Skip to Main Content

Insights

Oct. 16, 2024

New HSR Process Rules by FTC: What Sellers Should Know

By Denise M. Gunter

As we reported on Oct. 11, the Federal Trade Commission (FTC) and Department of Justice (DOJ) announced the final HSR (Hart-Scott-Rodino Antitrust Improvements Act of 1976) rules and form changes on Oct. 10.  While the “new” HSR rules appear much less daunting than the draft rules that were released in June 2023, the changes are still significant. 

HSR is the law that requires parties to notify the FTC and DOJ Antitrust Division in the event of large mergers, acquisitions, joint ventures, and other corporate transactions before their deals are consummated. Filing parties must typically wait 30 days after filing HSR forms before their deals can close. The FTC issued a Notice of Proposed Rulemaking (NPRM) to overhaul the HSR process in June 2023. To put it mildly, the proposed changes were massive, and a relatively straightforward process was poised to become significantly more time-consuming and expensive.

Clients will need to provide information not previously required, and practitioners must adapt to a new form, instructions, and information requests. All of this will take time, and the 90-day period before the rules take effect (currently estimated to be mid-January 2025) will be spent studying the changes and planning for readiness. As the Nelson Mullins Antitrust Team continues to digest the changes, let's start with some things sellers and their counsel should know.

  1. It will take more time and cost more money to complete the HSR form. The agencies estimate the new form will require an average of 68 additional hours to complete, and an average additional cost of $39,644 per filing. 
  2. Early termination is back! Early termination (ET), the process of getting HSR clearance sooner than the typical 30-day waiting period, took an extended leave of absence in February 2021. The reason was a tremendous uptick in merger filings during the Covid-19 pandemic. It seemed like ET was destined to become ancient history, but on Oct. 10, the agencies revealed that ET will again be available once the new rules take effect. ET is entirely discretionary with the agencies, but sellers may view the return of ET as particularly welcome news. Once the HSR waiting period has ended, the parties are free to close their transaction, subject to any other consents or approvals that may be required or conditions to be satisfied.
  3. The new rules do not change the size of person or transaction tests or eliminate any exemptions.  The size of person and transaction thresholds will be adjusted in the winter of 2025, just as they are every year.
  4. Sellers and buyers complete different forms and follow different instructions. Stating the obvious, follow the correct instructions and file the right form for your deal. Practitioners are also advised to read the new instructions carefully. While there are some similarities between the old and new instructions, there are also many differences. One example is a new definition for “supervisory deal team lead.” This is not a person who is an officer or director but someone who is supervising the strategic assessment of the deal. This person's documents will need to be reviewed for potential responsiveness under the “Business Documents" section of the form (i.e., former Item 4(c)).
  5. The new form looks different. Those of us who have been filing HSR forms for years are used to seeing a form with Items 1-8 and referring to certain categories of information by item number, such as “Item 4(c) documents.” The new form is now organized by topic and subtopic instead of item numbers, but much of the information we're used to providing is still required on the new form.
  6. Parties will need to state the rationale for the transaction and cross-reference the documents that discuss the rationale. Filers may ask: “Weren't we already doing that?” and the answer is probably yes, to the extent the rationale was disclosed in the documents produced with the filing. But now, filers will need to explicitly state on the HSR form what the rationale is. And rest assured, regulators who review filings will be reviewing the documents produced with the filing very closely to make sure the stated rationale matches what the documents produced with the filing say. 
  7. Sellers must identify their current or known planned products or services that compete with (or could compete with) current or known planned products or services of the buyer.  Sellers are explicitly cautioned not to exchange information with the buyer for purposes of answering this item. Presumably, this instruction is intended to prevent potential “gun jumping” or Sherman Act Section 1 issues that can arise in transaction planning.
  8. Relatedly, sellers must also identify their top 10 customers. HSR filings are confidential and not subject to Freedom of Information Act (FOIA) requests, but for transactions that raise potential competitive concerns, the agencies may contact these customers for their perspective on how the transaction may impact them.
  9. Sellers must identify supply relationships, such as products or services sold to the buyer or products or services sold to another entity that uses the seller's products or services to compete with the buyer. Answers to this question are limited to products or services that generated at least $10 million in revenue in the most recent year. Again, sellers are cautioned not to exchange information on this topic with the buyer. 
  10. Like supply relationships, sellers are required to provide the same information for purchases. 
  11. Sellers will need to complete the “prior acquisitions” section of the form (previously Item 8).  This section requires disclosure of prior transactions over the preceding five years where there is a competitive overlap with the buyer and where the entity acquired had $10 million or more in assets or sales in the year prior to the acquisition. Currently, only buyers must provide this information.

Suffice it to say, these are not all the changes sellers will face under the new rules but should acquaint sellers with some of the essentials that have caught our eyes. Next, we will turn to things buyers need to know. 

Established in 1897, Nelson Mullins is a full-service Am Law 100 firm of more than 1,000 attorneys, policy advisors, and professionals with offices across the United States. For more information, go to www.nelsonmullins.com.