HSR Form, explanatory and ministerial changes to the premerger notification rules, and necessary amendments to the HSR Form Instructions to effect the proposed changes. Key proposals that significantly alter the requirements for merging parties are laid out below and categorized in accordance with the impacted sections of the HSR Form.
General instructions and information
- Provide a translated version of all foreign language documents.
Ultimate parent entity information – organization structure, transaction details, agreements, and timeline
- Provide a diagram of the deal structure along with a corresponding chart that explains the relevant entities and individuals involved in the transaction.
- Provide a draft agreement or term sheet on the deal. Merging parties may no longer submit an indication of interest, non-binding letter of intent, or agreement in principle.
- Identify and explain all strategic rationales for the transaction, including horizontal product or service overlaps, and for each potential future horizontal product or service overlap, provide projected revenue and an estimate of the volume to be sold.
- Identify the officers, directors, or board observers of all entities within the acquiring person and acquired entity, and identify other entities for which these individuals currently serve, or had served within the two years prior to filing, as an officer, director, or board observer.
- Identify and provide certain details on creditors and entities that hold non-voting securities, options, or warrants totaling 10% or more.
- Provide a detailed timetable for the transaction along with any important deadlines for closing or terminating the transaction.
Competition and overlaps – business documents, competition analysis, and prior acquisitions
- Provide certain plans and reports created in the ordinary course of business, and not solely for the purpose of evaluating the proposed transaction, where those plans and reports contain detailed assessments of core business segments, markets, competitors, and other acquisition targets, as well as projections about future competitive dynamics.
- Attach all documents related to the transaction created by or for the deal team, including all draft versions regardless of whether or not a final version exists.
- Provide a labor market analysis, including workforce categories, geographic information, and any labor or workplace safety violations.
- Identify any existing or potential vertical or supply relationship between the filing persons.
- Identify any related transactions and all acquisitions over the prior 10 years.
Additional information
- Indicate whether the filing person agrees to waive the HSR disclosure exemption for review by international competition authorities.
The Agencies’ justification
The Agencies justified the proposed changes as a way to:
(1) Make the merger review process more effective and efficient during the initial 30-day HSR waiting period by adding requirements to the HSR Form so that the information submitted is sufficient for the Agencies to conduct a quick but thorough evaluation of whether the transaction may violate the antitrust laws or requires a more in-depth investigation through the issuance of a Second Request.
(2) Implement the mandate to provide data about any subsidies a firm has received from certain foreign governments and other entities that are strategic or economic threats to the U.S. as required by the Merger Filing Fee Modernization Act of 2022.
(3) Make the U.S. merger notification filing process consistent with those mandated by European, UK, and Canadian competition authorities, which already require firms to provide narrative responses with information about business lines, the transaction’s structure and rationale, business overlaps, and vertical and other relationships.
Looking ahead
The proposed expansion of the HSR Form will likely make the lead-up to filing much more tedious, burdensome, and time-intensive for the parties. Assuming all of the proposed changes take effect, it is estimated the new HSR Form will take an additional two to three months for companies and their antitrust counsel to complete. This includes the time needed to collect the required information, conduct the necessary analysis, and craft the details and rationales the HSR Form requires for presentation to the Agencies. Accordingly, once these rule changes are implemented, it will be imperative for parties contemplating a transaction to include antitrust counsel from deal inception.
The Notice of Proposed Rulemaking will be published in the Federal Register later this week, and public comments will be due 60 days after publication. If the proposed changes will in any way affect your business, it is recommended that you submit comments. For further advice on the proposed changes, comment submission, or assistance with future HSR-reportable transactions, please contact a member of Reed Smith’s Antitrust and Competition Team or the Reed Smith attorney with whom you regularly work.
Client Alert 2023-147
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