On June 27, 2023, the Federal Trade Commission, with the concurrence of the Department of Justice (the “Agencies”), announced a proposal to effect major revisions to the current premerger notification requirements under the Hart-Scott-Rodino Act (the “HSR”). HSR filings are generally required for larger mergers and acquisitions.
Under the HSR, the filings allow the Agencies to evaluate whether a certain transaction is violative of anti-trust laws. Major changes include:
- The HSR approval process cannot be undertaken based upon a letter of intent; rather, HSR filers must submit a detailed draft agreement or term sheet that sufficiently describes the transaction’s scope;
- Imposition of document-retention obligations upon filing parties, such that all communications systems or messaging applications on any device used by the acquiring or acquired person must be identified if said mediums could be used to store or transmit information regarding its business operations. A filing person would be required to certify that they took steps to prevent destruction of relevant information. The proposed requirement would encompass “internal chat technologies,” including those which automatically delete content, necessitating the disabling of any auto-delete settings;
- The establishment of an electronic filing system;
- Reporting of all entities or individuals, even limited partners (who are currently not required to be identified), holding 5% or more of (1) the acquiring entity; (2) any entity directly or indirectly controlled by the acquiring entity; (3) any entity directly or indirectly controlling same; and (4) any entity within the acquiring person that has been or will be created by the transaction’s effectuation;
- In order to “reduce the additional burden” imposed by the changes, the Agencies proposed that the acquired person need only identify minority holders of the acquired entity(ies) that will retain an interest in said entity(ies) or will receive interests in any entity within the acquiring person;
- The requirement of separate filings for HSR filers that are both an acquiring and acquired person;
- English translations of all foreign-language documents;
- Additional disclosures as to organization structure of the Ultimate Parent Entity and identity of individuals and other entities that may hold influence over access to confidential business information or business decisions;
- Identification of officers, directors, or board observers of all entities within the acquiring person and acquired entity. Further, filers would have to identify all other entities for which these individuals currently serve, or have within two years prior served, as an officer, director, or board observer;
- Submission of a narrative providing all strategic rationales for a transaction, a diagram of the deal structure with a corresponding chart explaining relevant entities and individuals involved in the transaction, all transaction-specific agreements inclusive of schedules and exhibits, all agreements between any entity within the acquiring person and any entity within the acquired person that are effective at the time of the HSR filing or have been effective within the year prior to filing, and a narrative timeline setting forth key dates and closing conditions;
- Currently, HSR disclosures require filing persons to provide all studies, surveys, reports, plans, and analyses that were provided by or for officers or directors to evaluate the acquisition regarding market shares, competition, potential for sales growth, or expansion into products or geographic markets (“transaction-related documents”). The proposals would add the supervisory deal team lead(s) to the list, thereby requiring the submission of transaction-related documents provided by or for the supervisory deal team lead(s). The revisions further require filers to submit drafts of transaction-related documents if such drafts were provided to officers, directors, or supervisory deal team lead(s);
- The filing person’s provision of narratives that (i) describe basic business lines; (ii) provide product or service information for all related entities; (iii) disclose potential horizontal overlap between filing persons; and (iv) provide information about employees and the services employees provide; and
- The narrative responses would have to provide an overview of the filing person’s principal categories and services, both current and planned, and identify current or potential horizontal and/or vertical overlaps between filing persons.
The revisions stand to impose a much higher burden upon HSR filers and will undoubtedly increase the volume of documents agencies receive, and in turn review, for transactions exceeding the minimum HSR threshold resulting in unprecedented, material delays in the merger process—even for transactions not raising any possible antitrust concerns. Public comments can be made until August 8, 2023.
Please contact Leon Rittenberg III, Leon J. “Trey” Reymond III, or Ben Parks should you have any questions regarding the Agencies’ proposed changes.
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