On June 27, 2023, the Federal Trade Commission (FTC), with the concurrence of the Department of Justice Antitrust Division, announced a wide range of significant proposed changes to the Hart-Scott-Rodino (HSR) pre-merger notification and report form. Once finalized, these proposed changes are likely to substantially increase the information that will need to be included in filings for HSR-reportable transactions (e.g., transactions that meet the $111.4 million HSR size-of-transaction test and for which no exemption applies).
The FTC has proposed dozens of discrete changes to the HSR filing requirements, many of which may substantially increase the burdens in terms of time and expense of making an HSR filing. A summary of the most notable proposed changes is below.
Changes that May Increase Filing Burdens
- A requirement to provide a detailed narrative explaining any current or planned area of competition between the merging parties, including a summary of relevant sales and a listing of top-10 customers, measured by units and by dollars.
- A requirement to provide a detailed narrative explaining any supply relationships between the merging parties, or between one merging party and a competitor of the other merging party.
- A requirement to provide a narrative about the rationale for the transaction, with cross-references to relevant deal documents.
- A requirement to identify communications and messaging systems used by the merging parties, and a requirement to certify that steps have been taken to prevent the deletion or destruction of information while the waiting period remains pending.
- Requirements to list every officer, director, or board observer within the buyer’s corporate family or the business being sold over the past two years, and identifying any other entities where those individuals have served as officers, directors, or board observers over the past two years.
- Requirements to list the top-five categories of workers based on the Bureau of Labor Statistics’s Standard Occupational Classification system, with additional geographic information required in the case of overlaps between the merging parties.
- Expanding the scope of the document-search obligations to reach documents prepared by or for the “supervisory deal team leads” (i.e., even if those persons are not “officers or directors”).
- Requiring the submission of certain “draft” documents prepared by or for officers, directors, or supervisory deal team leads — a significant change given that draft Item 4(c) and 4(d) documents typically have not been required in HSR filings.
- Requiring the submission of certain “semi-annual or quarterly plans and reports” shared with the CEO or board in the prior year that relate to competition in any product or service offered by the other party to the deal.
- Requirements for buyers to identify certain creditors, option holders, management firms, and firms with board appointment rights.
- A requirement to disclose any preexisting agreements between the buyer and seller (e.g., supply agreements or licensing arrangements) in effect within one year of the filing date.
- Significantly expanded requirements to list prior acquisitions in overlapping lines of business.
- Requirements to disclose subsidies and tariff duties received or imposed by certain foreign nations or entities.
- A requirement to provide a description of the business operations of the buyer and its subsidiaries.
- A requirement to provide a step chart showing the deal structure.
- A requirement to provide a detailed timeline of the steps required for closing.
- A requirement to disclose any termination fees or similar breakup fees.
- A requirement to disclose any defense or intelligence procurement contracts valued at US$10 million or more.
- Expanded requirements around identifying authors of deal documents, including a requirement to provide an organization chart that identifies authors, and a requirement to list the individuals whose files were searched for required documents.
- Expanded requirements to provide geographic information for overlapping operations, including providing longitude and latitude information for certain offices.
- Requirements to list “dba’s” and “f/k/a’s” of operating companies.
- For HSR filings made on the basis of a definitive agreement, a requirement to submit all exhibits, schedules, and side-letters.
- For HSR filings made on the basis of a letter of intent, a requirement to submit a draft agreement or term sheet sufficient to describe the transaction.
- Expanded requirements to provide information about corporate structures and minority investors in non-100%-owned subsidiaries.
- A requirement to disclose all foreign jurisdictions where competition filings are anticipated.
- Foreign-language documents will need to be translated into English, although no specific translation method is dictated.
- A requirement to disclose certain penalties or findings of workplace safety or labor-law violations in the past five years.
Changes that May Reduce Filing Burdens
- Reduced burden on reporting revenue by NAICS codes, namely, revenue need only be reported in broad ranges rather than in precise amounts.
- Elimination of the requirement to report manufacturing revenues separately by NAPCS codes.
- For sell-side filings, information about minority investors will only be required for investors that will remain investors post-closing or take a rollover interest.
The proposed changes will not go into effect immediately, and they may change before they ultimately take effect. More precisely, in the coming days the FTC will publish in the Federal Register a Notice of Proposed Rulemaking that sets forth the proposed changes and the FTC’s justifications for adopting them. The public will have 60 days from the date of publication to submit comments on the proposed rulemaking. The FTC will then need to review the comments received, respond to any substantive comments, and publish the final rulemaking before any changes can take effect. The proposed HSR revisions are therefore likely still at least several months away from taking effect, and the final changes may be refined from what has been outlined in the Notice of Proposed Rulemaking. Foley will continue to monitor these updates as they develop.
