The US Federal Trade Commission (the FTC) recently finalized sweeping updates to the form and instructions for the Hart-Scott-Rodino Act (HSR). These changes represent the most significant changes to the HSR reporting requirements in decades.
When do the new rules take effect?
The new rules are expected to go into effect on February 10, 2025. Any HSR filings submitted after the effective date must comply with the new rules.
What do the new rules require?
Expanded Document Collection and Production
The new rules add a new category to the list of decision makers whose access to internal deal-related documents triggers HSR disclosure requirements. The new position is a “supervisory deal team lead” and is considered to be the individual with primary responsibility for supervising the strategic assessment of the deal (other than someone who would otherwise qualify as an officer or director). Documents supplied to the “supervisory deal team lead” will need to be produced.
In addition, the new rules require filing parties to submit all regularly prepared plans and reports dated within one year of the HSR filing which were provided to the filer’s CEO if the document analyzes market share, competition, competitors or any product or service market. Draft documents shared with any member of the Board of Directors of a party will also need to be submitted. Currently, only drafts shared with the entire Board is considered final and must be submitted.
Disclosure of Transaction Rationale and Competition and Supply Descriptions
Each of the acquiring and acquired parties will be required to provide a narrative description of their strategic rationale for the transaction as well as their products and services and any supply relationships between the parties.
Increased Organizational Structure Disclosure
The acquiring entity in a transaction subject to the HSR rules will be required to provide more detailed structure charts and information about affiliate and investor entities, including minority interest holder information. Disclosure will also be required for entities which hold indirect stakes in either the acquired or acquiring entities. This requirement may be particularly burdensome for private equity backed entities.
Disclosure Regarding Officers and Directors
If there is a competitive overlap between the parties, the new rules require the acquiring person to list recent officers and directors who have responsibility for the development, marketing or sale of the overlapping products or services.
Information Regarding Prior Acquisitions
Although the previous HSR rules required the acquiring party to disclose previous acquisitions, the revised rules require reporting by both parties of certain relevant prior acquisitions from within five years of the filing.
Will the new rules increase the time and burden for filing parties?
Yes. The new rules will require substantially more planning, time and effort on the part of the acquiring and acquired parties. In fact, the FTC itself estimates the time required to complete the HSR form will increase between two and threefold.
Is the FTC reinstating the early termination process?
The FTC had effectively suspended any requests for early termination of the HSR waiting period since February 2021. In conjunction with the new rules, the FTC announced it would resume considering early termination requests when the new rules take effect, although it is unclear how frequently early termination will be granted.
Conclusion
The revised HSR rules and requirements represent a significant increase in the amount of information required to be disclosed and the size of the burden associated with compliance. Parties to a transaction which may be subject to the HSR Act should consider analyzing the antitrust risks and potential competitive overlaps early in the transaction process and should consider building in additional time to complete the additional filing requirements.
Disclaimer: Information contained in this summary is for general education and knowledge. It is not, and does not attempt to be, comprehensive in nature. Further, it is not designed to be, and should not be used as, specific legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship.
