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Proposed Overhaul of HSR-Filing Process Will Lengthen Deal Timelines and Likely Lead to More Agency Investigations

June 29, 2023


On Tuesday, June 27, 2023, the Federal Trade Commission (“FTC”) published a 133-page notice of a proposed rule (“Notice”) that would dramatically increase the scope and burden of Hart-Scott-Rodino filings (“HSR Filings”). Notably, the changes encompassed by the proposed rule would (1) provide additional transparency into the terms of the transaction and the parties’ strategic rationale, (2) require the submission of a significantly broader set of documents that speak to competition, and (3) require parties to identify current and potential competitive overlaps. In addition, HSR Filings would elicit information related to nascent competition, interlocking directorates, and labor-market competition, all areas that have been a focus of agencies’ recent enforcement initiatives. 

While the FTC cannot alter the length of the 30-day statutory waiting period for antitrust agencies to review HSR Filings, the practical effect of the proposed rule could be, in fact, to lengthen closing timelines because of the additional time required to prepare HSR Filings: the FTC estimates that its overhaul could add over 100 hours of work to the 37 hours it takes, on average, to prepare an HSR Filing today. If the proposed changes are implemented, HSR filings would be more onerous to prepare and the changes would provide more openings for staff to challenge the completeness of filings. 

With these changes, the antitrust agencies are seeking to obtain more and better information directly from the filing parties early in their investigation, rather than relying on information that is public or that third parties provide voluntarily in response to agency requests. Moreover, the additional information obtained from the merging parties may enable agency staff to ask more pointed and specific questions of other industry participants, for example to verify or undermine assertions in parties’ filings or internal documents. As the Notice explains:

“The proposed set of reorganized revenue information, additional documents, and narrative responses would create a much more complete, accurate, and robust basis on which to screen the transaction for the various potential competitive effects, including those that arise from non-horizontal transactions or combinations involving competing employers. Based on the Agencies' experience in reviewing and challenging illegal mergers, the proposals target the information that is most relevant and readily available to filing persons and would require it to be presented in a coherent and organized way that will facilitate quick antitrust review by the Agencies during the initial waiting period."1

A premise of the proposed rule is that the required information will facilitate quicker antitrust review by the agencies during the initial waiting period. However, filing parties should anticipate the expanded requests will likely lead to an uptick in agency investigations that stretch beyond the initial 30-day waiting period. 

Key Changes Focus on Agencies’ Strategic Enforcement Initiatives

Below is a summary of the key changes to the HSR Filing requirements, highlighting the expanded scope of information the merging parties would need to produce and the access to new information that would be made available to the FTC and the Antitrust Division of the Department of Justice (“DOJ”) to facilitate the implementation of their antitrust enforcement objectives.

1. Transparency Into Terms of All Agreements, Relationships of the Parties, and Rationales for the Transaction

The proposed changes would ensure the FTC and DOJ have complete access to terms of all agreements between the parties and that the strategic rationales for the proposed transaction are clearly articulated in the HSR Filings. They also ensure the parties disclose pre-existing contractual relations with each other as well as the scope of relationships the parties may have with key partners.

  • Parties Can No Longer File on High-Level LOIs. Parties would no longer be able to file their HSR forms on “bare preliminary agreements, such as an indication of interest, non-binding letter of intent, or agreement in principle.”  Instead, parties would be required to submit a “draft agreement or term sheet that describes with sufficient detail the scope of the entire transaction.”2
  • Parties Must Fully Articulate Transaction Rationales.  Parties would be required to submit a narrative describing all strategic rationales for the transaction, including those related to competition between the parties for current or known planned products or services, expansion into new markets, hiring the sellers’ employees, obtaining certain intellectual property, or integrating certain assets into new or existing products, services or offerings. Parties would also be required to identify which documents submitted with the HSR Filing support the rationale described in the narrative.
  • Parties Must Submit All Agreements. Parties would be required to submit all transaction-specific agreements, “including but not limited to non-competition and non-solicitation agreements and other agreements negotiated with key employees, suppliers, or customers in conjunction with the transaction.”  In addition, parties would be required to submit all schedules and exhibits to those agreements.  Finally, so that the FTC can understand the scope of existing contractual relationships between the parties, parties would be required to submit “all agreements between any entity within the acquiring person and any entity within the acquired person in effect at the time of filing or within the year prior to the date of the filing,” regardless of whether the agreements relate to the proposed transaction (such as supply agreements).3  This is potentially a significant expansion in production scope from current requirements.
  • Parties Must Disclose Third Parties That Have Influence Over Their Business Decisions or Access to Their Confidential InformationIn the HSR Filings, Parties would be required to identify (i) creditors, (ii) holders of non-voting securities, options, or warrants, (iii) board members, board observers, and individuals who have nomination rights, and (iv) individuals or entities that have agreements to manage entities related to the transaction.

2. Submission of a Significantly Broader Set of Documents Related to the Transaction and to the Parties’ Ordinary-Course Strategic Plans

  • Parties Must Produce both Drafts and Final Versions of Item 4 Documents Provided to a Broader Set of Individuals. Parties would be required to submit all draft versions of documents containing content responsive to Item 4 of the HSR Form, which include documents that evaluate or analyze the transaction and discuss certain topics, such as competition, markets, and market shares.  Currently, parties are generally only required to submit final versions of these documents that were prepared by or for an officer or director of the company.  The proposed change would require the submission of drafts and final versions of responsive documents that were provided to officers and directors, as well as supervisory deal team leads.
  • Parties Must Submit Periodic Plans and Reports. Parties would be required to submit certain ordinary-course high-level strategic business documents that were not created in contemplation of the transaction but nevertheless may be relevant to the FTC and DOJ’s antitrust review.  Parties would be required to submit the following documents, if they were prepared or modified within a year of the HSR Filing date:
    • Semi-annual and quarterly plans and reports that discuss market shares, competition, competitors, or markets of any product or service that is provided by both parties, if those documents were shared with a chief executive of an entity involved in the transaction (or direct reports).
    • All plans and reports submitted to the board of directors (or, in the case of unincorporated entities, individuals exercising those functions) that discuss market shares, competition, competitors, or markets of any product or service that is provided by both parties.
  • Parties Must Translate Foreign-Language Documents. Parties would be required to submit both original foreign-language documents as well as verbatim English translations of the documents responsive to Item 4 or the new requirement for ordinary-course strategic plans. 

3. Deeper Insight into Current and Potential Competitive Overlaps

  • Parties Would Need to Provide a Narrative of Horizontal Overlaps. Each party would be required to list each current or known planned product or service that competes with (or could compete with) a current or known planned product of the other party. Competitive overlaps, if any, are often the subject of disagreement between merging parties and agency staff, both during merger investigations and in litigation, so positions taken here will need to be carefully considered before filing. For each such overlapping product or service, the filing person would provide sales, top customer information (including contacts), a description of any licensing arrangements, and any non-compete or non-solicitation agreements applicable to employees or business units related to the product or service. The parties would also be required to report pipeline or pre-revenue products by industry-classification (NAICS) code.
  • Parties Would Need to Provide a Narrative of Vertical Overlaps.  Filing parties would need to identify and describe existing or potential supply relationships between them.  For these vertical relationships, filing parties would be required to report information on related sales and purchases between the parties or with other companies that use a filing party’s products, services, or assets to compete with the other filing party.
  • Both Parties Would Now Be Required to Identify Past Acquisitions.  Each party would be required to report on prior acquisitions.  The time frame to report on prior acquisitions would be extended from five to ten years, and the minimum threshold for reporting deals would be eliminated.

4. Interlocking Directorates to Explore Possible Section 8 Violations

In response to the agencies’ stated intent to increase their investigations of companies with interlocking directorates, parties would be required to identify officers, directors, and board observers (or in the case of unincorporated entities, individuals exercising similar functions). Section 8 of the Clayton Act prohibits any person from simultaneously serving as an officer or director of two competing corporations.  For each person listed in the HSR Filings, parties would also be required to identify any other entities for which these individuals served as an officer, director, or board observer (or in the case of unincorporated entities, roles exercising similar functions) in the two years leading up to the filing.

5. Information to Assess Competitive Effects of the Proposed Transaction on Labor Markets

  • Parties must classify workers.  Parties would be required to classify their workers into occupational categories based on the Standard Occupational Classification system (developed by the Bureau of Labor Statistics).  In addition, for each category of employees in which the parties overlap, the parties would be required to provide certain geographic market information (based on Department of Agriculture’s ERS system). 
  • Parties Must Report Penalties or Findings Issued Against Them for Labor or Safety-Related Violations.  Parties would also be required to identify any penalties or findings that were issued against the parties by the U.S. Department of Labor’s Wage and Hour Division, the National Labor Relations Board, or the Occupational Safety and Health Administration during the five-year period before the filing. 

6. Information Regarding Foreign Subsidies and Defense or Intelligence Contracts

  • Parties Would Need to Disclose Information on Foreign Subsidies.  The proposed changes would implement the collection of information about certain subsidies from specific countries identified as a foreign entity or government of concern.  This requirement was mandated by Merger Filing Fee Modernization Act of 2022, in which Congress determined that foreign subsidies can distort the competitive process or otherwise change firms’ incentives in ways that undermine competition and are particularly problematic when they are provided by entities or countries that are strategic or economic threats to the United States.
  • Parties Would Need to Disclose Information on Defense or Intelligence Contracts.  The proposed changes would require filing parties to identify whether they have existing or pending defense or intelligence government contracts valued at $10 million or more to enable the FTC or DOJ to contact the Department of Defense or intelligence community to collect key insights from these stakeholders.

Comment Period

The FTC will accept public comments for 60 days after the proposed rulemaking is published in the Federal Register, which is anticipated to be later this week.  Any new rules will not go into effect until after the FTC and DOJ publish a final version; which is projected to take several months following the closure of the comment period. 

Consistently ranked among the top global antitrust practices, O’Melveny regularly advises clients on issues relating to the HSR Act, including compliance with HSR Act-related rules.  Our antitrust team is well-positioned to assist clients with developing and implementing a strategy to submit comments on these proposed rules and with understanding and complying with the new rules once finalized.

1   FTC Notice of Proposed Rulemaking at III (describing proposed changes to HSR instructions). 

2   Id. at III.C (describing proposed instructions calling for transaction information).
3   Id. at II.C (describing proposed changes to Section 803.5(b)).

This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Courtney Dyer, an O'Melveny partner licensed to practice law in the District of Columbia and New York, Julia Schiller, an O'Melveny partner licensed to practice law in the District of Columbia, New Jersey, and New York, Courtney Byrd, an O'Melveny counsel licensed to practice law in the District of Columbia and Maryland, and Pete Herrick, an O'Melveny partner licensed to practice law in the District of Columbia and New York, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

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