The Federal Trade Commission ("FTC") and U.S. Department of Justice Antitrust Division ("DOJ") have proposed to expand dramatically the scope and burden of preparing a merger filing in the United States. The proposed changes to the Hart-Scott-Rodino ("HSR") Act rules and filing form would: (i) introduce obligations to address substantive antitrust issues in the HSR Form; (ii) require submission of data that could expand the scope of HSR investigations; and (iii) add significant administrative burdens in the form of information requests related to corporate organization, deal structure, financial disclosures, and day-to-day business operations. The proposed new filing form includes information requests designed to help DOJ and FTC identify and investigate issues consistent with their recently released draft merger guidelines.
These FAQs are offered as practical advice on the HSR filing developments.
WHAT HAVE THE U.S. ANTITRUST ENFORCERS PROPOSED?
The Hart-Scott-Rodino ("HSR") Act1 requires parties to certain mergers and acquisitions to make premerger notification filings with DOJ and FTC, and to observe statutory waiting periods, prior to consummating their transaction. The usual HSR Act waiting period is 30 calendar days, unless the government issues a Request for Additional Information and Documentary Material ("Second Request"). The Second Request extends the waiting period for an additional 30 days (in most cases) after the parties respond, a process that typically takes several months.
FTC, with the concurrence of DOJ, published in the Federal Register a Notice of Proposed Rulemaking ("NPRM") to amend the premerger notification rules that implement the HSR Act, as well as the Premerger Notification and Report Form ("HSR Form") and Instructions. The proposed amendments, if adopted, will significantly alter the HSR filing process for filings by strategic and financial buyers, and inject new procedural and substantive elements into the merger review process.
Since its inception in the late 1970s, the HSR Act and accompanying HSR Form have required merging parties that are subject to the Act's notification requirements to provide both DOJ and FTC with particular details about their transaction, basic corporate organizational information, certain transaction-related documents that analyze competition, and certain financial information, among other details. In most cases, the requirements of the Form are reasonably straightforward and often can be completed within about two weeks (or sometimes even less).
The proposed rule would significantly expand the scope and detail of the information required to be included with the HSR Form. In their statement accompanying the announcement, the FTC Commissioners observed that "[m]any of the updates in the proposal are consistent with data already collected by antitrust authorities around the world." But realistically, the proposed requirements, if adopted, would be among the most onerous merger filing requirements of any antitrust enforcer in the world, and would apply to the larger number of transactions that parties file in the United States compared to many other jurisdictions.
The proposed HSR Form: (i) introduces obligations to address substantive antitrust issues in the HSR Form; (ii) requires submission of data that could expand the scope of HSR investigations; and (iii) adds significant administrative burdens in the form of information requests related to corporate organization, deal structure, financial disclosures, and day-to-day business operations.
Substantive Antitrust Issues
Horizonal Overlaps. The proposed HSR Form would require merging parties to describe the "principal categories" of products and services they offer, "as defined in the day-to-day operations" of the company. In addition, parties must list and describe current or planned products or services that compete or "could compete" with the other party to the transaction. In some cases, identifying whether products compete (or could compete) is a straightforward exercise; in other cases, it is not.
For each competitive or potentially competitive product or service, parties would be required to provide sales in units and dollars, projected volume or revenue for planned products, and other metrics for products "whose performance is not measured by revenue in the ordinary course of business." Parties also would be required to provide a description of categories of customers that use the product or service, estimates of "how much" of the product or service the customer purchased or used monthly for the last fiscal year, and for planned products, a description of developments, testing and regulatory approvals, product launch dates, and other information. The proposed Form also would oblige parties to supply contact information for the top 10 customers in units and dollars, the top 10 customers for each customer category, a description of licensing arrangements, and a description of non-compete or non-solicit agreements.
Non-Horizontal Relationships. The proposed HSR Form would require merging parties to list and describe: (i) sales to the other party or (ii) sales to any other business that uses its products, services, or assets to compete with that other party or as an input for a product or service that competes or is "intended to compete" with the other party's product or service. That description would capture both deals in the vertical supply chain and so-called "diagonal mergers."2
For products or services identified above, parties must provide sales in units and in dollars to the other party, and sales to any other business that competes or "intends to compete" with the other party's products or services. Parties also must identify and provide contact information for the top 10 customers or suppliers, measured in units or dollars, for the associated products or services, and a description of any supply or licensing agreements.
In addition, the parties must describe their strategic rationale for entering into the transaction.
Additional Substantive Descriptions and Document Submissions. The proposed HSR Form would require submission of more so-called 4(c) and 4(d) documents, which analyze the transaction with respect to competition issues. In addition, the parties must describe their strategic rationale for entering into the transaction and submit supporting documentation. DOJ and FTC also plan to require submission of semiannual or quarterly business plans provided to the CEO and certain other senior executives analyzing competitive or potentially competitive products or services over the year prior to the filing.
Expanded Scope of Antitrust Issues Raised in the HSR Form
The proposed HSR Form requires disclosure of information that expands the scope of potential antitrust (and nonantitrust) issues that could arise from an HSR filing, as detailed in the table below. Although the risk of such investigations always existed, disclosure in the HSR Form increases the risk of a secondary investigation or an inquiry that slows approval of the main deal.
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Footnotes
1. 15 U.S.C. § 18a (2023).
2. Diagonal mergers combine an input supplier and a downstream rival of the input supplier that does not use the input; for example, a manufacturer of gasoline-powered automobiles acquires a manufacturer of electric-car batteries.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
