New FTC Rules Will Make Mergers Slower, More Costly, More Complex

Merger reviews are seldom quick—and they could get a lot slower and more expensive under the Federal Trade Commission’s recently proposed changes to the rules implementing the Hart-Scott-Rodino Antitrust Improvements Act.

The agency conservatively estimates the proposed changes will cost businesses $350 million annually, with the average filing time increasing from 37 to 144 hours. Nearly half of all filings, with competitive overlaps, will require 222 hours.

The proposed changes would require HSR reportable deals to provide expanded or new information across several key areas, including labor market effects.

First, each party would need to explain the strategic rationales for the transaction and then identify documents in the filing that support each rationale.

Second, each party must then explain any areas where they actually do or potentially could compete, and also identify any vertical supply relationships between the parties or with competitors. This new focus on vertical supply relationships is meant to identify whether the merging parties have any control or influence over critical inputs.

As part of that disclosure, parties must also submit sales data and contact information for customers and suppliers.

Third, the parties must provide detailed information about the structure and organization of the filing entities and minority interest holders. And for the first time, the parties must submit information about other interest holders, who don’t have control of the parties, but who may still be able to influence decision-making.

Both parties would also have to go back 10 years and disclose any prior acquisitions—including asset transactions—in industries where there is a horizontal overlap between the filing parties.

Fourth, the proposal expands the search for and production of 4(c)/4(d) documents, which cover competition and market issues, beyond officers and directors to include supervising deal team leaders, and also requires submission of draft 4(c)/4(d) documents.

Parties must also submit ordinary course plans or reports that analyze market shares, competition, competitors, or markets for any current—or planned—overlapping product or service.

Any foreign language documents would require verbatim English translations, and each filer would also have to identify all communications and messaging systems used by the organization.

Fifth, the proposed rules require the disclosure of any subsidies from foreign entities or governments of concern in accordance with the Foreign Merger Subsidy Disclosure Act (Title II). There is also a new requirement for the parties to identify any defense or intelligence contracts held by either party.

Sixth, and most importantly, each filing party must share workforce data, which the FTC and Department of Justice will use to screen for any labor market effects. Each filing party would have to classify its five largest categories of workers using a six-digit Standard Occupational Classification code, provide the number of employees under each code, and identify any geographic overlaps.

Each party would also have to disclose any penalties levied or findings uncovered by the US Department of Labor’s Wage and Hour Division, the National Labor Relations Board, or the Occupational Safety and Health Administration during any or all of the prior five years.

Gathering—and in many cases, creating—all of this new information will require parties to rethink and revise expectations on how quickly HSR filings can be completed after a deal is signed. Beyond that, parties will need to ensure that they are prepared to address questions about the competitive impact of this new information.

The FTC and DOJ will continue to focus on market concentration, but the new rules will also bring scrutiny to prior acquisitions, even those that were not reportable. Similarly, potential competition and vertical supply relationships will be scrutinized. Finally, labor market effects will remain front and center as transactions are reviewed.

The initial proposal made it clear that labor market effects are enough to block a transaction, as shown by the DOJ’s successful suit to block Penguin Random House’s acquisition of Simon & Schuster based on the theory that the merger would have led to lower author compensation.

On July 19, 2023, the FTC released new draft merger guidelines affirming that position, explaining that “a merger’s harm to competition among buyers is not saved by benefits to competition among sellers.”

At its core, the agencies’ position is that negative labor market effects are not offset by other pro-competitive benefits to consumers or competition. With that in mind, parties should work with counsel to undertake their own evaluation of any labor market overlaps and impacts before an HSR filing. If there are any overlaps, all parties should be prepared to answer questions during the requisite 30-day waiting period.

The notice of proposed rulemaking was published in the Federal Register on June 29, 2023, and the comment period ends on Aug. 28, 2023. If the FTC issues a final rule, it will take effect 30 days after publication in the Federal Register, possibly as early as Q4 2023. Thus, companies considering HSR-reportable transactions should learn about the proposed changes—and understand how to minimize any potential burden.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Jeetander Dulani is an antitrust and False Claims Act partner at Stinson.

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