US Antitrust Enforcers Revamp Premerger Notification Program (2)

Companies seeking to merge will be required to disclose more information to regulators about overlapping business lines and investors under new guidance adopted by the Biden administration.

The rewrite of the premerger notification program will allow the Federal Trade Commission and the Justice Department to better identify illegal mergers by giving them more information at the outset, the FTC said in a Thursday statement.

Under the Hart-Scott-Rodino Act, companies making acquisitions valued at more than $119.5 million must submit a form giving antitrust regulators 30 days to review the deal.

The regulation is less extensive than the agencies’ initial proposal. The final rule dropped requirements on labor-related disclosures, as well as a proposal that called for merging parties to submit 10 years of prior acquisitions without any size threshold. Companies will continue to be required to disclose prior acquisitions dating back five years.

The update represents the first large-scale redesign of the HSR process since it was implemented in the 1970s, according to the FTC. It also follows the December 2023 release of new merger guidelines, which formalized the Biden administration’s approach to regulating consolidation across the economy.

Key changes to the HSR process include requiring information on the business lines of each merging party to reveal existing areas of competition and supply relationships. Firms will also be required to disclose investors in the buyer, including those with management rights.

Other revisions are targeted at making companies reveal more about areas of future competition and emerging rivals, as well as the role of private equity and minority investors in deals, FTC Chair Lina Khan said in a statement.

The commission voted 5-0 to adopt the final rule. The rule will take effect 90 days after publication in the Federal Register.

“The new HSR Form represents a generational upgrade that will sharpen the antitrust agencies’ investigations and allow us to more effectively protect against mergers that may substantially lessen competition or tend to create a monopoly,” Khan said.

‘Burden-Shifting’

The HSR proposal released last year elicited backlash from businesses and corporate lawyers, who argued the requirements would place a costly burden on merging parties and delay deals by months.

The vast majority of mergers don’t raise antitrust concerns for regulators and are finalized after the initial waiting period expires. But the agencies can ask for additional information about a deal, triggering an in-depth probe.

In fiscal 2023, the agencies asked for more information about 37 deals, which represents 2% of all HSR reportable transactions, according to data released publicly Thursday.

“While these new rules are scaled-back versions of the rules originally proposed, the overall effect is a substantial burden-shifting from the government to the filing parties, especially for private equity and other interests that engage in significant M&A activity,” Ryan Phair, a co-chair of Paul Hastings’ antitrust group, said in an email.

A the same time, the upcoming election and legal challenges could present “significant hurdles” for the new rule, Phair added.

Along with the changes, the FTC said it will introduce a new online portal for market participants and the general public to directly submit comments on proposed transactions that may be under merger review.

The FTC will also lift a suspension on the early termination of HSR filings that it imposed in 2021 amid a surge in mergers and acquisitions. The move paves the way for FTC staff to identify deals that don’t need a 30-day review because they may lack competition issues.

Khan, however, used that update to call for Congress to extend the 30-day timeline, saying it would align with a “reality” in which antitrust authorities are reviewing 150 deals a month.

Labor Issue

The FTC head also acknowledged that the final rule pares back some of the proposed disclosures that would have given the agency more info on how a merger would affect the workforce.

Still, Khan said new disclosure mandates “on overlap and supply relationship descriptions, as well as new high-level business and transaction-related documents, will enable the agencies to identify whether a proposed deal risks undermining competition for workers.”

The comments came as GOP FTC Commissioner Melissa Holyoak hailed the elimination of specific requests for employment information. The provision was excluded from the final rule because it was a “solution in search of a nonexistent problem,” Holyoak said in a statement.

That prompted a separate response by the commission’s Democratic majority, which stood by its authority under federal antitrust laws to scrutinize consolidation’s effect on labor markets, citing research suggesting fewer companies competing for workers is linked to lower wages.

The FTC currently is fighting proposed deals in the grocery and fashion markets in part over the alleged anticompetitive effects they will have in the labor markets. It also in April issued a ban on noncompete agreements that restrict worker mobility.

A Texas federal judge in August vacated the rule nationwide, finding the FTC lacked the legal authority to issue a regulation focused on unfair methods of competition. The FTC is considering appealing that decision.