Final Changes to HSR Form Are Scaled Back From Initial Proposal But Still Substantial

Earlier this month, the US Federal Trade Commission (the “FTC”) issued a long-awaited Final Rule that implements sweeping changes to the requirements of the Hart-Scott-Rodino (“HSR”) pre-merger notification form and accompanying instructions. The US Department of Justice (“DOJ”) concurred with the changes. The changes were originally proposed in June 2023. They are the most significant since the HSR Act’s enactment in 1976. Unsurprisingly, the proposed changes generated considerable pushback during the ensuing public-comment period. In response to these concerns, the Final Rule is scaled back: Of the 29 primary proposals announced in 2023, ten were rejected entirely and only two were finalized without modification.

While the Final Rule is pared back from what was originally proposed, it will nonetheless greatly increase the time, burden, and expense of HSR filings by broadening the scope of information, documents, and data that filing parties must produce with their HSR forms. Indeed, the FTC itself estimates that, under the new rules, HSR filings will take an average of 105 hours to prepare (in comparison with the current estimated average of 37 hours). For transactions in which the parties have competitive overlaps or vertical supply relationships—which the FTC estimates will be the case in nearly half of all HSR filings submitted—filing parties can expect that it will take an average of 158 hours to compile their HSR forms and exhibits.

The FTC says that these changes—and the commensurate burden on filing parties—are justified due to “several factors that make today’s economic reality more challenging for conducting a premerger assessment with the limited information required by the current rules . . . [I]n light of changing market dynamics, [the Final Rule makes] adjustments that are necessary and appropriate to allow the agencies to detect and prevent illegal mergers prior to consummation.”

The Final Rule is expected to become effective in January 2025, 90 days after its publication in the Federal Register. It is unclear whether that timeline could be affected by the result of the upcoming presidential election or whether the Final Rule could face legal challenges (similar to those brought in response to the FTC’s non-compete rule).

What is clear is that the Final Rule’s key changes reflect the antitrust agencies’ continued focus on certain strategic enforcement initiatives, including:

• Acquisitions By Private Equity. According to FTC Chair Lina Khan, the existing HSR Form did not shed enough “light on complex and opaque entities, including private equity and minority holders . . . Nor did it allow the agencies to determine whether the acquiring person may have competitively relevant premerger entanglements with the target’s industry or whether minority holders have significant rights to direct the acquiring entity’s actions.” To “close this gap,” the Final Rule contains the following changes:
  
  
  • Buyers will now be required to provide a description of their ownership structure. In addition, for transactions involving a fund or master limited partnership, buyers must provide any existing organizational chart that shows the relationship of any entities that are affiliates or associates. If an organizational chart does not exist, there is no requirement to create one.
  • Filing persons are currently only required to disclose the general partners of limited partnerships, but not limited partners, regardless of the percentage those limited partners hold. The Final Rule requires parties to identify the general partner and limited partners with a 5% or greater minority stake that have certain rights related to the Board of Directors that would give them the ability to influence post-transaction decisions.
• Vertical Mergers. Chair Khan also notes that “[a]fter a decades-long focus primarily on mergers between direct competitors, the antitrust agencies in recent years have reinvigorated merger enforcement against non-horizontal deals that violate the antitrust laws.” The FTC has sought to block six vertical mergers since 2021. The FTC’s continued focus on this strategic priority is underscored by the following changes in the Final Rule:
  
  
  • Parties will now be required to submit detailed information on both horizontal overlaps and vertical relationships, including known planned products or services and information on customers and suppliers.
  • In addition, filers with a competitive overlap or vertical supply relationship must submit one year’s worth of plans and reports that were provided to the CEO or Board of Directors to the extent they discuss markets or competition, even if they were not drafted for purposes of analyzing the merger.
• Nascent Competition. The Final Rule also indicates that the FTC’s scrutiny of “acquisitions that may eliminate emerging rivals or threaten competition in lines of products that are still in development” is likely to continue. According to Chair Khan, the current HSR form “gives no insight into merging parties’ ongoing product development efforts or pipeline projects that could implicate future areas of competition.”
  
  
  • As a result, the Final Rule requires filers to submit a description of their business lines, including products or services that are in development that are not yet generating revenues.
  • Filers will also be required to describe the rationale for the transaction and to identify documents confirming or discussing that stated rationale.
• Roll-up Acquisitions. In her statement, Chair Khan also calls out what she views as a “rise of serial acquirers, firms that engage in numerous strategic acquisitions in the same industry, sometimes ‘rolling up’ many small competitors in the same or adjacent markets. This strategy can consolidate a market through a series of smaller deals that fly below the radar of antitrust enforcers.” According to Khan, “[p]rivate equity firms and other investors have deployed roll-up strategies across a range of industries, from healthcare to housing—with potentially major ramifications for the public.” Accordingly, changes reflected in the Final Rule are designed to provide “insight into what prior acquisitions the entity has made within the same lines of business.”
  
  
  • The existing HSR form has always required buyers to disclose certain information regarding its prior acquisitions. The Final Rule extends this obligation to target companies for the first time.
  • Notably, the FTC has opted not to adopt some of the expansions it initially proposed, including extension of the disclosure period from five to ten years.

Other significant changes and omissions from the Final Rule include:

• Agreements. Filers must submit all transaction agreements to the extent they will be in effect on and after closing, including all schedules, exhibits, side letters and non-compete or non-solicit agreements, as well as a transaction diagram if one exists. If the filing is being made on an executed term sheet or letter of intent rather than a definitive agreement, the parties must submit a dated document that includes “some combination of the following terms: the identity of the parties; the structure of the transaction; the scope of what is being acquired; calculation of the purchase price; an estimated closing timeline; employee retention policies, including with respect to key personnel; post-closing governance; and transaction expenses or other material terms.” This change may delay submission of HSR filings that could have previously been made on a bare-bones LOI.
  
  
• Transaction Related Documents. Parties will now be required to submit additional “transaction related documents” from the supervisor of each merging party’s deal team. Under the current HSR rules, these documents—known as Item 4(c) and (d) documents—are only required if they are prepared by or for an officer or director. The “supervisory deal team lead” is defined as the individual who has primary responsibility for supervising the strategic assessment of the deal, and who would not otherwise qualify as a director or officer.
  
  
• Drafts. The FTC declined to adopt its initial proposal that filing parties be required to submit all drafts of transaction related documents delivered to officers, directors, or supervisory deal team leads. Nonetheless, the scope of what constitutes a “final” document has been broadened to include drafts that are delivered to any member of the Board of Directors or equivalent body. Under the current HSR rules, a draft is only treated as final if it is sent to the full Board. For any transaction in which Board members are closely involved, filing parties will have to pay close attention to which drafts are received by individual Board members.
  
  
• Translations. All documents accompanying the HSR filing must be submitted with verbatim English language translations. Under the current HSR rules, parties are not required to translate foreign-language documents.
  
  
• Labor Data. The FTC’s initial proposal required filing parties to submit labor data, including by Standard Occupational Classification codes and geographic market, as well as workplace and safety information. The Final Rule jettisons this proposal. This omission should not, however, create the inference that the FTC’s focus on proposed transactions’ effects on labor markets has waned. Indeed, Chair Khan took care to note that, even without labor-specific data, the Final Rule will still provide the agencies enough detail “to identify whether a proposed deal risks undermining competition for workers.”

In addition, the FTC announced two important process updates:

• Comment Portal. The FTC has created a new online platform that will enable the general public to submit comments on the implications of proposed transactions, including regarding “how [the transaction] may affect competition from consumers, workers, suppliers, rivals, business partners, advocacy organizations, professional and trade associations, local, state, and federal elected officials, academics, and others.”
• Early Termination. The FTC also stated that it will lift its suspension of grants of early termination (discretionary termination of the HSR waiting period prior to its expiration) when the Final Rule takes effect. The suspension has now been in place for more than three years. Nevertheless, Chair Khan’s statement suggests that grants of early termination may be elusive: “Merging parties are not entitled to early termination, and I question the wisdom of using agency resources on a discretionary function while resource constraints impede our ability to fully execute on our mandatory functions.”

The Final Rule will significantly increase the time, burden, and expense associated with compiling HSR filings for transactions across the board—for first-time filers and serial acquirers alike. The FTC’s estimates of the additional time required may well be conservative.

With these changes, the antitrust agencies will now have access to much more information regarding the parties’ operations and how they view the competitive landscape. Companies will need to be more mindful of all documents created that go to executives and members of the Board, not just transaction-specific documents created for a proposed deal.

For companies contemplating a proposed transaction that would trigger an HSR filing, we encourage parties to consult with antitrust counsel well in advance of filing to begin collecting the documents, data, and information required. For parties that anticipate future acquisition activity, we encourage them to work with antitrust counsel to assess the scope of information that will be reported on the new HSR form and ensure proper document and data-management processes are in place.

This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Courtney Dyer, an O’Melveny partner licensed to practice law in New York and the District of Columbia; Julia Schiller, an O’Melveny partner licensed to practice law in the District of Columbia, New Jersey, and New York; and Courtney C. Byrd, an O’Melveny counsel licensed to practice law in the District of Columbia and Maryland, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

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