FTC and DOJ Propose Significant, Burdensome Changes to HSR Form for U.S. Merger Review

Key points

• The Federal Trade Commission (FTC) with the concurrence of the Department of Justice (DOJ) are proposing changes to the premerger notification form, associated instructions, and the premerger notification rules that implement the Hart-Scott-Rodino Act (HSR).
• The proposed changes completely overhaul the notification obligation and will greatly increase the reporting burden for merging parties, making this the most significant change to the HSR process in four decades.
• Parties to a transaction will need to scope out antitrust issues earlier and build time into the transaction timeline to gather and prepare the information needed for the HSR filing process.
• The notice of proposed rule-making was published in the Federal Register on June 29, 2023, triggering a 60-day comment period ending August 28, 2023. The FTC may then issue a final rule, which would then not take effect for an additional 30 days of the final publication.

Why is the FTC proposing the changes? 

On June 27, 2023, the FTC announced a notice of proposed amendments to the premerger filing requirements under the Hart-Scott-Rodino (HSR) Act.¹ FTC Chair Lina Khan explained that the Commission view that the information collected under the current HSR form is insufficient for the FTC staff to assess within the initial 30-day period (or 15 days for certain transactions such as cash tender offers) whether a proposed transaction may violate the antitrust laws.² The FTC does not, however, purport to lessen the immense information gathering burden the U.S. agencies may still impose on parties once the filing has been made. 

This shift to require additional information and documents as part of the initial notification brings the U.S. closer to the approach followed in many international jurisdictions that require parties to disclose substantially more information in their merger filing forms with, detailed information about each filer's business lines, company operations, and markets.³ 

By contrast in the United States, the approach has been to require a simple notification upfront to limit the burden on filers as the vast majority of transactions do not raise any antitrust concerns.⁴ The FTC or DOJ, depending on which agency investigates the transaction, may then request more information during the initial waiting period that would allow the relevant agency to assess whether a transaction may require further investigation. Should the agencies believe that a transaction warrants further investigation, they could then issue a Request for Additional Information and Documents (“Second Requests”). In its Notice of Proposed Rulemaking, the FTC explicitly acknowledged that the proposed changes departs from this approach by front loading the information requests and would require a significant amount of additional information for all deals.⁵ The FTC notice is silent on whether the agencies would still use the post-filing waiting period to request yet more information consistent with current practice. 

What are the key proposed changes?

The proposed amendments amount to a near total overhaul of the current filing requirements. Key proposals include: 

1. Expanded Business Disclosure and Document Submissions: The proposed amendments would require substantive information that is supposed to provide an understanding of the totality of the transaction. Parties would have to submit an explanation of the strategic rationales for the transaction, such as those relating to competition for current products and obtaining certain intellectual property, and identify which documents concurrently submitted with the HSR filing support the described rationale.⁶ 
   In addition to the transaction-related documents, the proposed amendments would call for submission of high-level strategic business documents. The current HSR form only requires certain documents not created in contemplation of the transaction. This would mean that certain plans and reports created in the ordinary course of business, such as semi-annual and quarterly plans and reports discussing market shares, may need to be considered.
2. Overlaps: The changes would create new requirements to provide narratives describing the filing parties’ basic business lines and provide product or service information for all related entities. Parties would have to identify current and potential future horizontal overlaps and supply relationships between the filing persons. The proposed rules would create a new horizontal overlap narrative section, for overlapping products or services, with sales and customer information (including contacts), a description of licensing arrangements. Reflecting the recent agency interest in restrictions on employee, and non-compete or non-solicitation agreements applicable to employees or business units related to the product or service.⁷
3. Labor Markets: The FTC also proposed that each filing party provide information about its workers in order to screen for potential labor market effects that might arise in the transaction.⁸ Additional information includes classification of employees based on Standard Occupation Classification system, geographic information for each overlapping employee classification, and even worker and workplace safety information. This information is expected to help FTC identify whether the filing parties compete to employ the same types of workers in a particular geographic area.
4. Projected Revenue Streams: The current HSR form requires the reporting of revenue by industry and product codes with respect to operations conducted within the United States during the most recently completed fiscal year. The proposed amendments would streamline the process by eliminating the requirement for filing parties to provide the precise amount of revenue attributed to each North American Industry Classification System (NAICS) code.⁹ With the proposed changes, the NAICS codes can be reported on a descriptive basis, encompassing all U.S operations. Furthermore, the proposed rule contemplates extending this reporting to certain pipeline or pre-revenue products.
5. Prior Acquisitions: The FTC proposes expanding the scope of prior acquisitions that would have to be identified in the form, which currently only requires disclosure of acquisitions in which both the acquiring and the acquired person derived $1 million or more in revenue within the last five years.¹⁰With the proposed amendments, the burden would double with reporting acquisitions over the prior ten years. The amendments would also eliminate the threshold for listing prior acquisitions, which currently limits reporting to only acquisitions of entities with annual net sales or total assets greater than $10 million in the year prior to the acquisition. This change would be inconsistent with the purpose of the HSR Act, which only requires notification of transaction above a certain threshold. 
   The offered rationale for this expanded disclosure obligation is that it will facilitate the agencies’ identification of a potential pattern of acquisitions that has contributed to a trend leaning towards concentration.  
6. Translations: While the FTC currently does not ask parties to translate foreign-language materials with the initial filing, the proposed changes require the submission of an English translation of all foreign-language documents. For both the initial HSR filing and in response to a request for additional information, the original foreign-language document must be accompanied by an English translation.¹¹ The FTC does not specify any particular method of translation for this purpose.
7. Foreign Subsidies: The notice also proposes changes requiring disclosure of information on subsidies received from certain foreign governments or entities. This rule would implement requirements recently legislated pursuant to the Merger Filing Fee Modernization Act of 2022. In that Act, Congress mandated that the FTC implement a rule to collect information on subsidies received from foreign governments or entities that can pose strategic or economic threats to the United States.¹³ This change seeks to address Congressional concerns that such subsidies from foreign countries or entities can distort the competitive process following an acquisition or change the incentives of the subsidized party in ways that undermine competition.
   This new subsidy disclosure requirement is consistent with international trends. For example, the Foreign Subsidies Regulation (FSR) came into force in the EU in January and provides tools to address foreign subsidies.
8. Document Holds: The amendments would also purport to impose ongoing document retention obligations during the waiting period. The FTC seeks to require affirmation that officers, directors, or other individuals have taken steps to prevent destruction of documents, including all communications and messaging platforms, related to the transaction before the expiration of the waiting period. This could include the suspension of auto-deletion policies during the waiting period.

What happens next?

The notice of proposed rule-making was published in the Federal Register on June 29, 2023. The public can file comments over the next 60 calendar days, until August 28, 2023. In its Notice, the Commission invites parties to comment on potential approaches to reduce the burden for the filing parties and on whether certain amendments pose exceptional difficulty.

After the 60-day comment window, the FTC will review the public comments and potentially make revisions prior to publishing the final changes. Once finalized, the amended Rules will become effective 30 days after publication in the Federal Register.

Key takeaways 

• The implications are significant as they would create added financial, documentation, and timing burdens for filers. To the extent that a proposed transaction is reportable under the HSR Act, parties would need to submit copious details about their business and relationships among interested holders. The filing would also require a substantial document submission. 
• In particular, parties will need to be aware of a potential obligation to maintain and preserve documents consistent with new retention obligations, possibly considering implementing document holds on deal-related documents and communications. 
• These obligations purport to apply to all filers and reportable transactions, even those that may raise no antitrust concerns. 
• Parties should engage with antitrust counsel early on in the transaction lifespan and be prepared to provide detailed information about the organization, business operations, and the proposed transaction, regardless of whether the transaction presents legitimate competition concerns. 
• While the final rules have yet to be confirmed and published, parties should expect to bring in experienced antitrust counsel earlier in the process to make timely and informed HSR submissions. 

Footnotes

1 16 C.F.R. Parts 801 and 803: Premerger Notification; Reporting and Waiting Period Requirements, p. 5, available here (hereinafter “Proposed Amendments”). 
2 Press Release, Federal Trade Commission, 16 C.F.R. Parts 801 and 803: Premerger Notification; Reporting and Waiting Period Requirements (June 28, 2023)
3 Proposed Amendments, p. 8.
4 According to the most recent statistics published by the FTC, in fiscal year 2021, the U.S. agencies issued second requests in 1.8% of all reported transactions. Press Release, Federal Trade Commission, FTC, DOJ Issue Fiscal Year 2021 Hart Scott Rodino Premerger Notification Report (Feb. 10, 2023),
5 Proposed Amendments, p. 36.
6 Proposed Amendments, p. 47. 
7 Proposed Amendments, p. 63.
8 Proposed Amendments, p. 67.
9 Proposed Amendments, p. 71.
10 Proposed Amendments, p. 84.
11 Proposed Amendments, p. 19.
12 Proposed Amendments, p. 11. 
13 Competition Policy Foreign Subsidies Regulation, EUROPEAN COMMISSION, https://competition-policy.ec.europa.eu/foreign-subsidies-regulation_en (last visited June 30, 2023).