October 31, 2024
The FTC has unanimously approved an overhaul of the rules governing the documents and information that must be submitted as part of parties’ premerger notification filings under the Hart-Scott-Rodino (HSR) Antitrust Improvements Act. [https://www.ftc.gov/system/files/ftc_gov/pdf/p110014hsrfinalrule.pdf] The stated purpose of the changes is to “keep pace” with “the realities of how businesses compete today” and provide the agencies with the information needed to detect transactions that may harm competition.
Although the HSR Final Rule dropped or modified a number of the items sought in the June 2023 proposed rule, it will still require a great deal more time, effort, and information than the current rules. The Commission itself found:
the average number of additional hours required to prepare an HSR filing with the changes outlined in the final rule is 68 hours, . . . with an average high of 121 hours for [purchaser] filings . . . in a transaction with overlaps or supply relationships.
If not challenged successfully in court, the Final Rule will become effective 90 days from publication in the Federal Register.
Summary of Key Aspects of the Final Rule:
For HSR filings made based on an executed letter of intent or term sheet, instead of a definitive agreement, parties must submit documents including some combination of the following terms: parties’ identities; transaction structure; scope of what is being acquired; purchase price calculation; estimated closing timeline; employee retention policies, including with respect to key personnel; post-closing governance; and transaction expenses or other material terms;” an affidavit “attest[ing] that a dated document that provides sufficient detail about the scope of the entire transaction that the parties intend to consummate has also been submitted;” new disclosures regarding certain minority investors in limited partnerships and limited liability companies; and provision of ordinary course plans and reports that analyze market shares, competition, or markets pertaining to any overlapping product produced, sold, or known to be under development, that were “prepared or modified within one year of the filing” and were shared with the CEO or board of directors (or their equivalent).
For certain transactions, parties must describe their principal categories of existing or planned products and services and are instructed not to “exchange information for the purpose of answering this item.” But for any overlapping product or service – so-called “overlap filings,” the parties must provide:
- top ten customers overall and by product or service category;
- sales revenue, “projected revenue, estimates of the volume of products to be sold, time spent using the service, or any other metric” used to measure performance;
- description of all categories of customers of the product or service; and
- for products still in development, “the date that development of the product or service began; a description of the current stage in development, including any testing and regulatory approvals and any planned improvements or modifications; the date that development (including testing and regulatory approvals) was or will be completed” and the anticipated launch date.
Parties must describe all transaction rationales and cross-reference them with the transaction-related documents submitted. In addition to transaction-related documents prepared by or for officers and directors, the parties must submit all reports evaluating the proposed transaction regarding market shares, competition, competitors, markets, potential for sales growth or expansion into product or geographic markets and prepared by or for the “supervisory deal team lead.” The Final Rule defines “supervisory deal team lead” as the “individual who has primary responsibility for supervising the strategic assessment of the deal, and who would not otherwise qualify as a director or officer.”
Parties will be required to submit accurate and complete verbatim translation of foreign-language documents. Submission of all documents governing the transaction, “including, but not limited to, exhibits, schedules, side letters, agreements not to compete or solicit, and other agreements negotiated in conjunction with the transaction that the parties intend to consummate, and excluding clean team agreements.” Parties must describe any purchaser and target supply arrangements, including the amount of revenue and top 10 customers and note if the parties have non-solicitation, non-compete, lease, licensing or master service agreements, and operating agreements and must report pending proposals submitted to and awarded contracts with the Department of Defense or any member of the U.S. intelligence community valued equal to or greater than $100 million. Parties must report if they have “received any subsidy (or commitment to provide a subsidy in the future) from any foreign entity or government of concern,” meaning China, Russia, Iran, North Korea, any foreign terrorist organization designated by the Secretary of State or OFAC specially designated national.
The impact of the Final Rule will become clearer as HSR filings are made under the new regime and the FTC’s Premerger Notification Office starts to engage with the new format and the substantial volume of additional documents and information provided.
The full article in its original form can be found here.
Barbara Sicalides (LAW ’89) is a partner at Troutman Pepper, representing clients in antitrust and competition matters.