Overview
On June 27, the Federal Trade Commission (FTC) released a Notice of Proposed Rulemaking that would very significantly expand the scope of information required for an initial premerger notification under the Hart-Scott-Rodino Antitrust Improvements Act (HSR). The proposed modifications, if adopted, would require extensive information-gathering and analysis prior to filing a premerger notification. Even by the FTC's likely conservative calculations, the changes would mean up to an additional 222 hours of preparation time per filing. While the FTC's interest in additional information at the outset of a transaction review is understandable, the magnitude of the additional work and associated costs that would be required to comply with the proposed rules may be disproportionate in light of the fact that antitrust enforcers issued Requests for Additional Information in only two percent of HSR filings and took enforcement action in less than one percent of notified transactions in the most recent fiscal year.
The new burdens would be generated through additional requirements for narrative responses, additional documentary submissions, and other information requirements.
Narrative responses would be required to describe the parties' businesses, to detail each strategic rationale for the transaction, and to identify the horizontal overlaps between the parties and any supply relationships between the parties or a party and a competitor of the other party. Each party also would need to identify its top customers and provide information regarding prior acquisitions over a ten-year period.
Additional documentary submissions required by the proposed rules would include all deal documents, including all schedules and exhibits, and, to the extent a definitive agreement has not been executed, the most recent term sheet or draft agreement that provides "sufficient detail" about the transaction – casting doubt on whether parties may continue to file, as they may today, on the basis of a bare-bones term sheet.
The proposed rules modifications would also require the submission of all deal analyses with antitrust-sensitive content, including drafts, prepared by or for directors, officers, or the supervisory deal team lead – a significant expansion on the current requirement to provide only final copies of such documents prepared by or for only officers or directors. In addition to documents prepared in connection with the proposed transaction, the parties would need to provide certain regularly-prepared periodic plans and reports about markets, competitors, and competition. These requirements will intensify the need for counsel to review documents in advance, to attempt to prevent antitrust problems from arising.
Other information requirements would also significantly inflate the burdens of filing an initial HSR notification; these requirements include:
- Information on officers, directors, and board observers of each party, including all other entities for which the individual has recently served as an officer, director, or board observer (arising from the heightened enforcement of Clayton Act § 8);
- information regarding the parties' employees, by occupational category and location, as well as any history of worker or workplace safety violations or investigations (arising from the Biden Administration’s interest in labor issues);
- Information regarding minority owners and others (e.g., creditors or non-voting security holders) who may exert influence over either party;
- Information about U.S. Defense or intelligence community contracts; and
- Information regarding subsidies from foreign entities or governments of concern.
These proposed modifications to the HSR regulations, which have only been highlighted here, represent the most fundamental changes to the premerger notification system since the HSR regulations first took effect in 1978. Interested parties – which should include any entity considering any reportable transaction – have until August 28, 2023, to submit comments.
Steptoe's antitrust team is available to provide additional information regarding the proposed changes to HSR, to respond to any questions, or to discuss filing comments with the FTC.
