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On October 10, 2024, the U.S. Federal Trade Commission (“FTC”) adopted <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/p110014hsrfinalrule.pdf" target="_blank" rel="noopener">new rules</a> (the “Final Rule”) that will significantly increase the scope of information and documentation filing parties must disclose in transactions subject to the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “HSR Act”). The Final Rule will be effective 90 days after publication in the Federal Register, which is anticipated to be January 2025. This client alert provides a summary of important rule changes.

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Generally, the HSR Act requires parties to a transaction that meet certain dollar thresholds to prepare and file a premerger notification report (an “HSR Filing”) with the FTC and the US Department of Justice. The parties must then observe a statutory waiting period before completing the transaction. The Final Rule will significantly increase the burden, time, and cost to prepare HSR Filings. Consequently, parties to a transaction that will require an HSR Filing should contact counsel early in the transaction process and prepare well in advance of closing to minimize delays of the time of closing.

With the Final Rule in effect, the FTC estimates that the additional time to prepare and make HSR Filings will range from 68 to 121 hours. This will depend on a wide variety of factors specific to each transaction, such as the number of overlapping products and/or supplier relationships and the number of documents that must be included with an HSR Filing.

Additional Information Required in HSR Filings

Additional Information About Corporate Entities

The Final Rule has expanded disclosure requirements regarding the disclosure of minority stakeholders, investment funds, and entities holding indirect stakes in either the target or acquiring entity. The FTC was concerned that the current form and rules did not provide all of the information that the regulatory agencies needed to determine decision-making authority over the parties to a transaction.

The new HSR Filing forms, for both the acquiring party and the acquired party, will require a description of current or potential competitive overlaps in services and products. The following is a non-exhaustive list of such information that will be required by the new HSR Filing forms:

Sales data from the most recent fiscal year, for all overlapping competitive products or services.

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A description of the categories of customers that use overlapping competitive products or services.

A disclosure of overlapping customer categories, including a list of the top 10 customers in the most recent year that purchase or use overlapping competitive products or services.

A disclosure of products in a filing party’s R&amp;D pipeline that may overlap or are competitive with the other party’s business.

A disclosure of certain geographic information related to overlapping products and services.

Overlapping NAICS codes with US operations, which includes ‘doing business as’ entities that have been used within the last three years.

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The new HSR Filing form will require acquiring parties, but not acquired parties, to provide detailed descriptions of the acquiring entity’s ownership structure, including the following information:

An organizational chart for fund or master limited partnership UPEs, to the extent applicable.

Sufficient descriptions to identify and show the relationship of all the entities that are affiliates or associates of the acquiring party.

A disclosure of any officers or directors in overlapping industries.

Additional Information on Past Transactions

The Final Rule will require that HSR Filings include reporting on certain prior transactions. This reporting requirement will include prior acquisitions occurring in business lines that the parties have identified as areas of overlapping current or future competition, based on either the NAICS codes or the described areas of overlap. Additionally, both the acquiring and acquired parties will now be required to report acquisitions made in the prior five years, excluding those below a threshold of $10 million in total assets or annual net sales in the year prior to the transaction.

Expansion of Documents Required to be Included in HSR Filings

The HSR Form has long required the filing of materials reviewed or prepared by the transaction parties that relate to competition and markets. The Final Rule notably expands the scope of the documents required in the new HSR Filing form. The following list details the type of documents that will now be required in an HSR Filing:

Certain documents prepared by the supervisory deal team lead. The supervisory deal team lead is defined as the individual who has primary responsibility for supervising the strategic assessment of the deal, and who would not otherwise qualify as a director or officer.

Responsive documents that were shared with any member of the board of directors (or similar body for non-corporate entities).

Regularly prepared strategic documents that are provided to the CEO or Board of Directors, particularly if those documents analyze issues related to competition or overlapping products and services, even if these documents do not relate to the subject transaction.

Filing parties will be required to disclose a description of any subsidies received from foreign entities or governments of concern within the past two years. The FTC currently defines “foreign entity or government of concern” in accordance with section 40207 of the Infrastructure Investment and Jobs Act, 42 U.S.C. 18741(a)(4), which references multiple other statutes. This definition may evolve as the underlying statutes change, but currently it includes nations such as China, Russia, Iran, and North Korea.

The HSR Act requires that parties do not close their proposed transaction while the HSR Filing is being reviewed and until the expiration of a statutory waiting period, which for most transactions is 30 days. Following the Final Rule coming into effect, the FTC will lift its suspension on early termination of HSR Filings. Therefore, parties’ requests to terminate the initial 30-day waiting period will again be considered.

The FTC’s Premerger Notification Office will continue to provide compliance guidance to assist filing parties as the Final Rule takes effect. Michael Best attorneys will continue to monitor communications and guidance from the FTC.

To help reduce the cost and burden the HSR Act has on transactions and to better anticipate the timing of a closing, we encourage clients to plan for additional HSR Filing requirements early in the deal process. For assistance navigating these new requirements, please reach out to a Michael Best &amp; Friedrich attorney.

The FTC press release announcing the Final Rule can be found at the link below.

<a href="https://www.ftc.gov/news-events/news/press-releases/2024/10/ftc-finalizes-changes-premerger-notification-form" target="_blank" rel="noopener">FTC Finalizes Changes to Premerger Notification Form | Federal Trade Commission</a>

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FTC Announces Changes to Hart-Scott-Rodino (HSR) Filing Rules

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