New Antitrust Rules Boost Lawyer Workload, Add to Client Costs

Lawyers after weeks of work with new merger disclosure rules say the requirements are adding time and complexity to moving deals forward.

The lawyers who previously were able to process filings under the Hart-Scott-Rodino Act in about two weeks are now finding the work takes about twice as long. The lengthened reviews cost companies more, as lawyers must bill more time and bring on additional help.

“It is something clients have to budget for, both timewise and economically,” said Meredith Beuchaw, a mergers and acquisitions partner at Lowenstein Sandler. “It’s certainly affecting our deal timing.”

Companies pursuing mergers and acquisitions valued at $126.4 million or more must subject themselves to review by antitrust enforcers under the Hart-Scott-Rodino Act. The Federal Trade Commission roughly three months before President Joe Biden left office unveiled a major overhaul of the merger notification program, saying the old requirements proved insufficient for today’s economy.

Under the new approach, companies must disclose more information about a planned merger, creating work for lawyers guiding the deals. Lawyers rushed to submitted filings before the changes took effect Feb 10.

The FTC saw 394 filings during the last week under the old notification rules, up from the 35 and 50 transactions per week that were typical, FTC Chairman Andrew Ferguson wrote in a Feb. 18 memo. Yet when the Trump administration took over, it decided to keep the new rules in place.

“If merger guidelines change with every new administration, they will become largely worthless to businesses and the courts,” Ferguson wrote in the memo. “No business can plan for the future on the basis of guidelines they know are one election away from rescission, and no court will rely on guidance that is so obviously partisan.”

The Chamber of Commerce sued the FTC in January over the new rules.

‘Sufficiently Nervous’

Now that the changes have taken effect, lawyers are guiding their clients on how to navigate them. That includes the complex reporting needs that come with private equity buyers owning multiple portfolio companies, or strategic buyers owning several business segments.

“Everyone is sufficiently nervous about how much time and how burdensome preparing the filing will be,” said Zarema A. Jaramillo, antitrust and competition partner for Lowenstein. “They build in additional time into the deal documents and keep it in mind when they’re negotiating and trying to figure out when the deal will be signed.”

The slowdown has changed the order in which the deals process is executed. Instead of beginning to prepare the filing close to signing a transaction, that work may now start “three or four weeks ahead of time,” said F. Joseph Ciani-Dausch, antitrust and competition counsel at Skadden, Arps, Slate, Meagher & Flom.

Under the new rules, companies need to be more wary about what they report to their management teams.

Any document a company board member receives is fair game for disclosure in a Hart-Scott-Rodino filing. Similarly, companies must file any regularly prepared plans and reports related to competitive matters that are presented to the CEO.

“It’s more intrusive and requiring much more documentation, potentially reaching into drafts of various documents,” said Abiel Garcia, partner at boutique antitrust firm Kesselman, Brantly & Stockinger. “I will definitely have at least one more associate to help with diligence.”

Gray Areas

After just over a month of working with the new guidelines, lawyers are still trying to understand them. Some gray areas are apparent, and the FTC may need to clarify them.

For example, the guidelines require companies to disclose reports that are regularly prepared for CEOs. However, if documents are provided to the CEO, but not with regularity, they don’t seem to fall within the scope of the new requirements.

“You could technically provide reports to the CEO, but not with any regularity,” said Lowenstein’s Jaramillo.

For some cases involving large entities with several business divisions, companies will need to investigate all of their departments, which can be time consuming, said Vadim Brusser, an antitrust and competition partner at Sidley Austin.

“You may have to go and find every business division where there’s a product overlap,” Brusser said, “and you have to collect all of those documents.”