By Bilal Sayyed

Counsel | Antitrust

The information and documentary materials (filing requirements) necessary to complete the Hart-Scott-Rodino merger notification filing form have been significantly expanded.  The new filing requirements will fall most heavily on transactions that combine current or future competitors, or where the parties to the transaction have a significant supply relationship.  For such transactions, it may be necessary to anticipate a 3-5 week process to submit an HSR filing and receive confirmation that the filing is in compliance with the new filing requirements.  However, every HSR filing party will be affected by at least some of the new requirements.  In a significant change to long-standing practice, parties to a negotiated transaction may no longer file on a “bare-bones” letter of intent. Additional details on the scope of a possible transaction will be required for submission of the HSR filing.

Satisfied that the new filing requirements will give them the information necessary to analyze the potential competitive effects of notified transactions, the Federal Trade Commission also announced that it would rescind the “temporary suspension” of grants of early termination of the HSR waiting period, coinciding with the effective date of the new reporting requirements.  The new filing requirements will take effect 90 days after their publication in the Federal Register; thus, no earlier than late January 2025.

The new filing requirements were adopted unanimously by the FTC (but with separate statements by each of Chair Khan (joined by Commissioners Slaughter and Bedoya), and Commissioner Holyoak and Commissioner Ferguson), with the concurrence of the Department of Justice.

The new filing requirements expand the reporting requirements for all transactions, but the burdens do not fall equally on filing parties, with acquired persons having fewer new filing requirements than acquiring persons.  The FTC has also taken steps to minimize or limit the increased burden for certain categories of transactions, with transactions more likely to raise competitive concerns having greater information and document requirements.

• Select 801.30 Transactions: Parties to transactions that: (i) do not (a) confer control of an entity or (b) grant (or contemplate granting) the right to serve as, appoint, veto, or approve board members (or members of a similar body) of any entity within the acquired person (or the general partner or management company of any entity within the acquired person) and (ii) are acquisitions of shares from a party other than the issuer of the shares, have only limited new filing requirements.
• No Overlap / No Supply Relationship Transactions: Parties to transactions that are not the combination of: (i) present or future competitors; or (ii) firms with an existing significant supply relationship, have significant new filing requirements.
• Overlap / Supply Relationship Transactions: Parties to transactions that are the combination of: (i) present or future competitors; or, (ii) firms with an existing significant supply relationship, have substantial and significant new filing requirements.

Not all new requirements apply to each type of transaction and to each party to a transaction. Below, we first identify the new and modified information and document requests, and then summarize them in a chart by type of transaction and by filing person.

The new and modified document requests include:

• Expansion of the existing “Item 4(c)” document request to include all “studies, surveys, analyses, and reports” prepared by or for the Supervisory Deal Team Lead for the “purpose of evaluating or analyzing the acquisition with respect to market shares, competition, competitors, markets, potential for sales growth, or expansion into product or geographic markets.
• Requirement that the filing parties produce “plans and reports” that analyze “market shares, competition, competitors, or markets” for overlap products (including products known to be in development by the target) that were provided to the Chief Executive Officer or Board of Directors within one year of the date of the HSR filing;
• Corporate organization chart, if it exists;
• Agreements negotiated as part of the transaction, including agreements not to compete (or solicit), and certain other agreements between the parties not associated with the transaction;
• A transaction diagram, if it exists;
• Translation of documents (or information) that are in a language other than English;
• Narrowing of what constitutes a “draft” document for purposes of identifying “final” documents to be produced with the filing.

The new and modified information requests include identification of:

• limited partners, where such person (i) currently holds (or will hold as a result of the transaction) 5% or more, but less than 50% of the non-corporate interests of the limited partnership, and (ii) has, or will have, the right to serve as, nominate, appoint, veto, or approve board members (or individuals with similar responsibilities), of any entity within the filing person, or of the general partner or management company of any entity within the filing person;
• officers and directors who also serve as an officer or director of another entity that derives revenue in the same NAICS code as the target;
• overlapping products or services, and sales data (or data measuring use) and customer information for each overlapping product or service;
• significant supply, licensing, and purchase relationships between the parties, or with competitors to the parties, including sales and purchase data, and identification of top customers or suppliers;
• acquisitions, within five years prior to the date of HSR filing, of 50% or more of the voting securities or non-corporate interests (or all or substantially all of the assets) of an entity that, prior to its acquisition, earned revenue in one or more “overlap” products;
• broader minority ownership interests than previously required;
• broader geographic market information than was previously required (for certain transactions);
• subsidies from foreign entities or “governments of concern”;
• existing or pending defense and intelligence contracts; and
• whether the transaction will be notified to non-U.S. competition agencies.

The new narrative requirements include identification of:

• strategic rationale for the transaction;
• “principal categories of products and services” of the filing person, including products known to be in development and that compete with the products or services of the other filing person;
• supply and purchase relationships between the parties to the transaction and to businesses that compete with one or both filing persons; and
• ownership structure of the filing person.

Commentary

For some transactions, the new filing requirements will require a substantial increase in the time and effort necessary to prepare an HSR filing. To help minimize the new filing requirement’s impact on a filing timeline, parties can collect, maintain, and update certain information – such as minority ownership positions, geographic locations of operations, officer and board positions, relevant contracts and subsidy information, prior acquisitions, and ordinary course plans and reports – on a regular basis or substantially earlier in the transaction negotiation process.

The most significant items to manage are likely to be the collection and review of documents that analyze, or that relate to the analysis of, the competitive impact of the transaction. The new requirements are a significant expansion of the past requirement that such documents be prepared by or for an officer or director of the filing person by adopting a third category – documents (including emails) that may have been produced by or for a significantly lower-ranking employee of the filing person.  The FTC has also narrowed the scope of what qualifies as a draft document (which do not have to be produced with the filing), increasing the volume of documents to search for, review and submit with the filing.   

Filing parties may find they disagree with the antitrust agencies over the identification and description of their products, including overlap products (or services); although the narrative description of products (or services) is not, on its face, a market definition exercise, it may naturally devolve to that.  Market definition is often the most important factor in an antitrust analysis. The requirement to define overlap products looks very much like an effort by the agencies to “lock-in” a market definition at the start of the merger review period, not after an investigation.  Disagreements on the description of products (or services) may, at times, lead the agency staff to reject a filing as non-compliant. For transactions that may raise competitive concerns, the notification process may begin to look substantially more like the process in Europe, where “second-phase” investigations are often accompanied by settlements worked out in the “filing-phase” discussions. Transactions where the parties have a horizontal overlap or where they have a significant supply/purchase relationship with each other or with competitors to the other, are likely to be significantly harder to get on file quickly, and may also be more likely to be challenged because of “admissions” in the parties’ filing document.