US Federal Trade Commission Issues Final Rules on HSR Pre-Merger Reporting

More than a year after the US Federal Trade Commission (FTC) first proposed far-reaching changes to Hart-Scott-Rodino Act (HSR) pre-merger notification rules, the FTC—via a unanimous and therefore bipartisan vote of its commissioners—issued on October 10, 2024 a new final set of HSR Rules along with a new HSR form. The Antitrust Division of the US Department of Justice announced its concurrence with the final HSR Rules on the same day. While the final HSR Rules will be less disruptive than the proposed changes, some new burdens are significant, particularly for tech and life sciences companies and private equity groups.

It is not yet clear if there will be court challenges to the final HSR Rules, but the overall reduction in the originally proposed burdens reflects a bipartisan effort at the FTC to avoid such a legal tussle. It is equally unclear to what extent filing parties will always be able to follow the final HSR Rules to a “T” and how frequently the FTC/DOJ will seek an injunction and/or seek fines for imperfect compliance.    

While the final HSR Rules eliminate several of the most burdensome changes contemplated by the initial proposed rules, the final HSR Rules will require merging parties to provide significantly more information and documents than they do currently, particularly for certain industry participants including life sciences and technology companies and private equity groups. Indeed, the FTC estimates that implementing the final HSR Rules will result in a threefold to fivefold increase in the average time required per filing.[1]

The final HSR Rules also raise at least four key issues (detailed below) involving planning and strategy for dealmakers:

• Timing – The new HSR Rules will go into effect no earlier than January 13, 2025;[2] any HSR filings to be submitted after the effective date must comply with the new HSR Rules. As such, planning ahead, especially in a competitive process, will be key.
• Early Termination – The FTC announced (albeit with reluctance) that once the new HSR Rules go into effect, it will resume granting requests for early termination, which have been suspended since February 2021. However, it is unclear whether early termination will be granted with any degree of frequency.[3]
• Signed Writing – Merging parties can still base their HSR filing on a nonbinding term sheet or letter of intent, but more detailed terms must be included and disclosed. Also, given that merging parties with overlaps must disclose customer names, it is less likely a nonbinding transaction will remain nonpublic.
• Competitors, Suppliers and Private Equity Filers – For parties to HSR-reportable transactions with competing or potentially competing products or services, or who have potential supply arrangements between them, and for private equity participants, substantially more information must be collected and disclosed with the HSR filing.

INCREASED BURDENS, BUT LESS EXTENSIVE THAN Proposed rules

The new HSR Rules will require parties to provide new materials and information and spend more time preparing HSR filings than they do currently. Below is a nonexhaustive list of the most important changes to the current HSR Rules.

• Preliminary Nonbinding Agreements Require Greater Specificity: One of the key changes the agencies considered in their proposed rules involved limiting parties’ ability to file HSR based on an executed indication of interest, letter of intent, or agreement in principle (together, Preliminary Agreements). The agencies argued that a Preliminary Agreement should include sufficient detail about the proposed transaction to make clear the scope of the transaction to the agencies. Under the final HSR Rules, parties will still be able to file HSR using a Preliminary Agreement, but it must contain some combination of the following terms: identity of the parties, transaction structure, scope of acquisition, calculation of the purchase price, estimated closing timeline, employee retention policies, post-closing governance, transaction expenses, or other material terms. The agencies estimate that about 10% of filings currently made using a Preliminary Agreement fail to satisfy this standard.
• Business Documents: The final HSR Rules expand the business documents that will need to be collected.
  • Under the final HSR Rules, traditional Item 4(c)/(d) document requests now require final versions of documents prepared by or for one supervisory deal team lead[4] in addition to officers and directors. Furthermore, the FTC clarified that it will consider any “draft” document shared with any member of a board of directors (or similar body) as “final” and thus responsive if all other criteria are met. Previously, only “drafts” reviewed by the entire board of directors were considered “final.”
  • The final HSR Rules also require parties to submit certain ordinary-course “plans and reports” shared with the board of directors or CEOs of an Acquiring/Acquired Person and any entity it controls. This request captures documents unrelated to the transaction that discuss competition regarding any product or service produced, sold, or known to be under development by the other filing person prepared within one year of the filing date. The vagueness here may provide some flexibility for merging parties.
  • All non-English documents must be translated.
• Transaction Rationale: The Acquiring and Acquired Persons must each provide their transaction rationale as discussed or contemplated by the filing person or any of its officers, directors, or employees and identify documents confirming such rationale. There are no specifics required, which means a brief truthful response such as “grow our top line” would appear to be compliant.
• Competition and Supply Descriptions: The final HSR Rules also require detailed competition descriptions of the transaction, products and services, and supply relationships between the parties (if any) (in each instance between the Acquiring Person and the Target). The Acquiring and Acquired Persons are instructed not to exchange information to respond to these requests.
  • The Acquiring and Acquired Persons must provide a so-called “overlap description” identifying the Acquiring Person’s products and services as well as competing or planned (i.e., in development) competing products and services, and provide corresponding customer and revenue information. The parties may limit the identity of planned competing products and services to those identified in their document submissions.
  • The Acquiring and Acquired Persons must also provide a so-called “supply relationship description” identifying products, services, or assets sold to the other filing persons or to any entity that competes with the other filing person or uses the product as an input to compete with the other filing person and corresponding revenue and customer information.

  This provision of the final HSR Rule is not well defined; if products that “compete (or could compete with)” the other party are interpreted broadly, the burdens and strategic considerations here could be substantial for life science and tech companies in particular.

• Ownership Structure (Acquiring Person Only): The final HSR Rules introduce several new burdens that will likely have an outsized effect on private equity groups and potentially their sovereign wealth fund investors.
• Subsidies/Defense/Intelligence Contracts: The final HSR Rules impose two new types of information to be provided:
  • The Acquiring Person and Acquired Person must each report foreign subsidies or promised subsidies received from a foreign entity or government of concern in the two years prior to filing HSR.
  • The Acquiring Person and Acquired Person (on behalf of Target) must report contracts with the US Department of Defense (DoD) or Intelligence Community (IC) valued at $100 million or more for overlapping NAICS codes or products/services included in the “overlap description” or “supply relationship description.” Classified information should not be submitted, and certain transactions are exempt.
• Other Requirements: The final HSR Rules create many other requirements that combine to increase the size, scope, and demand of HSR filings, including prior acquisition requirements, identifying and linking all related filings, identification of officers and directors of the Acquiring Person serving as officers and directors of third parties that are in the same industry as the target, a transaction diagram (if one exists), identifying “doing business as” names for subsidiaries, new document description requirements, and expanded requirements for agreements between the parties.

Despite these new burdens, there are some silver linings for merging parties. The FTC omitted from the final HSR Rules several categories of requests contained in the proposed rules that were widely expected to impose high costs on filing parties. The agency ultimately concluded these costs would outweigh the expected benefits to the FTC and DOJ Antitrust Division.

The following requests contained in the proposed rules were excluded from the final HSR Rules on that basis:

• Collecting all draft versions of submitted documents
• Extensive information about labor markets and employees, although this area is expected to remain an FTC/DOJ focus
• A 10-year lookback period for prior acquisitions
• A 3-year lookback for officers and directors serving at third parties
• Identifying other interest holders (such as creditors) and board observers

Furthermore, the final HSR Rules create a separate category of “select 801.30 transactions” that do not require parties to comply with most of these new burdens given that the nature of such transactions (including, e.g., executive compensation awards and open market purchases by passive investment funds) rarely create any competitive issues.[5]

Key Takeaways and ways to prepare

• HSR filing preparation may take 1-3 weeks rather than 2-3 days. Today, most parties make their HSR filings 5 to 15 days after signing a transaction. The new filing will likely take much longer to prepare. It could transform the pre-filing period from a week or two to several weeks or more, depending on the deal profile. For private equity group transactions, it is important to note that the final HSR Rules will require the disclosure of certain limited partnership investors such as sovereign wealth funds, which sometimes requires advance notice or consent pursuant to investment fund agreements. 
• Confidentiality of HSR transactions may be more challenging to maintain. While HSR filings will remain confidential, it may be more difficult in practical terms to preserve the confidentiality of transactions between competing companies or companies that have supply relationships since the parties will need to disclose customer and competitor information, and they should anticipate that the DOJ or FTC will therefore contact some or all such entities. Additionally, there is a voluntary waiver in the new HSR form for State Attorneys General that would make transactions vulnerable to weak confidentiality protections from certain states. It is unclear in what circumstances merging parties would view providing this waiver as warranted at the HSR phase.
• Likely effects on M&A and second requests. Because parties will have to affirmatively identify overlaps and provide certain related documents, it will be harder for transactions to “fly under the radar,” potentially chilling some strategic M&A. At the same time, the FTC and DOJ are capacity constrained, and we expect they will continue to issue “Second Request” investigations at similar rates as they have historically.
• Arguably, the FTC/DOJ will have increased leverage to block deals based on non-HSR compliance. With all the new filing requirements, the agencies will potentially gain a new way to try to block or delay a transaction by arguing that the parties’ HSR filings were deficient and that, as a consequence, the HSR waiting period never started. Careful attention to the new requirements can at least mitigate this concern, although some requirements (e.g., identification of “competing” products) are subjective and not well defined, leaving parties potentially vulnerable to accusations of noncompliance. That said, the FTC would need to go into federal district court and obtain an injunction based on an HSR violation, something the FTC has done successfully just once in the last 35 years.[6]