Historic changes to U.S. HSR filings would increase filing burden for transaction parties

The Federal Trade Commission (FTC) and the Antitrust Division of the Department of Justice (DOJ)—the U.S. agencies authorized to evaluate the anticompetitive effects of certain M&A transactions—have released proposed changes to the filing requirements for transacting parties. If adopted, this historic overhaul would increase the filing burden for parties to a transaction. 

What you need to know

• The FTC and DOJ have released proposed changes under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act) to require transacting parties to supply more documents and information with filings required by the HSR Act.
• The FTC and DOJ observe that the new rules, if adopted, would be akin to the premerger filing requirements in several other jurisdictions, and they are similar in several respects to what Canadian dealmakers already provide in a Competition Act filing.
• The FTC and DOJ are soliciting public comments through September 27, 2023.

What’s behind the change

The HSR Act authorizes the FTC and DOJ to review certain mergers and acquisitions to determine whether they will have the effect of substantially lessening competition. Parties required to notify a transaction under the HSR Act have a 30-day waiting period before closing (and longer if the agencies request additional information).

The agencies have seen a tenfold increase in HSR filings since the Act came into force almost 50 years ago, and reportable deals have grown increasingly complex, but the HSR Act’s filing requirements largely have remained the same.

The proposed revisions would arguably be the most profound in the Act’s history, yet the agencies contend they are simply designed to achieve the goals Congress originally intended when it established the HSR Act, by updating requirements to meet a changed transactions landscape. According to the FTC and DOJ, the proposal aims to provide them with sufficient information to adequately assess the competitive effects of the rising volume of M&A transactions within the statutory constraints of the HSR Act.

What these changes would mean for future M&A transactions

The U.S. antitrust agencies observe that the new rules, if adopted, would be akin to the premerger filing requirements in several other jurisdictions, and they are similar in several respects to the components of what Canadian dealmakers already provide in a Competition Act filing.

The new rules, if substantially adopted as proposed, would notably require filing parties to supply:

• their rationale for the transaction, a detailed transaction timeline and all agreements (including non-compete, supply or licensing agreements) that would be in effect within one year of the filing;
• a narrative competition analysis of products or services in horizontal and vertical business relationships;
• expanded information on stakeholders, including investment managers, minority investors, creditors and other persons with influence;
• a materially broader scope of documents, including organizational structure charts and all drafts and final documents prepared by and for directors, officers and deal team leads;
• disclosure of labour-related data and workplace safety compliance; and
• details of the parties’ document retention, communications and messaging systems relating to business operations.

According to the agencies’ estimate, the HSR filing would take four times as long to prepare under the new rules.

The proposed rules would also eliminate parties’ ability to submit HSR filings (thereby starting the waiting period) on the basis of a letter of intent. Instead, parties could only file upon a draft term sheet or agreement that contains “sufficient detail about the scope of the entire transaction”.

Looking ahead

The proposed changes to HSR Act filings represent a further step by the FTC and DOJ under the Biden administration to proactively address concerns that they have not been sufficiently leveraging U.S. antitrust laws to preserve and promote competition. In conjunction with recently proposed revisions to the agencies’ merger guidelines, these changes have the potential to alter the U.S. antitrust premerger regime for many years to come.