FTC Adopts Final HSR Rules, Substantially Expanding M&A Filing Requirements for Parties

On October 10, 2024, the U.S. Federal Trade Commission (“FTC”) voted 5-0 to adopt new Hart-Scott-Rodino (“HSR”) rules, which will substantially expand filing requirements for parties when the new rules go into effect. The Assistant Attorney General of the DOJ Antitrust Division (together the “Agencies”) concurred with the new rules. The final rules are a narrowed version of the proposed rules issued for comment on June 27, 2023, but will nonetheless impose additional time, burden, and cost on parties preparing and submitting HSR filings.

Many of the new requirements are for information that had previously been requested on a voluntary basis only when the Agencies had questions about a transaction during the initial 30-day waiting period. Key areas of additional information include ordinary course documents describing competition from the year before filing, documents shared with deal team leads in addition to officers and directors, customer and supplier lists where product or service overlaps exist, and information regarding supplier relationships. 

The new rules will take effect 90 days after they are published in the Federal Register. While the exact date is not yet known, it typically takes one to two weeks for the Federal Register to publish a significant rule, which suggests that the effective date will likely be in mid to late January 2025. Moreover, anticipated legal challenges and the ability of a new Congress to overturn the new rules means there will still be months of uncertainty before the rules formally take effect. Anyone currently contemplating a transaction should confer with antitrust counsel.

Key Changes to the HSR Form

The new rules include a significant number of substantive and logistical changes, including:

• Supervisory Deal Team Lead: What used to be known as Item 4c/d of the HSR form (i.e., requesting documents about competition prepared in the context of the transaction) was previously limited in scope to include only documents created by or for officers or directors. The new rules expand this requirement to now include a “supervisory deal team lead” identified in good faith by the filing party. Supervisory deal team lead is defined as “the individual who has primary responsibility for supervising the strategic assessment of the deal.”
• Intermediate Entities: The prior rules and HSR form focused on the Ultimate Parent Entity (“UPE”) and the acquiring entity/target. Under the new rules, parties must provide information about additional entities, such as minority shareholders, controlled by and controlling the acquiring entity/target in addition to just the UPE and acquiring entity/target, i.e. all the entities within its chain of control. 
• Supplier Relationships: The new rules expand notification requirements beyond the business overlaps of the parties in the current HSR form to include supply (or vertical) relationships.  The new form will require detailed information about any such vertical relationships, including a list of the products, services, or assets supplied to the other party, the value of sales to the other party and its competitors, and top customers. For any such products, services, or assets, the supplying party is also required to provide information about its own suppliers further upstream.
• Private Equity in the Crosshairs: The Agencies continue their focus on private equity. Many of the new rules, especially those regarding minority shareholders and corporate structure, are expressly intended to allow the Agencies to better understand the full scope of a transaction involving a private equity buyer. For example, in certain circumstances limited partnerships will now have to list every limited partner with 5% or more but less than 50% of the non-corporate interests, whereas today limited partnerships need only identify their general partner.
• Additional Narrative Descriptions: While the current rules only required a narrative description of the transaction, the new rules require narrative descriptions on several additional topics including: the ownership structure of the acquiring entity, the intended business of a newly formed JV, overlapping products (described in more detail below), and the transaction rationale.
• Filings on a Term Sheet: Recognizing the trend to filing on the basis of a term sheet, the new rules set out minimum requirements for a term sheet to be sufficient for an HSR filing. Term sheets will need to include purchase price, closing timeline, structure of the transaction, scope of what is being acquired, and employee retention policies. The FTC acknowledged that this may prevent parties from filing as early in the deal negotiation process as some currently file.
• Full Translations: Full translations of all documents in a language other than English are now explicitly required. The new rules take no position on machine translations or specify a required method of translation, saying that the translations must be “materially accurate.” 
• Optional Waiver for Foreign Agencies and State Attorneys General: HSR filings are confidential, as is the fact of filing, so the Agencies need the parties’ permission to discuss filings with other reviewing agencies. The new form has a voluntary section where each party can affirmatively provide permission to the Agencies to discuss certain information about the filing with specific state or ex-U.S. antitrust authorities. Not providing this permission could start parties off on the wrong foot with the Agencies, putting pressure on parties to give up this important confidentiality protection.
• Subsidies from Foreign Entities or Governments of Concern and Defense or Intelligence Contracts: Additional disclosures are also now required for parties that received subsidies from foreign entities or governments of concern and entities that have defense or intelligence contracts with US intelligence agencies. 
• Online Portal for Transaction Comments: The FTC has created a new online portal to streamline the process for submitting comments on pending transactions. While third parties could always proactively reach out to enforcers to comment on transactions, the new online portal will make it simpler to do so. The new portal contains an easy-to-fill form for commenters to describe the transaction they are commenting on, select from a list of competitive effects (i.e., increased prices, reduced quality, reduced innovation, labor market concerns, and other), and to provide additional detail on the expected impact of the transaction including the industry and geographic area that will be impacted. The portal will likely encourage individuals or entities to comment on transactions, especially consumers.

Additional Information Required Where Overlaps Exist

Where the parties identify a horizontal overlap in current or future product offerings, the new form requires certain additional points of information, including:

• Plans and Reports: Where the parties have an overlap, they must submit ordinary course materials discussing competition that were shared with the CEO or the Board of Directors of the acquiring entity/target and any entity it controls or it is controlled by, in addition to what had previously been known as 4c/4d documents. Under the current rules, 4c/d documents were largely limited to documents relating to competition in the context of analyzing the transaction.
• Overlap Description: Parties must identify and describe overlapping product offerings, including any future overlaps, and describe the overlapping products or services. For such products and services, parties also must provide the sales for the most recent year, descriptions of the categories of customer served (such as distributor, national account, commercial, residential, etc.), and the top 10 customers overall (in the most recent year) and for each customer category. The FTC explained that this requirement is intended to facilitate its customer outreach.

Different Treatment of Acquiring and Acquired Persons

The new rules have separate HSR Forms for acquired and acquiring persons, with the acquired person form requiring slightly less information. The FTC explained this approach as a way to streamline the process and minimize the submission of duplicative information. Key additional information required from acquiring parties includes:

• Officers and Directors: The rules now require a list of the officers and directors (including those who recently held those positions) for any entities within the acquiring UPE that generate revenue in an overlapping industry or which have a supply relationship with the other party and for all entities that control or are controlled by the acquiring entity.
• Filings With Ex-U.S. Antitrust Authorities: In what was previously a voluntary disclosure, the acquiring entity is now required to list any ex-U.S. filings the parties have submitted or that based on “knowledge or belief” the filing person anticipates submitting and the timing of submission. 
• Transaction Diagram, Other Structural Information: The acquiring person must also include a transaction diagram and additional information about entities within the acquiring UPE. 

Unfortunately, however, the new rules also take one area where acquiring and acquired persons were treated differently under the current rules and makes the obligation reciprocal:  

• Prior Acquisitions: Where under the current rules, only the acquirer must provide information on prior acquisitions, under the new rules both parties need to provide information about prior acquisitions. In both instances, the requirement is limited to where there is horizontal overlap between the parties, but the new rules have an expanded view of what constitutes an overlap. The type of information required under the new rules regarding prior transactions is similar to the current rules and includes the targets name, type of acquisition, headquarters address, and date of acquisition, but now parties must also include the entity from which they purchased the target. 

Fast Track Process for “Select 801.30 Transactions”

Responding to comments that the proposed rules would be an unnecessary burden on simple, non‑problematic transactions, the new rules took a concept that existed in the prior rules, what are known as 801.30 transactions, and created a new set of transactions known as “select 801.30 transactions.” An 801.30 transaction is when the acquiring entity is acquiring interests from third parties (e.g., shareholders in a cash tender offer). The parties to transactions qualifying for select 801.30 treatment do not have to complete certain sections of the form. 

Select 801.30 transactions are those 801.30 transactions for which the following is true:

1. The acquisition would not confer control;
2. There is no agreement (or contemplated agreement between the parties); and
3. The acquiring person does not have, and will not obtain, the right to serve as, appoint, veto, or approve board members (or the equivalent).

For these select 801.30 transactions, the parties do not need to include some of the more burdensome categories of information including:

• D/b/a entity names (and a list of subsidiaries as kept in the ordinary course is sufficient);
• Plans and reports or a transaction rationale; and
• The “Competition Descriptions” which include descriptions of overlaps and supply relationships.

While a significant benefit for transactions that meet this threshold, there are many transactions that pose little competitive significance that still will require the more involved process (for example, this process is not available for any acquisitions of newly issued shares).

Proposed Changes Not Implemented

There were a few areas where commenters on the proposed rules identified particularly burdensome or confusing provisions in the proposed rules and the resulting compromise final rules were more reasonable. As a result, certain pain points from the proposed rules did not make it into the new rules including:

• Newly Created Documents: The obligation to create certain documents, like a transaction diagram, has been replaced with an obligation to provide only what exists in the ordinary course. 
• Drafts: The final rules do not require the parties include drafts of the competition related documents included in the filing. However, where prior guidance said that documents shared with the board were by definition not drafts, the new rules expand that to say documents shared with any board member (including any executives sitting on the board) are also not drafts and need to be included.
• Board Observers: While there are additional disclosure obligations about board members in the new rules, they do not include any of the proposed obligations around board observers.
• Labor: The Agencies removed the questions from the form that sought more information about labor and employment but did warn that parties should expect labor questions on every future Second Request.

Early Termination

The HSR form still requires parties to identify whether they want to seek early termination, and it appears that, as a concession to obtain the Republican Commissioners’ votes, the Agencies will resume early termination. Early termination is when the Agencies inform the parties that they have completed their review in advance of the 30-day review period and are allowing the parties to close early in exchange for publishing such grants in the Federal Register. This practice used to be common in transactions posing no competitive concerns. The FTC stated that the costs and burden of granting early termination and the increased number of transactions caused the current rarity of early termination. It is likely that this will also be used to justify limited grants of early termination going forward.

Best Practices

These rules will significantly increase the burden of completing an HSR filing, and even though they do not go into effect for at least the next 90 days, there are certain efforts that should be undertaken now to prepare for the changes:

• Plan for Longer Review Periods: Unfortunately, going forward and especially in the early months of implementing the new rules, making it through the HSR process will be more time consuming, especially for more complicated transactions or ones in which the parties are horizontally or vertically related. Parties should build in more time both to submit the filing post signing and to obtain clearance. While the prior instructions were difficult to understand and navigate, practitioners and parties could rely on decades of informal guidance to help parties interpret them and now we are back to the beginning. 
• Acquiring Entity Organization Structure: Several places in the form ask for information about the acquiring UPE and the acquiring entity, along with any other entities controlled by or controlling the acquiring entity. The information burden will be less when the acquiring entity for a given transaction can be a newly created subsidiary of the UPE without any intermediate entities. 
• Document Creation: With more ordinary course documents within the potential scope of production, companies planning to do M&A should be coordinating with antitrust counsel to ensure employees are following document creation best practices generally and that particularly sensitive topics/materials should be drafted with input from antitrust counsel in order to reduce the risk of misinterpretation by the Agencies. More care will also need to be taken in what materials are shared with a deal team lead or with individual board members in the context of transactions. Parties should also revisit their document retention policies to ensure they are following best practices.
• Repeat Filings: Under the prior rules, much of the information on an HSR filing could be copied over from prior filings. With the new rules, there is significant additional information that is either specific to the transaction or to the overlaps between the parties to that transaction. Filers will thus get less benefit from having made a prior filing. However, it will be all the more important for filers to remain consistent across HSR filings in how they define their business and competition to try to minimize the risk of questions.

And the Rules May Still Not Be Implemented

Even as practitioners and those contemplating transactions begin to plan for the implementation of the new rules, it is possible that the rules are paused before they have a chance to go into effect or soon thereafter. As described below, any of the three branches of government could play a role in staying or reversing the implementation of the rules. 

• Legal Challenge: Given that the rules place significant additional burdens on transactions, the rules could face legal challenge, including challenges that the changes are outside the FTC’s authority. A court could stay the rules while such a challenge is litigated, which would provide a reprieve for filing parties but more uncertainty regarding timing of implementation.
• Congressional Review Act: The Congressional Review Act ("CRA") requires all federal government agencies to report the issuance of “rules” to Congress and gives Congress 60 legislative days to overturn rules under a joint resolution of disapproval (although the rule can go into effect in the meantime). If both the House and Senate approve the joint resolution by a simple majority, the resolution goes to the president. If the president approves the joint resolution or Congress overrides the presidential veto, the rule cannot go into effect, nor can a new, substantially similar rule. Note that where, as will happen here, Congress adjourns before the 60 legislative days have elapsed, the new Congress has an additional 60 legislative days (starting at the 15th legislative day) to review the rule. This means that a new Congress and administration could override the rules. 
• A New FTC/DOJ: Before the rules go into effect (and we do not know yet whether they will go into effect before or after the Presidential inauguration), Agency leadership might have mechanisms to prolong the implementation period or otherwise prevent the rules from going into effect. Once the rules go into effect, a new FTC majority could rescind the rules, but they would need to follow a new notice and comment period in order to do so. 

Although the timing and effect of these new rules remains uncertain and dependent in large part on the outcome of the U.S. elections, the scope of the changes is significant and parties need to start planning as if the rules will go into effect, following the best practices identified above. The uncertainty both around how to comply with the rules and the timeline for when the rules will go into effect given challenges, make it all the more important to engage with antitrust counsel to stay up to speed on developments and best practices.