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In the first major overhaul in 45 years, on June 27, the Federal Trade Commission (FTC) with the concurrence of the Department of Justice Antitrust Division (DOJ) published proposed revisions to premerger notification rules that implement the Hart-Scott-Rodino Improvements (HSR) Act. The proposed changes to the premerger filing process are extensive and could add up to 222 hours of work for merging parties. The changes also bring the U.S. pre-merger process more in line with processes in other jurisdictions such as the European Union. The FTC claims that the changes are designed to enable the FTC and DOJ to more “effectively and efficiently” analyze the competitive effects of a transaction within the 30-day statutory waiting period. The proposed changes also emphasize some of the agencies’ enforcement priorities, including competition in labor markets and competition in nascent markets. The most significant proposed changes are around documents, competition analysis, and labor.

Document Requests

Currently, parties filing premerger notifications generally must only submit final versions of documents that discuss markets, market share, competitors, and competition and the like that were prepared to evaluate the transaction at issue that were prepared by or for an officer or director.  Parties must also submit some transaction documents such as the acquisition agreement. With the proposal, the agencies want more extensive document submissions, such as:

  • All agreements related to the transaction (g., ancillary documents and all schedules) as well as all agreements between buyer and seller for the past year – whether specifically related to the transaction or not.
  • Ordinary course documents including “semi-annual and quarterly plans and reports that discuss market shares, competition, competitors, or markets of any product or service” that buyer and seller shared with their respective high-level executives. This is a significant change because today ordinary course documents are typically not required.
  • Documents relating to market shares, competition, etc. provided to supervisory deal team leads in addition to officers and directors of the filing parties as well as additional draft of documents that discuss market shares, competition, and the like.
  • Furthermore, filing parties would be required to provide verbatim English language translations of all documents submitted with the filing, which is currently not required and could add significant costs, not just time, to the filing process.

Competition Analysis

The purpose of premerger notification filings is to enable the FTC and DOJ to make an initial assessment of whether the proposed transaction may substantially lessen competition during a 30-day waiting period. To assist its review, the proposed revisions request more information from the filing parties, including narrative disclosures, similar to what competition regulators in other jurisdictions such as the European Union require.

  • Both the buyer and seller would have to provide a rationale for the transaction. This rationale is a narrative description of strategy reasons for entering into the transaction.
  • The agencies propose that buyer and seller identify their horizontal overlaps—that is how the parties directly compete—in far more detail than simply providing NAICS codes and the limited documents that are called for today.
    • This requirement would include listing each current or known planned product or service of a party to the transaction that competes with or could compete with a current or known planned product of the other party to the transaction. This requirement tracks the FTC’s concern about large companies acquiring potential competitors to keep them out of the market.
    • For any overlapping products, parties would need to provide customer information, sales, and a description of licensing arrangements. The parties must also provide non-compete or non-solicitation agreements related to the employees or business units for these overlapping products and services, evidencing the agencies’ concern around competition for talent.
  • The buyer and seller would also have to fill out a Supply Relationships Narrative section describing each product, service or asset each party has licensed, sold, or supplied in the last two years to the other party or to another business that to a party’s knowledge uses it to compete with the other party or uses it as an input to a product or service that competes or is intended to compete with the other party. Data is specifically called out in the proposed revisions as an included asset that must be reported on.

Labor Markets

Following on President Biden’s 2021 Executive Order on Promoting Competition, FTC and DOJ are pursuing aggressive action in labor markets. The DOJ has brought criminal charges for alleged violations of wage-fixing, and the FTC in January 2023 proposed a rule prohibiting employment non-competes except in limited circumstances. The agencies propose the creation of a new Labor Markets section in the HSR Form that would provide information for the agencies to determine if the transaction affects competition in labor markets.

  • The proposed rule would create a new Employee Classifications section and require buyer and seller to “list their five largest categories of workers by the relevant 6-digit SOC [Standard Occupational Classification] classification” and provide total number of employees for each of those relevant SOC codes.
  • Additionally, the rule would create a Geographic Market Information section by requiring buyer and seller to provide for those overlapping SOC codes the overlapping Department of Agriculture ERS-defined commuting zones and the number of employees each party has in an overlapping commuting zone.
  • The agencies also propose a new Worker and Workplace Safety Information section where the buyer and seller would need to identify any penalties issued against the buyer or target by the US DOL Wage and Hour Division, NLRB, or OSHA for the five-year period prior to the transaction. This could raise potential concerns for parties outside of antitrust given the DOJ’s and FTC’s agreements to share information with the Department of Labor and NLRB, respectively.

Other Changes

  • The proposed changes also include incorporation of legislation enacted by Congress in 2022 requiring filing parties to report subsidies granted in the past two years by foreign governments or by government agencies of foreign countries defined as covered nations (North Korea, Russia, Iran, and China).
  • The proposed revisions would require the submission of organizational charts for funds and master limited partnerships and for filing parties to describe the ownership structure of the buyer and target.
  • The proposed rules revise and expand the industries for which parties would need to provide detailed geolocation data for buyer and target have overlaps. In addition to providing street address for NAICS code overlaps for certain industries, filing parties would also have to provide latitude and longitude information for overlapping establishments.
  • Buyers were already required to report certain prior acquisitions within the five years prior to a filing for identified NAICS code, but the proposed rules significantly broaden prior acquisition reporting requirements. Under the proposed rules, buyer and target both need to report prior acquisitions for the past 10 years for any NAICS code overlap or overlap described in the horizontal overlap narrative. Parties have to provide information for all acquisitions of 50% or more of companies or all or substantially of the assets of an operating unit of a company, eliminating the revenue threshold in the current form.
  • The agencies propose requiring filing parties to list all other jurisdictions where merger filings are required or are required to parties’ best knowledge. Currently, it is optional whether to disclose foreign merger filings.
  • The agencies propose requiring filing parties to identify any active or pending procurement contracts with DOD or any US intelligence agency valued $10 million or greater and providing details regarding the contract and the relevant agency contact.
  • Pursuant to the proposed revisions, filing parties would have to list all communications or messaging systems on any device “that could be used to store or transmit information or documents related to its business operations.” The reasoning for this requirement is that the agencies state parties are using new messaging applications in lieu of email and raise the issue of document preservation for these communications.

The sweeping proposed revisions are the latest action in the FTC and DOJ’s aggressive enforcement agenda and likely to significantly impact deals. According to the FTC, experts estimate that on average the proposed rules will require 107 additional hours for a company and outside counsel to prepare each HSR filing. A filing would take an additional 12 to 222 hours of time depending on whether there were overlaps and the amount of additional information parties would need to gather. The FTC has only published the agencies’ proposal, which is open to comment for 60 days by the public. The comment period will end on August 27, 2023. Buchanan’s antitrust team is available to counsel any companies regarding the impact of these proposed rules and advise on preparing comments for submission to the agencies.