A. Administrative Changes
As originally proposed, transacting Parties would be required to provide information on a range of new topics, including among other things: (1) Labor and Employment Information (including for example penalties or findings against filing parties for past OSHA violations), (2) Draft competition-related documents, (3) Production of documents from people that report directly to the CEO, (4) Certification that the filing party took steps to preserve documents, (5) An obligation to produce deal timeline and geolocation information, (6) Identification of creditors and other interest-holders, and (7) Disclosure of the messaging systems used by the transacting Parties. While none of these proposals ultimately made their way into the final rules, the ultimate changes are significant nonetheless. Primary administrative changes include requirements that filers: (1) Translate submission documents, (2) Organize legal entities by operating company or business unit, (3) Provide a transaction diagram to the extent one exists, (4) Provide transaction agreements and all exhibits and schedules (including additional details for non-definitive agreements), (5) Identify any ex-US antitrust filings, (6) Identify existing agreements (e.g., licensing, non-competes, supply) between the parties, (7) For deals involving an identified overlap or supply relationship, identify officers, directors, and other entities for which they serve as officers or directors, (8) Identify subsidies from a foreign entity or government of concern, (9) Identify and provide industry codes for minority-held entities that overlap, and (10) Report past acquisitions in overlap codes.
B. Product Descriptions & Overlaps
The HSR rule changes also require filers to describe in detail information on competitive overlaps. Filers must now provide information on (1) “Principal categories” of products and services as reflected by documents created in the ordinary course of business, (2) Current or planned products or services that “could compete” with the other party, (3) Sales in dollars for overlapping products for the fiscal year, (4) Customer categories for the overlapping product or service, (5) Planned product development, testing, regulatory approvals required, and product launch dates, and (6) Top 10 customers for overlap products and top 10 customers by customer category for the last year. While ultimately it is within the discretion of the filing Parties to determine what qualifies as an overlap, commentary to the new rules refers to product or service substitutes to the same theoretical customer base. The new rules also make clear that the Agencies do not view NAICS codes alone as sufficient indicators of competitive overlap.
To the extent there are any non-horizontal relationships between the Parties, filers must now provide information on: (1) Products sold between the parties during the past year, (2) Sales to other businesses that use the product to compete with the other party, or as input that competes (or is intended to compete) with the other party, (3) Products incorporated as an input purchased or licensed from the other party or its competitors in the last year, (4) Sales to or purchases from the other party or its competitors in the last fiscal year, (5) Top 10 customers or suppliers for such products and a description of any supply agreement or license.
C. Transaction Rationale & Additional Documentary Requirements
In addition to the new substantive requirements that filing parties will have to comply with as part of the revised HSR process, filers will be required to include a description of the strategic rationale for the proposed transaction and identify where (in company documents) the strategic rationale appears. Perhaps most expansively, the rules also require submission of regularly (quarterly or greater) prepared business plans provided to the CEO (of any company entity) related to competitive products and any plans and reports provided to the Board (whether regularly prepared or not) related to competitive products. The rules extend current Item 4 responsiveness requirements beyond just transaction-specific documents prepared by or for an officer or director to include competition deal documents prepared by or for a “supervisory deal team lead”, or the person most responsible for overseeing the strategic assessment of the deal who is not an officer or director.
D. Filing Considerations
The FTC estimates that, depending on deal complexity and the number of overlapping products or supply relationships between the Parties, the new rules could increase the amount of time required to prepare filings by two to four times as compared to the current rules. While the rule amendments do not change the exemptions governing whether or not a filing is required, Parties considering transactions that require an HSR filings should build in sufficient time and cost expectations to prepare the filings, and ensure the regulatory covenants in the relevant transaction documents reflect that additional time. Early antitrust risk assessment, scoping of transaction rationale, and document creation discipline will be critical given the expanded nature of documents that must be submitted to the Agencies. While providing additional information to the Agencies at the outset may ultimately lead to protracted investigations, it could also allow the Agencies to confirm there are no issues requiring additional investigation at an earlier stage.
Parties can still file HSR before executing a definitive agreement (e.g., an executed LOI or other agreement that the Parties have a good faith intent to complete the deal), but the new filing requirements mandate that Parties include “sufficient detail” about the scope of the transaction in that document, including for example the transaction structure, estimated closing timeline, purchase price calculations and other material terms.
While the new filing regime will be significantly more burdensome in many respects, the FTC announced several changes that filers will likely welcome. Once the new rules go into effect, the FTC announced that it will reinstate Early Termination (originally suspended in response to COVD-19) which allows Parties to request the termination of the applicable HSR waiting period before it ends. Additionally, select 801.30 transactions (passive investments) will be exempt from certain filing obligations. The Agencies are also introducing a new online portal for the submission of comments on proposed transaction that may be under review and will make assigning industry and product codes easier for filers.
