Final Hart-Scott-Rodino Rules: What They Mean for M&A

On Oct. 10, 2024, the Federal Trade Commission (FTC) and the Justice Department Antitrust Division announced their final rule implementing significant changes to the premerger disclosures required by the Hart-Scott-Rodino Act (HSR). A notable change is that both parties to a merger or acquisition that meets the HSR threshold must file a premerger notification form with information the FTC estimates could take two to three times longer to collect.

The new rule will go into effect 90 days after publication in the Federal Register, which could be as soon as January 2025.

New Requirements

The new compliance process reorganizes the premerger notification forms, implementing separate forms for the acquiring person and the target, and greatly increases the breadth and types of documents and information required. The new disclosure categories include:

• An overlap description, including the identification of each of the current or planned products or services of the acquiring person that competes with (or could compete with) a current or planned product or service of the target, and the top 10 customers in each customer category
• A supply relationship description, including the top 10 customers and top 10 suppliers that compete with the target’s business, to identify whether rivals may be dependent on the merged firm for key inputs
• A transaction rationale, in which each party must explain each strategic reason for entering the transaction
• A broader swath of documents discussing markets and competition, including some plans and reports created in the ordinary course of business, collected from a broader category of individuals, including the “supervisory deal team lead” in addition to any officer or director
• Disclosure of all acquisitions by the acquiring person in the past five years of an entity or business with more than $10 million in sales or assets and some competitive overlap, to identify possible roll-up acquisitions
• Disclosure of all pre-existing arrangements or contracts between the parties
• Detailed information about the acquiring person’s ownership structure, including minority shareholders or investors owning over 5 percent of it or any of its subsidiaries that sold products in overlapping industries
• Detailed information about officers, directors, and corporate structure

Implications of the HSR Final Rule Changes

The FTC is being transparent about how much time this new documentation will take.

• Parties will need to start HSR planning earlier. The FTC estimates that these changes will require two to three times as many hours to collect documents and information and complete the HSR form, though the actual burden may be much higher
• Parties should do an earlier and deeper dive into current and potential competitive overlap
• Parties should be circumspect about creating ordinary course and deal documents describing market shares or competition, and about what documents are provided to the “supervisory deal team lead” or any officer or director
• Acquiring parties should consider competitive overlap even in non-reportable transactions, including because they may need to be disclosed in a subsequent transaction
• Once the rule goes into effect, the DOJ and FTC will lift their categorical suspension of early termination requests, allowing parties to request a decision in less than the standard 30-day waiting period
• Parties who file for HSR prior to that date will avoid the additional disclosure burdens

Other Changes Dropped from the June 2023 Proposed Rule

The FTC had originally sought far more expansive changes in its June 2023 proposed rule but rejected or modified many of those changes after consideration of the substantial number of public comments and objections. For example, the proposed rule would have required production of expansive labor market information and required the creation of entirely new documents. The FTC had also sought “draft” documents, and a larger number of “ordinary course” documents. The final rule drops these requirements.

Takeaways

The new HSR rule is a significant expansion of the disclosures required prior to completion of certain mergers and acquisitions. Parties should consider planning for organizing these documents earlier to avoid needless delay of any affected transactions.

For more information, please contact the Barnes & Thornburg attorney with whom you work or Kendall Millard at 317-231-7461 or kendall.millard@btlaw.com or Edward Satchwill at 317-261-7876 or edward.satchwill@btlaw.com.

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