On June 27, the Federal Trade Commission (“FTC”) announced a proposal for significant changes to the premerger notification filing process under the Hart-Scott-Rodino Act (the “HSR Act”), with the concurrence of the Assistant Attorney General of the Antitrust Division of the U.S. Department of Justice (the “DOJ” and, together with the FTC, the “Agencies”).

The FTC’s proposal includes significant changes that, if adopted, would greatly impact the process for parties to M&A transactions that must submit filings pursuant to the HSR Act by, among other things, expanding the scope of documents required to be submitted, adding expense to the process, and extending the anticipated timeline for preparing, finalizing and submitting an HSR filing (and ultimately consummating the transaction). The FTC’s most significant proposals include the following:

• Draft Agreements or Term Sheets — The FTC proposal would require filing parties that have not yet entered into a definitive agreement at the time of filing to submit a draft agreement or term sheet that describes the scope of the contemplated transaction in sufficient detail. Today, filers may submit only a preliminary agreement. The FTC’s proposal would prevent filers from starting the 30-day clock without submitting a sufficiently detailed term sheet or draft agreement.
• Transaction-Related Documents — The FTC’s proposal expands the documents required to be submitted with the HSR filing, adding the submission of transaction-related documents prepared by or for supervisory deal team leads, forward-looking assessments of synergies or efficiencies, drafts responsive to the request for transaction-related documentation, and certain high-level strategic business documents not created in contemplation of the deal (e.g., strategic plans that discuss general market dynamics or competitors).
• Transaction-Specific Agreements — The FTC’s proposal would also require submission of all transaction-specific agreements, including non-competition and non-solicitation agreements and any other agreements negotiated with key employees, suppliers or customers in conjunction with the transaction, regardless of whether both parties to the transaction are party thereto.
• Transaction Rationale — The FTC’s proposal would require that filing persons provide a narrative that identifies and explains each strategic rationale for the transaction, as well as specify which documents submitted with their HSR filing support those rationales.
• Labor Market Impacts — In line with the Agencies’ recent emphasis on the potentially adverse impact of deals on labor markets, the FTC’s proposal would require filing parties to provide additional information about their employees and plans that would impact them post-closing.
• Competitive Overlaps — The FTC proposal seeks narrative information about the parties’ existing and potential relationships, including horizontal overlaps and supply relationships. The filing parties would also need to submit all agreements between any entity within the acquiring person and any entity within the acquired person that is in effect as of the date of filing or was in effect within the one-year period prior thereto.
• UPE Information — The FTC proposal would require the ultimate parent entity to: (i) list all controlled entities by operating company or business; (ii) identify certain minority holders (including limited partners) of the acquiring person and certain affiliates; and (iii) identify certain persons who have provided credit to the acquiring person or certain affiliates. Filing parties would also need to identify the officers, directors and board observers of the acquiring person, the acquired person and certain of their affiliates, as well as the prospective officers, directors and board observers of the acquiring and acquired persons post-closing.
• Prior Acquisitions — The Agencies have been more closely evaluating market dominance after tie ups that proceeded without agency scrutiny (due to size or other reasons). The FTC now wants to expand the scope of required disclosure relating to prior acquisitions, including by eliminating the existing minimum threshold for disclosure, lengthening the reporting look-back period from five to ten years, and requiring the acquired person to also make disclosures of prior acquisitions.

The FTC has also proposed deleting certain items from the form, as well as making certain revisions in response to the Merger Filing Fee Modernization Act of 2022, including requiring disclosure of foreign subsidies from countries or entities that threaten the strategic or economic interests of the United States. Other notable proposals include requiring: (i) submission of translations for all foreign-language documentation; (ii) submission of separate filings where a person qualifies as both the acquiring person and the acquired person; (iii) disclosure of which foreign antitrust enforcement agencies are or may be evaluating the proposed transaction; and (iv) submission of a deal structure diagram and a narrative timeline of key milestones.

If adopted, the FTC’s proposal would impose a significant burden on transacting parties, requiring the submission of more documentation, lengthening the timeline for completing transactions, significantly increasing the costs of doing deals, and adding uncertainty to the process. In fact, the FTC itself anticipates that its proposed changes would add an average of 107 additional hours per filing (from 37 hours to 144 hours), as well as an aggregate of approximately $350,000,000 in labor costs per year. Private equity firms and publicly-traded and private companies with more complex structures will be disproportionately impacted. However, parties with straightforward structures and narrow business operations will also be burdened by the costs and efforts of preparing HSR filings that satisfy the terms of the FTC’s proposal.

Even parties contemplating transactions that raise little or no antitrust concerns will need to factor in additional time to satisfy the requirements of a more robust HSR filing. Filing parties will need to start preparing their HSR filings much earlier in the deal process, engage key service providers early on, and proactively collect information from the early stages of a deal process. Preparation of the HSR filing will also require involvement of company executives and other management, and increase the burden on the deal team involved in negotiating and consummating the deal.

The deadline for public comments on the FTC’s proposal has been extended to September 27, 2023. In particular, comments have been solicited on the following topics: “(1) whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility; (2) the accuracy of the agency’s estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used; (3) ways to enhance the quality, utility, and clarity of the information to be collected; and (4) ways to minimize the burden of these information collections on respondents.” We anticipate a robust comment period.

While it is unlikely that all of the FTC’s proposals will be reflected in its final iteration, the FTC has proposed significant changes to the premerger filing process and transacting parties will need to keep up to date on future developments to this process as they pursue (and optimize the timing of) M&A transactions.

For additional information, please contact one of the authors listed or any member of our Mergers & Acquisitions Practice Group.