HSR Final Rules and Forms Substantially Revised — Considerations Ahead of the Anticipated January Effective Date

At a Glance

• The final rules for premerger notification under the HSR Act reflect significant changes compared to the current requirements. Businesses will face more extensive data collection, especially regarding competitive overlaps and existing contractual relationships between parties, requiring more time and expense in preparing HSR filings.
• Certain proposals from last year’s Notice of Proposed Rulemaking have been scaled back or dropped, reducing some of the initially anticipated burdens.
• Filers must now take greater responsibility for identifying competitive overlaps, both current and potential, and they must individually provide narratives for these overlaps without exchanging information with their transaction partner.

When the Federal Trade Commission (FTC) — with the concurrence of the Antitrust Division of the Department of Justice (DOJ) — published the Notice of Proposed Rulemaking to revise the rules for premerger notification under the Hart-Scott-Rodino Act in June 2023 (the NPRM), it sent shock waves through the business and legal communities that are regulars in the HSR filing process (read our July 2023 client alert). The NPRM acknowledged that the expanded information requests and categories of information sought (as well as the more sweeping definitions of interested parties to be accounted for) would increase the time, expense and burden of compliance with HSR notification requirements in the name of providing antitrust regulators with increased early access to the information they need to identify potentially anticompetitive transactions.

Now, more than a year after the NPRM comment period ended, the final rules have been posted. They will become effective 90 days after publication in the Federal Register (mid-January 2024 year-end notifications will use the current form and rules). The final rules still reflect substantial change (and burden) compared to current HSR requirements, but also reflect substantial moderation from the comparatively ambitious initial draft. More than 700 comments were received during the initial rulemaking, including from law firms, businesses, academics and concerned citizens. FTC staff acknowledged the influence of at least some of those comments. Further, two empty seats on the Commission were filled earlier this year by Republican commissioners Melissa Holyoak and Andrew Ferguson, who urged a rethinking of some elements of the original proposal. Notably, the vote to publish the final rule was unanimous, demonstrating that the anticompetitive effects of increased market concentration are ultimately a bipartisan issue.

Some Proposals Abandoned, Others Carved Back

• Filers will not be required to produce or preserve every draft of every acquisition agreement (but will be required to produce a broader range of acquisition agreements as well as other non-acquisition agreements between the parties). 
• Information requested about minority investors, customers, affiliates and associates has been reduced (but not eliminated) and now focuses more closely on those transactions that present a horizontal or vertical overlap. While these requests have been moderated, the data extraction will still be extensive. We will provide some practical guidance and checklist on these points in the weeks ahead.
• A subset of transactions called “Select 801.30 transactions” have been newly defined and are excused from some HSR data production requirements. In particular, Select 801.30 transaction filers are excused from producing narrative descriptions of the competitive environment and the strategic rationale for the deal. Rule 801.30 covers most tender offers, certain bankruptcy transactions, some transactions in which equity interests are acquired from a holder other than the issuer entity or its affiliates, and most executive compensation transactions.
• The NPRM asked for detailed information about nonparties who might wield influence over a party (such as credit providers or holders of nonvoting equity with neither management authority nor a present right to vote), but this proposal has been abandoned for now.
• None of the detailed information about employees and the impact of the transaction on labor markets made the final HSR cut — though the subject continues to be of interest to at least some of the current commissioners and may come up in substantive investigations such as Second Requests.

So, What New Responsibilities of Filers Were Retained in the Final Rule?

• The HSR rules have been redesigned to impose the initial responsibility for identifying and describing any existing or potential (pipeline) overlaps on filers, as well as vertical or supplier-customer arrangements between the parties — worldwide. Strategic rationales and overlap and supply narratives should cross-reference and cite to the filing party’s transaction-related documents (roughly analogous to the current 4c and 4d documents that analyze the transaction with respect to markets and competition) and address any discrepancies such references highlight. The rules instruct each side to prepare its narratives and rationale “without exchanging information between parties.”
• The definition of transaction-related documents has been expanded slightly to include a “supervisory deal team lead.” Draft transaction-related documents that are shared with any board member (not just the whole board) must be included in the filing.
• Filers must also provide non-transaction documents, consisting of regular reports and strategic plans provided to the CEO or the board of directors, to the extent they address overlapping products or services. There is a one-year lookback for this item.
• Other instructions are designed to disclose relationships among members of private equity fund families, and to identify officers and directors of a broad array of affiliated or associated entities. For the first time, limited partners with a 5% or greater equity interest must be identified in some notifications. Questions about overlap will facilitate identification of key players — and assist with enforcement of interlocking directorate rule. We will expand on these requirements in greater detail in a future client alert.

There Are Some Upsides to the New Rules

• The rules streamline reporting revenue by NAICS codes and eliminate reporting by NAPCS codes.
• Once the final rules have been implemented, the agencies’ “temporary” suspension of early termination of the HSR waiting period (in place since early 2021) will be lifted, and the staff will have discretion to allow filers in noncontroversial transactions to proceed to closing before the notice waiting period has elapsed.

What Should You Be Thinking About Now?

• Plan ahead and allow more time to prepare your HSR notification materials by engaging HSR counsel early in the process. While many parts of the NPRM have been cut back, the new rules and form still impose substantial new data collection requirements. The burden (especially as the staff and filers first begin to interpret and implement the data requests) should not be underestimated.
• Consider consulting with antitrust counsel to evaluate antitrust risk and to identify early the correct entities for responses.

We will be producing some guidance for building and maintaining your HSR library of data and best practices for tracking transactional and non-transactional documents. We also will be in touch as the staff of the agencies provide further guidance.