New HSR Form Will Transform the US Merger Review Process

The Federal Trade Commission (FTC) has proposed sweeping new Hart­-Scott-Rodino Act (HSR) rules along with a new proposed HSR form that would completely change the HSR process. The proposed form—which the FTC prepared in consultation with the Antitrust Division of the US Department of Justice (DOJ)—will require parties to provide substantially more information and documents than they do currently.

Increased burdens for filing parties, and particularly for those that sell any overlapping products, would be substantial. The proposed rules would both extend the time it takes to prepare HSR filings from about a week to several weeks or more and change the first 30-day review period to a much more intensive review. [1]

SIGNIFICANT PROPOSED CHANGES

Competition and Overlaps. The new form would require the parties to provide a competitive analysis of the transaction. The parties will have to identify any areas where they are actual or potential competitors, as well as identify existing and potential supply relationships. In instances where the parties are actual or potential competitors, or in which supply relationships may exist, the parties will need to provide a host of additional information, including customer contact information.

Documents. Parties would have to submit documents from “deal leads”; draft 4(c) documents; ordinary-course-of-business documents related to the transaction, including periodic plans and reports prepared within one year of filing; translations of non-English documents; and an organizational chart outlining the positions of those documents’ authors.

Information About the Parties. Parties would need to identify officers, directors, and board observers who have held positions in the last two years (1) within the acquiring person, (2) within any acquired entities, and (3) in any third-party entities. The proposed rules would also require the identification of all shareholders that own more than 5% of any entity within the acquiring person. Further, if there is an industry overlap between the parties, the new filing would require both the buyer and the target to identify all acquisitions of businesses that participate in that overlap going back 10 years.

Description of Transaction and Parties. Parties would need to explain the rationale for the transaction, key dates, and closing conditions, and provide a transaction structure chart.

Labor Market Information. Parties would need to provide information about their labor force to screen for potential impact on labor markets. The parties would also require filers to identify penalties or findings by the US Department of Labor’s Wage and Hour Division, the National Labor Relations Board, or the Occupational Safety and Health Administration.

Subsidies. Parties would need to identify any subsidies received from a foreign government.

Document Preservation. Parties must certify that they have taken all steps to prevent the destruction of documents and identify all communications systems and document and data storage systems.

KEY TAKEAWAYS

The increased burdens associated with the new filing would have timing and strategic implications for dealmakers, including the following:

• Under the proposed rules, parties would need a term sheet or draft agreement setting forth the key terms of the contemplated transaction rather than just a letter of intent. It would no longer be possible to file on little more than a nonbinding letter of intent.
• Today, most parties make their HSR filings 5 to 15 days after signing the transaction. The new filing will likely take much longer to prepare—it could transform the prefiling period from a week or two to several weeks or even months.
• It will be more difficult for parties that compete or have supply relationships to submit HSR filings for transactions they wish to remain confidential as they will need to disclose customer contact information and they should anticipate that the DOJ or FTC will contact some or all those customers.
• The agencies will gain a new means for blocking a transaction by arguing that the parties’ HSR filings were deficient and that, as a consequence, the HSR clock never started.
• Parties will need to take much greater care when preparing documents, even with respect to drafts, as they will have to share those drafts with the HSR filing.

The new form will only go into effect after a publication and 60-day comment period that is currently set to end on August 28, 2023, although it is possible that the FTC may extend the comment period thereafter. Nonetheless, firms should start to plan for the new form now if they expect to sign a transaction in the next few months.