Dealmakers Hail Easing of New Antitrust Review Rule for Mergers

The Biden Administration’s decision to scale back new merger review requirements is a win for corporate law firms, who warned the changes would add unnecessary costs to deals.

The Justice Department signaled Wednesday that its revamp of the Hart-Scott-Rodino filing notification program for companies seeking to merge will be less extensive than earlier proposed. The finalized rule generally will place smaller burdens on merging parties, likely meaning fewer disclosure requirements, the agency said.

The move follows push back from law firms like Wachtell, Lipton, Rosen & Katz, the powerful mergers and acquisitions shop, as well as Dechert, Foley & Lardner, and Axinn Veltrop & Harkrider, a Washington firm specializing in antitrust. Business groups also chided at the proposed changes.

“A win for clients is a win for us,” said Michael Keeley, the antitrust practice leader at Axinn, which handles between 50 and 100 HSR filings each year. “Companies don’t have unlimited budgets for transactions.”

Regulators use HRS notification filings—required for mergers valued at over $119.5 million—to preliminarily screen for antitrust issues before a deal is consummated.

The DOJ and Federal Trade Commission are set to release a final rule updating the filing process in the coming weeks, said Andrew Forman, a deputy assistant attorney general in the DOJ’s antitrust division. The regulation will include “material differences” from the proposal and place “less burden” on merging parties, Forman said Wednesday during the American Bar Association’s antitrust spring meeting.

The initial proposal, part of the Biden administration’s efforts to rein in anti-competitive mergers, called for dealmakers to submit more disclosures on everything from labor market issues to details regarding a company’s previous acquisitions. Proponents of the overhaul argued more disclosure would give regulators a better window into large, complex mergers while rightly shifting burdens from understaffed agencies onto merging parties.

The proposal would have required firms to add an average of 107 hours per filing, or a jump from 37 to 144 hours, according to estimates from the Federal Trade Commission. A Chamber of Commerce report claimed the added costs could reach more than $1 billion—costs that would end up largely in the pockets of lawyers.

While much of those costs would go to lawyers, the proposal would delay deals by months and stretch capacity for companies considering deals, opponents argued. Some lawyers also noted that many firms wouldn’t have the resources to handle the enhanced filing requirements.

The full cost of complying with the new version of the rule is unclear. Law firms may eventually need to hire up if there is a significant increase in the number of hours required in the process, said Michael Wise, a litigation partner who oversees the antitrust regulatory practice at Paul Hastings.

“It is a challenging balance, because we don’t want to create a team that that can’t be supported,” said Wise. “What we and a lot of firms are doing is planning on pulling resources from other groups that have some flexibility, to be able to support that in the near term if we need to.”

Opponents of the proposal argued the change would stretch capacity for many companies and their counsel, who would be required to submit far more documentation than before, regardless of the competition issues posed by a deal.

Additional requirements would be felt by smaller firms with fewer resources.

Large firms such as Kirkland & Ellis employ separate teams on deals to address concerns including HSR. Kirkland has a 16-person mergers and acquisitions clearance team, led by Kurt Wunderlich, dedicated to HSR analysis and filing.

“We obviously have to wait and see what moderation is taking place,” said Axinn’s Keeley.

Critics of the regulation may still go to court to try to prevent the rule from going into effect, a route taken against recent rule changes by the Securities and Exchange Commission and other agencies.

‘Material Differences’

The Biden administration has embarked on an ambitious antitrust agenda in response to what it sees as harmful consolidation across certain parts of the economy. It’s planning to release an update to the HSR filing process as part of a broader overhaul to the US merger guidelines.

The FTC and DOJ have said additional disclosure requirements will help them more efficiently screen mergers and acquisitions, which happen at a far more frequent pace than when the pre-merger filing regime was first imposed nearly 50 years ago. There were more than 1,800 HSR filings in 2023, according to FTC data.

Regulators are seeking an “appropriate balance” between modernizing the HSR process and avoiding undue burdens on merging parties, Forman said at the American Bar Association’s spring antitrust meeting.

FTC chair Lina Khan has previously said the disclosures required in the current HSR form are “insufficient” to make a determination on whether a deal violates antitrust laws.

It is uncertain whether amendments to the proposal will address some top issues brought up by law firms. New requirements for reporting labor market issues and forcing private equity sponsors to report their limited partners were among firms’ top concerns.

“The identities of private equity investors are a very, very closely held secret for every private equity firm I’ve ever worked with,” said Wise. “And it’s also the case that it’s largely irrelevant to the antitrust review.”

The American Investment Council, which lobbies on behalf of the private equity industry, filed a comment opposing the rule.

Regulators may instead tweak requests for translations of all foreign language documents or disclosures of all communication tools. That would decrease the potential burden on firms, but they were secondary concerns among opponents of the proposed rule, said Francis Fryscak, founder of Bay Area boutique firm SecondSight Law.

“Labor market issues affect only a tiny number of actual deals,” said Fryscak. “It’s almost like asking everyone who goes in to see the doctor for a full list of everything they’ve eaten for three days—its relevant for maybe 4% or less of the people walking through the door.”