Expect to spend twice as long preparing a filing under the Hart-Scott-Rodino merger review process under final guidelines released by the Federal Trade Commission and Department of Justice, an analysis says. 

What typically took about 37 hours to comply with will likely take closer to 70 hours, Freshfields attorneys say in a memo on what in-house counsel can look forward to once the guidelines take effect, slated for mid-January. 

“The time, cost, and burden on all filing parties will increase significantly,” the attorneys say in their Oct. 16 analysis. “And [the increased burden] almost certainly underestimates the time required for strategic transactions.”

The attorneys conducting the analysis include Christine Wilson, who resigned as a commissioner of the FTC in early 2023 after a tenure marked by dissents from many of the actions the agency took, under the leadership of Lina Khan, for what Wilson thought was overreach.  

Expanded submissions

In-house counsel should generally be familiar with the new requirements if they worked through the proposed version that the agencies released 15 months ago, but there are changes from that earlier version, generally for the better, the analysis shows. 

For one thing, the proposed 10-year look-back period was removed, which means the 5-year period remains in effect. But now the look-back period applies not just to the acquiring company but to the target company as well.

Second, the proposed section on labor market impacts has been removed, but the guidelines still require companies to discuss labor market impacts in new narrative portions of the filing.  

Third, the proposed requirement for companies to submit all drafts of responsive documents has been removed but companies still must submit any drafts that were given to members of the board. And the guidelines also want submission of ordinary-course documents like quarterly reports to officers and directors that touch on competition issues. 

And fourth, the early termination of the HSR waiting period remains in place but the guidelines create a portal for third-party concerns. That opens a door for companies to face pushback from people or entities other than the government. 

“Although more moderate than what was proposed in some notable ways, the Final Rules will still substantially increase the amount of data and information parties must submit,” the analysis says. That will “materially increase the time, cost, and burden of HSR filings.”

Narrative descriptions

Provisions introduced in the proposed guidelines that remain in place are driving the much longer preparation time, the analysis shows. 

For example, companies won’t be able to file for review on the basis of a letter of intent but must submit either the deal term sheet or a draft of the agreement, if not the final agreement itself. 

“Inability to file on a simple letter of intent may extend the timeline for certain transactions,” the analysis says, and that timeline will likely get extended even further for strategic deals. 

In one of the biggest changes, the guidelines take a page from what European antitrust enforcers require — narrative descriptions of the deal. 

These sections are to cover two topics: 1) any overlap in the products or services the companies offer, and 2) whether the companies already have supply relationships with one another. Disclosure of supply relationships also applies to any competitors the companies do business with. For both narratives, the companies are to include revenue data and list their top 10 customers. 

The addition of the narratives will not only add time but raise confidentiality risks, since companies are supposed to use them as a place to talk about products and services the companies have planned. 

“Narratives requiring information about current and future products or services and customer information may implicate confidentiality issues for transactions that have not yet been announced, especially when parties choose to alert customers to potential agency outreach,” the analysis says.   

What’s more, since European countries already require narrative descriptions, and will expect them to be included if the deal falls within their jurisdictions, it will become important for the descriptions to be written in a way that’s consistent across other countries’ antitrust agencies.  

“Ensuring an aligned approach in drafting for cross-border transactions (especially for deals involving global markets) will take additional time and resources,” the analysis says. 

There are other changes that remain in the final version. Among other things, companies have to include expanded minority shareholder information and new officer and director information when the companies have competitive overlap. Shareholders will have their own filing requirements for any equity they acquire separately (with some exceptions), and these transactions will have to be listed in the filing.  

Another big change is a new foreign subsidy disclosure section. The guidelines are trying to tease out of the companies, or any of their affiliates, whether they receive subsidies from, or have products subject to countervailing duties in, foreign governments of concern – that is, China, Iran, North Korea and Russia.

In effect, the countervailing duties requirement applies only to China, the analysis says, since the United States has sweeping sanctions against Russia, Iran and North Korea. But it’s still one more request that must be met in the filing. 

There are other hoops to jump through in the 460-page guidelines, all of which will add to the ways companies’ deals could get tripped up.  

“We anticipate the new information requirements will result in the agencies asking more substantive questions during the initial waiting period and raising more questions about parties’ technical HSR compliance,” the analysis says.