Back from the Brink : US Agencies Walk Back the Most Extreme HSR Proposals

After more than two years of drafting, the Federal Trade Commission (FTC) released the final changes to the Hart-Scott-Rodino (HSR) filing form late last week. The final rule is still a significant expansion of the HSR filing requirements, but it pares back some of the more onerous requirements of the proposed rule. The changes are expected to go into effect in mid-January 2025, but legal challenges could extend this timing. Companies should consider filing deals ahead of the effective date, which can still be done on a bare bones letter of intent (LOI) prior to the implementation of the new form. 

The New Rule

While the final rule does not alter the statutory thresholds for reportable transactions (adjusted annually, currently $119.5 million as of March 24, 2024), the rule significantly increases the burden of disclosure requirements, necessitating a higher level of transparency and detailed reporting from companies. 

In addition to the new filing requirements, the agencies introduced a new online portal for interested parties to comment on pending deals, which could further delay complex or high-profile transactions depending on the comments submitted.

More Burdensome Documentation 

• The strategic transaction documents required extend beyond officers and directors to the supervisor of each merging party’s deal team. 
• Certain ordinary course business plans not related to the deal that concern competition, market shares, competitors, or markets for products and services where the filing parties overlap will also be required. 
• LOI or similar preliminary agreements will now require a draft agreement, term sheet, or other dated document containing certain material terms of the transaction. 

Expanded Disclosures

• Additional description of business lines, areas of competition (including pipeline products and services) and supply relationships are required under the new form. While these can be “brief” and based on “business” views rather than “antitrust” assessment, in practice they can be used to incorporate some advocacy. 
• Parties will also need to disclose prior acquisitions for the past five years in the same or related lines of business that the Transaction concerns. 
• The new D&O information requires further disclosure of the acquiring person’s officers and directors on entities in the same industry as the target, raising prospects of Section 8 enforcement. The earlier proposal to include board observers and cover all entities has been eliminated entirely.
• Expanded corporate disclosures of other investors in the buyer (including limited partners with management rights) was adopted in the final rules. 
• Disclosure of certain links with foreign governments or entities that are strategic or economic threats to the United States (e.g., China, Russia), as well as certain information on defense and intelligence contracts will now also be required. 

The news is not all bad 

The final rule pares back much of the requirements that had initially been proposed.

• The proposal to submit drafts of all responsive documents has been avoided. The requirement to provide a draft transaction agreement has also been pared back. Parties may still file on a signed LOI but it must include a dated document that provides a broader description of certain aspects of the transaction than what is currently accepted.
• Some key categories have been entirely eliminated, including labor and employment related data. 
• Broad disclosure carveouts for certain transaction types are also included in the final rule, including many passive minority investments. 
• The FTC has also announced that they are reinstating the early termination process that has been suspended for more than three and a half years as part of securing bipartisan support of all the Commissioners.

What’s Next?

Businesses should be prepared to spend considerably more time completing the HSR form and collecting the required documents. While the FTC estimates that parties will spend, on average, 68 additional hours preparing their HSR filings, complex filings will likely take substantially more time. Parties should also pay close attention to HSR filing deadlines in their respective transaction agreements. 

Companies that routinely engage in mergers or acquisitions should consider keeping up to date records of the newly required information and documents to ease the filing burden. Parties should also consult antitrust counsel early in the diligence process to avoid undue delays. 

Conclusion

The new HSR rules represent a major shift in regulatory expectations and the submission process for reportable transactions. The anticipated mid-January 2025 implementation date creates a window for businesses to expedite filings under the existing framework, though potential legal challenges could extend this timeline. As companies navigate these new requirements, proactive planning and thorough compliance readiness remain crucial. 

Our team is prepared to help companies navigate these changes, drawing on our extensive experience to ensure that these burdensome new requirements do not unduly delay transaction timelines.