The FTC announced today a notice of proposed rulemaking (“NPRM”)[1] proposing extensive revisions to both the rules that implement the Hart-Scott-Rodino Antitrust Improvements Act (the “Act” or “HSR Act”), and the Premerger Notification and Report Form (the “Form”) that merging parties must submit under the Act. The NPRM would also implement the Merger Filing Fee Modernization Act of 2022.
In a statement announcing the proposed changes, FTC Chairperson, Lina M. Khan, emphasized that the proposed changes “seek to fill key gaps that [the FTC] staff most routinely encounter, such as inadequate information about deal rationale or the details of how a particular investment vehicle is structured. In addition, the current HSR Form fails to capture information about key aspects of competition, such as labor markets or research and development activity. The NPRM proposes to address these and other shortcomings.”[2]
The NPRM greatly expands the scope of the information merging parties must submit with premerger notifications under the HSR Act, requiring filers to provide for the first time analysis of a proposed transaction’s potential competitive impact. While some of these proposed changes were expected, many reach beyond the traditional scope of premerger review in the U.S. and may generate some pushback.
Publication of the proposed amendments in the Federal Register is expected in the coming days. Upon publication, interested parties will have 60 days to file comments.
1. Redesign of the HSR Form and Expansion of Information Required
The proposed changes are the most significant since the adoption of the HSR Act.
With the stated goal of improving the efficiency of the premerger review process during the initial 30-day review period, the FTC is “proposing a comprehensive redesign of the premerger notification process through both a reorganization of the information currently required and the addition of new information requirements.”
Below are the most significant additional information requests proposed in the NPRM:
- key information about the terms and strategic rationale of the transaction, along with a diagram of the deal structure;
- description of the business operations of the parties, including new narratives describing their basic business lines and providing product or service information for all related entities;
- competition analysis including identifying current and potential future horizontal overlaps and supply relationships among the filing persons;
- information about the filer’s employees and what services these employees provide in order to aid the Agencies’ evaluation of the potential impact of proposed transactions on labor markets;
- list of the acquiring person’s investors, including minority investors owning 5% or more (including limited partners of investment funds) and other investors who may exert influence (e.g., as board members or creditors);
- identification of the officers, directors, and board observers (or in the case of unincorporated entities, individuals exercising similar functions) of all entities within the acquiring person and acquired entity (going back two years prior to filing) to allow the Agencies to identify existing, prior, or potential interlocking directorates and to assess the competitive implications of such relationships under both Sections 7 and 8 of the Clayton Act;
- additional transaction-related and strategic documents, as well as ordinary-course business documents that discuss competition in the markets affected by the proposed transaction;
- English translations of foreign-language documents;
- information about the filer’s contracts with defense or intelligence agencies in order to expedite the identification of all stakeholders and facilitate the review process across Agencies;
- information about the filer’s communication systems or messaging applications on any device that could be used to store or transmit information or documents related to its business operations; and
- information about other jurisdictions that will review the transaction, including a voluntary waiver option to permit sharing of information submitted in the HSR Act process with International Competition Authorities and State Attorneys General that may review the proposed transaction.
2. Implementation of the Merger Filing Fee Modernization Act of 2022
The proposed changes implement the Congressional mandate requiring filers under the HSR Act to provide information on subsidies received from certain foreign governments or entities that may threaten U.S. strategic or economic interests. The FTC proposes to require the following disclosure by each filer as part of the HSR Act premerger notification:
- identify and describe, based on its knowledge or belief, certain subsidies received, or that are anticipated to be received, by any entity within its person from a foreign entity or government of concern, subject to a proposed two-year limitation;
- identify any of its products produced in a country that is a covered nation (under 42 U.S.C. 18741(a)(5)(C)) that are subject to countervailing duties in any jurisdiction; and
- identify, based on its knowledge or belief, any of its products produced in whole or in part in a country that is a covered nation that are the subject of an investigation by any jurisdiction for potential countervailing duties.
FOOTNOTES
[1] FTC and DOJ Propose Changes to HSR Form for More Effective, Efficient Merger Review | Federal Trade Commission; Proposed Amendments to HSR Rules Form Instructions (ftc.gov); 16 CFR Parts 801 and 803: Premerger Notification; Reporting and Waiting Period Requirements | Federal Trade Commission (ftc.gov);