On October 10, 2024, the Federal Trade Commission (“FTC”), with the concurrence of the Antitrust Division of the Department of Justice (“DOJ”), announced the FTC’s unanimous vote to adopt a final rule implementing significant changes to the reporting obligations under the Hart-Scott-Rodino Antitrust Improvement Act (“HSR Act”). Though not as extensive and burdensome as the original proposed changes (see our prior memo analyzing the proposed changes), these changes will increase parties’ filing burden and limit their ability to file quickly, even in non-problematic transactions. Absent judicial intervention, the final rule will become effective 90days after it is published in the Federal Register (i.e., approximately mid-January 2025). The FTC also announced that, once the final rule goes into effect, it will lift the three-and-a-half-year “temporary suspension” of granting early termination of the HSR waiting period in transactions not needing further agency investigation.
Under the HSR Act, parties to certain transactions must notify the FTC and DOJ of the transaction and observe a statutory waiting period before closing. The HSR notification form currently requires filing parties to submit basic information about the parties, their operations, revenue overlaps, and the proposed transaction, as well as the production of certain transaction-related documents. The final rule requires the following additional information:
- Descriptions of existing or potential horizontal overlaps and vertical or supply relationships between the filing parties, accompanied by extensive sales data, customer information, and licensing or supply arrangements;
- Transaction-related documents created by or for “supervisory deal team leads” in addition to officers and directors;
- Information regarding the parties’ minority investors, including in all the entities directly or indirectly controlled by the parties (with some limitations, particularly for the target, e.g., information regarding minority investors in the target who will no longer be investors following consummation of the transaction need not be provided);
- Lists of officers and directors of the acquiring person and certain entities within the acquiring person who also serve as an officer or director of an entity that derives revenue in the same NAICS code or same industry as the target(s);
- A narrative description with citations to documents produced with the HSR of all strategic rationales for the transaction that also addresses any inconsistencies with the transaction rationale(s) in documents included in the HSR filing;
- Regularly prepared plans and reports provided to CEOs and all plans and reports provided to the parties’ Boards of Directors that discuss market shares, competition, competitors, or markets for any overlapping product or service created within a year of filing;
- Information regarding foreign government subsidies, as prescribed by the Merger Filing Fee Modernization Act of 2022; and
- Existing or pending procurement contracts from the Department of Defense or intelligence community.
The changes adopted in the final rule reflect a paradigm shift in the antitrust agencies’ historical review and investigatory practices, placing the burden on filing parties to develop detailed explanations and analyses, and gather significant amounts of factual material, for almost every reportable transaction (requirements are less onerous for ‘801.30’ transactions—tender offers, acquisitions of voting securities from third parties, certain executive compensation transactions, and certain other transactions).
Given the significant changes imposed by the final rule, parties contemplating transactions should gather and periodically update the foreign subsidies, officer and director, and minority investor information that will be needed for all Hart-Scott-Rodino filings and ensure that due diligence requests and pre-signing workstreams contemplate the range of information that must now be reported. In addition, contract terms should be reviewed to ensure that they appropriately contemplate the new information obligations under the rule.
This post comes to us from Wachtell, Lipton, Rosen & Katz. It is based on the firm’s memorandum, “The FTC Finalizes Sweeping Changes to HSR Reporting Obligations,” dated October 11, 2024.