On June 27, 2023, the Federal Trade Commission (“FTC”) announced a proposal to make sweeping changes to the Hart-Scott-Rodino (“HSR”) premerger notification program.[1] The newly proposed requirements and filing process will likely increase the number of hours it takes to prepare the forms by sixfold and add significant financial burden on future dealmakers.[2]
The HSR Act is an antitrust law that generally requires parties to report large transactions—currently set at transactions valued over $111.4 million dollars—to the FTC and the U.S. Department of Justice Antitrust Division so that the agencies may review whether a transaction will substantially harm competition.[3] It applies to mergers, acquisitions of assets or equity, and joint ventures.[4] In these HSR filings, parties must report basic information about the transaction and the businesses (such as subsidiaries, revenues, and information on the competitive landscape) and wait for a specified period before they can close on a deal.[5] At the end of the waiting period, the agency will allow the transaction to close or file suit in court to block the transaction.[6]
The changes proposed this summer would be the first overhaul of the HSR filing guidelines since their creation in 1976.[7] FTC Chair, Lina M. Khan, stated that such modifications to the HSR forms are needed to address the increased deal volume since the HSR Act was passed 45 years ago.[8] When first enacted, the FTC was expecting 150 mergers annually, but in today’s market landscape, the FTC receives more than 150 filings each month.[9] “Transactions are increasingly complex, in both deal structure and potential competitive impact. Investment vehicles have also changed, alongside major transformations in how firms do business,” she explains in her statement.[10]
The proposed new rules would demand entities to submit far more detailed information and documentation about the transactions up-front. Some of the key requirements are highlighted below[11]:
- Comprehensive details of the transaction and parties: Rationale for the transaction, and details surrounding investment vehicles and corporate relationships, including information of officers, directors, board observers, and any shareholder that owns more than five percent of the entity.[12]
- Competition and overlaps: A competitive analysis identifying actual and potential competitors, actual and potential supply relationships, including customer contact information.[13] If there is industry overlap between the parties, entities will also have to identify all acquisitions in the past ten years where there were any overlaps.[14]
- Documents: “Ordinary-course-of-business” documents related to the transaction, including periodic plans and reports, translation of non-English documents, and an organizational chart documenting the positions of the document’s authors.[15]
- Labor market information: Further information about the entities’ labor force, classifying employees based on current Standard Occupational Classification system categories to screen for potential impact on labor markets.[16]
Due to the new documents and information required, the estimated time it will take for an entity to prepare an HSR notification will increase drastically. Under the current practice, HSR forms are filed between five to ten business days after signing a deal.[17] The agencies predict that, on average, entities will spend an additional 107 hours (ranging from an additional 12 hours to 222 hours per filing) and spend more than $350 million annually for the added labor costs of executives and attorneys.[18]
Various industries have voiced concerns over the proposed modifications. Experts in the tech industry believe these new rules may hinder future technology M&A deals, which have started to build momentum due to the rise of AI in recent years.[19] Major pharmaceutical companies have formed Partnership for the U.S. Life Science Ecosystem (“PULSE”), a coalition, to oppose the new merger rules.[20] In its press release last month, PULSE stated, “[i]f continued, the FTC’s flawed approach to M&A review and enforcement would undermine the dynamic ecosystem responsible for many of the world’s most innovative and important treatments.”[21] Others are concerned about the possibility that agency staff members will be overwhelmed by the deluge of information provided by all filing parties, making the HSR filing process less efficient in the long run.[22]
[1] See Press Release, Fed. Trade Comm’n, FTC and DOJ Propose Changes to HSR Form for More Effective, Efficient Merger Review (June 27, 2023), https://www.ftc.gov/news-events/news/press-releases/2023/06/ftc-doj-propose-changes-hsr-form-more-effective-efficient-merger-review.
[2] See Harry T. Robins et al., New HSR Form Will Transform the US Merger Review Process, Morgan Lewis (June 30, 2023), https://www.morganlewis.com/pubs/2023/06/new-hsr-form-will-transform-the-us-merger-review-process.
[3] See HSR Threshold Adjustments and Reportability for 2023, Fed. Trade Comm’n (Feb. 16, 2023), https://www.ftc.gov/enforcement/competition-matters/2023/02/hsr-threshold-adjustments-reportability-2023.
[4] See What is the Hart-Scott-Rodino Act?, Thomson Reuters, https://legal.thomsonreuters.com/en/insights/articles/navigating-the-hart-scott-rodino-act- (last visited Nov. 10, 2023).
[5] See id.
[6] See id.
[7] See Public Statement, Fed. Trade Comm’n, Statement of Chair Lina M. Khan Joined by Commissioner Rebecca Kelly Slaughter and Commissioner Alvaro M. Bedoya Regarding Proposed Amendments to the Premerger Notification Form and the Hart-Scott-Rodino Rules (June 27. 2023), https://www.ftc.gov/system/files/ftc_gov/pdf/statement_of_chair_khan_joined_by_commrs_slaughter_and_bedoya_on_the_hsr_form_and_rules_-_final_130p_1.pdf.
[8] See id.
[9] See id.
[10] Id.
[11] See Press Release, supra note 1; see also Robins et al., supra note 2.
[12] See Press Release, supra note 1.
[13] See id.
[14] See id.
[15] See id.
[16] See id.
[17] See William H. Stallings et al., The FTC’s Proposed HSR Changes: What They Mean for Dealmakers, Mayer Brown (July 7, 2023), https://www.mayerbrown.com/en/perspectives-events/publications/2023/07/the-ftcs-proposed-hsr-changes-what-they-mean-for-dealmakers.
[18] See Kimberley Biagioli & John Sack, FTC and DOJ Propose Radical Reforms to HSR Filings: Changes Would Impose Considerably Greater Burden on Merging Parties, Wilson Sonsini (June 30, 2023), https://www.wsgr.com/en/insights/ftc-and-doj-propose-radical-reforms-to-hsr-filings-changes-would-impose-considerably-greater-burden-on-merging-parties.html.
[19] See Shane Snider, New FTC Rules Could Slow Tech M&A Deals, Information Week (June 27. 2023), https://www.informationweek.com/it-leadership/new-ftc-rules-could-slow-tech-m-a-deals.
[20] See Press Release, P’ship for U.S. Life Sci. Ecosystem, Life Sciences Leaders, Advocates Launch New Partnership to Promote Benefits of Pro-Innovation Mergers & Acquisitions (Oct. 4, 2023), https://pulseforinnovation.org/life-sciences-leaders-advocates-launch-new-partnership-to-promote-benefits-of-pro-innovation-mergers-acquisitions/.
[21] Id.
[22] See New Hart-Scott-Rodino Proposal Signals Sea Change in U.S. Merger Review Process That Will Delay Transactions and Raise Costs, Dechert (July 5, 2023), https://www.dechert.com/knowledge/onpoint/2023/7/new-hart-scott-rodino-proposal-signals-sea-change-in-u-s–merger.html.
