Proposed Overhaul of HSR Form Will Dramatically Increase Burden on Filers

Overview

Assuming that the proposed changes go into effect, all filers (without any exception, all buyers and sellers subject to the HSR Act) should expect a seismic change in the amount and type of upfront information required for the HSR Form, significant additional time to prepare the HSR Form and expansion of the potential areas of inquiry that the reviewing Antitrust Agency will be armed to examine.

These changes are purportedly designed to enable the Antitrust Agencies to more effectively and efficiently discharge their duties under the U.S. antitrust laws, and to implement certain mandates from the Merger Filing Fee Modernization Act of 2022, such as a requirement to disclose foreign subsidies. While there are certain proposed changes that would bring the HSR Form in line with many ex-U.S. merger control filings, there are also many changes that would go much further in enabling the Antitrust Agencies to examine at an early stage a wide range of substantive antitrust issues, such as interlocking directorates under Section 8 of the Clayton Act, potential effects of transactions on labor markets, private equity firm structures and relationships, and defense industry relationships. Moreover, the increase in narrative, data and documentary requirements under the proposed changes will make HSR submissions significantly longer and more burdensome to assemble. In short, the proposed changes will fundamentally change the breadth and depth of information available to the Antitrust Agencies about all reportable transactions at the outset of the HSR review period, requiring greater resources and time for the HSR Form preparation and potentially impacting how parties approach any reportable transaction, regardless of whether such a transaction is likely to attract antitrust scrutiny.

Proposed Changes to HSR Forms

While the proposed changes may well be amended before going into effect, rulemaking proposed this week calls for numerous fundamental changes to the HSR Form.

A high-level overview of the key proposed changes is summarized below:

Vast expansion of new narrative response requirements, including:

• detailed descriptions of horizontal overlaps (either current or planned), including sales and customer information, as well as details on licensing arrangements for each overlapping product or service, to better enable the Antitrust Agencies to assess how the transaction could impact competition for such products or services;

• descriptions of existing or potential vertical relationship between the filing parties to be used to assess post-merger opportunities to foreclose rivals in vertical or diagonal relationships to the acquiring entity;

• a labor market analysis, including classification of workforce categories, identification of geographic information associated with overlapping commuting zones and details on labor or workplace safety violations issued during the five-year period before the filing, to screen for potential labor market effects arising from transactions; and

• narratives describing the strategic rationale for the transaction, a timeline and conditions for closing the transaction and a diagram of the deal structure.

Expansion of document production, including:

• transaction-related documents created by or for individuals who functionally lead or coordinate the day-to-day process of a reportable transaction (the “supervisory deal team lead”), as the Antitrust Agencies seek to expand the document review beyond just officers and directors;

• certain ordinary course business documents that contain detailed assessments of markets, competitors, other acquisition targets and future competitive projections;^[1]

• draft agreements or detailed term sheets when filing an HSR Form on something less than a definitive agreement;

• draft versions of all transaction-related 4(c) and 4(d) documents^[2] that were provided to officers, directors or the supervisory deal team lead instead of just final versions;^[3] and

• all agreements between the acquiring entity and the acquired entity in effect at the time of filing or within the year prior to the date of the HSR filing.

Changes to data response and other disclosures, including:

• details on all officers, directors and board observers within the acquiring ultimate parent entity and the acquired entity in order to facilitate broader Clayton Act Section 8 interlocking directorate analysis;

• details about minority holders, including limited partners, at multiple levels within the chain of control between the acquiring entity and its ultimate parent entity;

• for the acquiring party only, details of creditors and entities that hold non-voting securities, options or warrants totaling 10% or more, which will facilitate the Antitrust Agencies’ analysis of interest holders who may exert influence;

• disclosure of contracts (existing or pending) with defense or intelligence agencies valued at $10 million or more, and provision of contact information for the relevant defense or intelligence customer for each such contract;

• disclosure of any subsidies received from certain foreign governments or entities;^[4]

• listing of all foreign jurisdictions reviewing the deal; and

• details of prior acquisitions by the acquirer and the acquired entity within the past 10 years.

Take-Aways

These proposed changes will substantially increase the amount of time needed to plan for and prepare an HSR Form for every type of filer. The FTC Premerger Notification Office estimates that the new requirements will add on average 107 additional hours to the time firms already spend preparing the HSR Form, although that number is likely a significant underestimate. That said, there will also be a disparate impact on clients in certain industries, such as private equity funds and firms serving the defense industry, where the Antitrust Agencies have clearly stated the existing HSR Form is insufficient for them to analyze proposed transactions.

While the actual increased timing burden is yet to be seen, parties can expect that a standard 10-business-day filing deadline in a transaction agreement will likely not provide sufficient time to complete the forms unless parties start preparation significantly ahead of signing. Moreover, only time will tell whether pre-filing consultations with the Antitrust Agencies become a de facto necessity in order for parties to avoid the risk of having their HSR Form bounced for alleged gaps in the information and/or data provided in the HSR Form.

When the rules and related form changes are implemented, clients may want to consider engaging with antitrust counsel earlier in their negotiations and transaction planning to ensure that they are aware of the new document creation and document collection requirements. It will also be important to identify the “supervisory deal team leads” who will be handling the day-to-day transaction process early on.

After they are officially published later this week, the proposed rules and related changes to the HSR Form will be open for public comment for 60 days. This comment period could result in the Antitrust Agencies making material changes. Given the scope of the changes, the comment period may be extended further. Then, the Antitrust Agencies will publish a final version that incorporates and/or responds to the public’s feedback, a process that typically takes several months to complete. Additionally, a 30-day notice is required before any final rules become effective. Therefore, it is unlikely that a final rule revising the HSR Form goes into effect prior to late 2023 at the earliest.