The New HSR Rules Are Here at Last – What They Mean for Your Deal

Last week, the Federal Trade Commission (“FTC”) announced the most expansive rewrite of the Hart-Scott-Rodino (“HSR”) premerger notification regime in 48 years. 

Under the new HSR rules, parties to a reportable transaction must produce more documents and competitive information, particularly for deals in which the parties are actual or potential competitors or are in a vertical supply relationship. Under current HSR thresholds, transactions valued at $119.5 million or more may require an HSR filing.

The new rules will increase the time and cost of making HSR filings. The FTC estimates that preparing a filing will require an average of 68 hours of additional time for each party to a reportable transaction. In complex deals between competitors or companies in a vertical relationship, preparation time could be longer.

The new rules are expected to take effect in mid-January 2025.

Significant changes include:

1. An Obligation to Produce More Internal Documents Discussing Competition – Under the new rules, parties will be required to produce periodic internal plans and reports shared with a filing party’s CEO or the board discussing market shares, competition, competitors, or markets for any overlapping product or services. In addition, parties must produce internal transaction documents related to competition created by or for the “supervisory deal team lead” for the transaction—not just officers or directors of the filing party.
2. Narrative Information About “Each” Transaction Rationale – The new rules require parties to “identify and explain each strategic rationale for the transaction discussed or contemplated by the filing person or any of its officers, directors, or employees.” This is a significant departure from current HSR practice, in which parties had no affirmative obligation to identify any benefits, synergies, or other rationales for a transaction.
3. More Information About Competitive Overlaps, Including “Potential” Overlaps – The rules require parties to determine if there may be an actual or potential competitive overlap based on a party’s “documents created in the ordinary course of business” or based on a determination that the parties generate revenue in the same six-digit NAICS code. Once a party has determined that there is an overlap, the party must provide a “brief” description of the “principal categories of products and services” in which the parties compete or are potential competitors. The parties must also provide annual revenue information for each overlapping product or service, a description of all categories of customers, and a list of the top 10 customers in the most recent year for each product and service, and for each customer category.
4. New Requirement to Disclose Detailed Information About Vertical or Supply Relationships – For the first time, HSR rules will require disclosure of information related to vertical/supply relationships. Parties will be required to identify and describe “each product, service, or asset (including data)” that either party has “sold, licensed, or otherwise supplied” to the other that represented at least $10 million in revenue in the most recent year, in addition to other information. For each such product service, or asset, the parties must provide sales volume information and a list of top customers.
5. New Requirement to Provide Information About Officer/Director Affiliations – In deals involving competitive overlaps, the new rules require the acquiring party to disclose the board and corporate affiliations of each officer and director with entities outside of the filing company, where those entities are in the same industry as the target.
6. New Requirement for Parties Filing on Letters of Intent – Under current HSR rules, parties are permitted to submit HSR filings before the execution of a definitive agreement by filing on a signed letter of intent (“LOI”). Going forward, enforcers will require parties to provide a term sheet or draft of the definitive agreement if the LOI lacks certain key terms, such as: “the identity of the parties; the structure of the transaction; the scope of what is being acquired; calculation of the purchase price; an estimated closing timeline; employee retention policies, including with respect to key personnel; post-closing governance; and transaction expenses or other material terms.”

Key Takeaways

• Parties should modify deal timelines to allow sufficient time to prepare HSR filings—especially for deals in which the parties are actual or potential competitors or are in a vertical supply relationship. Complex deals may require significantly longer lead time to gather the required information and prepare the filing.
• Noncompliance with the new rules could lead to significant penalties. If enforcers determine that a party’s filing is deficient and the transaction has closed, they can seek of monetary penalties of up to $51,744 per day of non-compliance. Parties should exercise caution when complying with the new HSR rules.
• Some parties may consider accelerating HSR filings to benefit from the current, less burdensome HSR rules that will remain in effect until mid-January 2025.
• Expect more investigations into vertical and potential competition issues, as well as board interlocks, based on new information that parties will be required to submit on these topics. Consider analyzing these antitrust risks early in transaction planning.
• Expect enforcers to make more frequent calls to customers and other market participants about transactions under review, since the new rules require parties to identify customers in deals with any horizontal overlap or with a vertical supply relationship.
• Parties should continue to exercise care in creating transaction-related documents discussing any competition-related topics, as well as transaction benefits. Parties should exercise new caution when preparing periodic market studies, since the new rules may require the production of these studies if there is a competitive overlap.
• While the new rules do not require submission of new information about labor markets, expect enforcers to continue to inquire about labor-market effects during merger investigations.
• The rules for determining reportability under the HSR Act are complex and subject to numerous exceptions. Parties should continue to consult with antitrust counsel to determine whether their transaction may be reportable.