Unpleasant October surprise – the FTC announces final rule expanding HSR filing disclosures

The FTC stated that the final rule will take effect 90 days after its publication in the Federal Register in the next few days.  The FTC issued the final rule after considering public comments on the FTC’s notice of proposed rulemaking (NPRM) that was published in June 2023.  While the final rule is less burdensome than the June 2023 NPRM – notably, it rejected new requirements to provide labor information and draft competition-related documents – it will prove significantly more burdensome than the current filing requirements. The FTC estimated that the average number of additional hours required to prepare an HSR filing going forward would be 68 additional hours, with an average low of 10 additional hours for certain limited types of filings by acquired persons (only 8 percent of filings) and an average high of 121 additional hours for filings by acquiring persons in transactions where the parties overlap (45 percent of filings). 

The FTC announced that following the final rule coming into effect, the FTC will lift the “temporary” suspension on early termination of the HSR waiting period, which began in February 2021.  The FTC will also launch an online portal where industry market participants (e.g., customers, competitors, suppliers) and the public can send comments on proposed transactions that may be under review by the FTC.

Key updates in the final rule

Noteworthy changes and additions include the following reporting requirements:

• Submission of additional transactional and ordinary course documents: Parties will need to submit a broader set of documents analyzing competition- and synergy-related issues, including documents prepared by or for the “supervisory deal team lead” and certain ordinary course documents relating to overlapping products or services provided to the Board of Directors or CEO.  Parties will also need to submit a broader set of transaction-related agreements, including all exhibits and schedules to the principal agreement and any side-letters or other agreements negotiated in conjunction with the transaction.
• Details on overlapping products and services: Parties will need to provide information regarding their current or planned products or services that overlap with current or planned products or services of the other party, including a description of all categories of customers that purchase or use such products or services and each party’s top 10 customers for these overlapping products or services.
• Details on supply relationships: The parties will need to provide information about certain supply relationships with the other party and its competitors, including identification of the top 10 customers that use its products or services to compete with the other party.
• Details on the strategic rationale for the transaction: The parties will have to identify and explain the strategic rationale for the transaction.
• Information about certain officers and directors: The acquiring party will need to supply certain information about its officers and directors, including whether any officers or directors have similar roles in companies with products or services that overlap with those of the target.
• Information about minority shareholders or interest holders: The acquiring party will have to report specific information about certain minority shareholders, including the ownership structure of the acquiring entity and the identity of significant minority interest holders in the acquiror’s controlled entities.
• Disclosure of foreign subsidies and defense contracts: The parties will need to report information on subsidies (defined as grants, loans, loan guarantees, tax concessions, preferential government procurement policies, and government ownership or control) from certain foreign entities and governments and describe certain pending or existing defense or intelligence procurement contracts.
• Identification of international antitrust filings: The acquiring party will have to identify any non-US antitrust filings that have been or will be made in connection with the HSR reportable transaction (previously, this was a voluntary disclosure).

Next steps and practical implications

• This alert highlights key updates in the final rule; we will release more detailed descriptions of the new HSR filing requirements shortly.  For clients who may be impacted by this rule change, we will provide further guidance in the coming weeks.
• Parties should plan for the new rules to be effective for HSR notifications filed in early January 2025, assuming the rule is not suspended by a federal court.
• Although the effective date is several months away, parties should begin to figure out processes for tracking the various new reporting items under the final rule and consider the broader document disclosures for ordinary course and transactional documents being drafted now.
• Deal teams should be mindful of the added time needed to prepare HSR filings and incorporate time for filing preparation into transaction timelines and HSR provisions of deal documents.

Authored by Robert Baldwin, Michele Harrington, and John Hamilton.