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:
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.
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.
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:
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]
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[1] The FTC estimates that the final HSR Rules will increase the average time burden to prepare HSR filings from approximately 37 hours to about 105 hours for transactions that do not involve overlaps or supply relationships. For transactions involving overlaps or supply relationships, the FTC projects that time burdens could increase to approximately 158 hours on average.
[2] The effective date of the rules is 90 days after the date of publication in the Federal Register. Final Rule at 2.
[3] In announcing the return of early termination grants, FTC Chair Lina Khan said she “question[s] the wisdom of using agency resources” for this purpose.
[4] “The individual who has primary responsibility for supervising the strategic assessment of the deal, and who would not otherwise be an officer or director.” Compared with the proposed rules, the final rules explicitly narrowed this definition to clarify that they are only looking for one person in this role.
[5] Qualifying transactions include executive compensation deals and 801.30 transactions that do not involve (1) a change of control, (2) an agreement or contemplated agreement between the Acquiring Person and Acquired Person, including any of their controlled subsidiaries, related to the transaction, and (3) a case in which the Acquiring Person, including any controlled subsidiaries or representatives, does not have and will not gain “the right to serve as, appoint, veto, or approve board members, or members of any similar body, of any entity within the Acquiring Person or the general partner or management company of any entity within the Acquiring Person.”
[6] See FTC v. Blockbuster Inc., Civ. No. 1:05CV00463 (D.D.C. 2005) (FTC challenged Blockbuster’s second request compliance). In addition, the FTC can impose civil penalties of up to $51,744 per day for HSR violations, although this too is subject to litigation.