FTC Issues Rule Finalizing Substantial Changes to Premerger HSR Process: Detailed Analysis

On October 10, 2024, the Federal Trade Commission (“FTC”) announced their unanimous vote to finalize changes to the premerger notification form and associated instructions, as well as the premerger notification rules implementing the Hart-Scott-Rodino (“HSR”) Act. The HSR Antitrust Improvements Act of 1976, as amended, requires all persons contemplating certain mergers or acquisitions that meet or exceed certain jurisdictional financial thresholds to file a premerger notification (an “HSR Filing”) with the FTC and Antitrust Division of the Department of Justice (the “DOJ”) (collectively, the “Agencies”) and to wait a period of time before consummating the transaction.

Our initial alert on the final rule (“Final Rule”) gave a high-level overview of the changes and looked to prepare parties for how the changes would affect upcoming HSR Filings. This current alert is designed to dig deeper into the Agencies’ rationale behind the changes, break down the additional information requested by the new filing form and illustrate what the changes will mean for parties preparing to enter into a transaction that may require an HSR filing. The Final Rule has been published in the Federal Register and is effective as of February 10, 2025.

Background and Rationale for the Final Rule

The Agencies’ primary justification for the HSR rule overhaul is that the economic realities of competition have changed significantly from when the original rule was passed. The current HSR filing form and its information requirements have not kept pace with the realities of modern transactions. The Final Rule states that appropriately evaluating a transaction within the 30 days allowed by the statute, based solely on the information in the current form, has become exceptionally challenging for the Agencies. The Final Rule is designed to allow the Agencies to conduct what they believe is a more thorough initial antitrust assessment within the statutory time frame with newly required information filling, what the Agencies previously saw as “information gaps.”

Though the specific changes are discussed in further detail below, certain areas of concern with the current process are frequently emphasized by the Agencies. One of the Agencies’ most frequently cited concerns is that the nature of competition has become increasingly complex in a way the current form does not account for. The complexity is due to both increasingly interconnected and complicated corporate structures of filing parties as well as an increasing number of transactions that involve levels of horizontal and vertical integration.

The FTC received over 700 comments on their notice of proposed rulemaking, published on June 29, 2023. The Final Rule did take these comments into consideration and the information requirements in the Final Rule are narrower than those of the proposed rule. Certain proposed requirements were removed altogether, while other information requirements were modified.

Some key information requirements introduced in the proposed rule but ultimately removed altogether from the Final Rule include:

• Submitting draft versions of responsive documents;
• Providing a timeline of key dates related to the close of the proposed transaction;
• A broader review of prior acquisitions; and
• Providing information about document preservation policies and the use of messaging systems.

Major Changes in the Final Rule

The areas highlighted below are not the full extent of changes contained in the Final Rule. However, they encompass the changes we believe will be most important for health care transactions and the changes that will significantly increase the time and burden of preparing an HSR filing for any filing party.

1. Written Descriptions. Parties must create written descriptions as part of the filing with some of these written descriptions taking a substantial amount of time to prepare. However, in the Final Rule, the FTC did focus on the fact that these descriptions may be brief and should solely contain information available to filing parties in the ordinary course. Descriptions required by the Final Rule include:
   1. Transaction Rationale. Parties must provide Transaction Rationale descriptions – except in select transactions – to explain the details and strategic rationale for the transaction, including:
      1. Competition for current or known planned products or services that would or could compete with a current or known planned product or service of the other reporting party;
      2. Expansion into new markets;
      3. The hiring of the sellers’ employees;
      4. Obtaining certain intellectual property; and
      5. Integrating certain assets into new or existing products, services or offerings.
   2. Ownership Structure of the Acquiring Entities. The acquiring party must provide a description of its Ultimate Parent Entity (“UPE”) and organizational structure. Additionally, the Final Rule requires more information about the identities of Officers and Directors of certain entities within the acquiring party, though there is an exemption for non-profit entities organized for religious or political purposes.
   3. Business of the Acquiring Party. The acquiring person must provide a description of their own business operations. The Final Rule also requires a more detailed description of minority investors in the UPE, the acquiring entity and all entities relevant to the transaction.
   4. Overlaps. The parties must both briefly describe each of the principal categories of products and services of the acquiring party. They must also list and briefly describe each of the current or known planned products or services of the acquiring party that competes with (or could compete with) a current or known planned product or service of the target, based on documents created in the ordinary course of business. For each existing or potential overlap, the parties must provide sales data for the most recent year, projected revenues or volume estimates of products to be sold, as well as a description of all categories of customers of the acquiring party that purchase or use the product or service.
   5. Supply Relationships. The parties must list and briefly describe details regarding existing or potential vertical or supply relationships between the parties. This will impact transactions which include vertically integrated health systems.

2. Expanded Document Requirements. The Final Rule will likely require a more in-depth pull of potentially responsive documents from filing parties and a significant increase in the amount of documents required to be produced due to the changes highlighted below.
   1. Ordinary Course Strategic Planning Documents. Parties must provide ordinary course strategic planning documents that analyze market shares, competition, competitors or markets. This will be a substantial expansion of Item 4 documents that are required to be produced, as the current HSR Form does not require ordinary course documents to be submitted.
   2. Expanded Custodians of Transaction-Related Documents. Currently, the parties are required to provide documents prepared by or for an officer or director that analyze the transaction and include competition-type material (commonly known as Item 4 documents). The Final Rule expands the scope of document custodians to include the “supervisory deal team leads.” For each transaction, this rule will be limited to one individual identified as the supervisor of the team of individuals working to complete the transaction.
3. Other Agreements Between the Parties. Parties must submit all agreements between the parties at the time of the filing that relate to the transaction that the parties intend to consummate. These may include including licensing agreements, purchase agreements and non-competition or non-solicitation agreements. The FTC has limited this requirement to those agreements that will be in effect on and after closing. For health systems, this could be an expansive list of agreements that could include clinical affiliation agreements, among others.
4. Labor Market Information. While the FTC is concerned with the potential effects that transactions will have regarding labor markets, the Final Rule did not adopt the proposed requirement to submit specific information about their employees. Instead, the Agencies will rely on information submitted in the new Overlaps and Supply Relationships sections to identify if there are any risks to the labor market. Transactions that are flagged as a labor market risk may then be issued a Second Request for an in-depth review of potential labor market effects.
5. Expanded NAICS Code Revenue Reporting. The proposal to require Parties to submit NAICS Code revenue for pipeline or pre-revenue products has not been adopted in the Final Rule. While the Agencies remain concerned with monitoring nascent competition, they have decided that this information is better captured in the Competition and Overlaps Descriptions, and requiring such information to be provided via NAICS codes would be duplicative. However, the FTC has adopted the proposals to report revenues in ranges instead of precise amounts and requires parties with more than one operating company to identify which entity(s) derives revenue from each code.
6. Expanded Prior Acquisition Information. The FTC has decided that the proposal to expand the disclosures for prior acquisitions by extending the lookback period from five to ten years and eliminating the $10 million exception would be unduly burdensome and, therefore, these proposals were not adopted. Instead, the FTC has landed on separate adjustments, including “(1) the elimination of the $1 million threshold for revenue when determining which overlapping NAICS codes are relevant; (2) the requirement to include prior acquisitions of assets or entities that also provide competing products or services listed in the filing person’s Overlap Description; and (3) the proposal to treat prior acquisitions of substantially all of the assets of a business in the same manner as prior acquisitions of voting securities or non-corporate interests.”
7. Logistical Changes. Filings will only be accepted electronically, making permanent the changes implemented during the COVID-19 pandemic. Additionally, the filing form is reorganized, with new instructions and there are now specific and separate forms when filing as an acquiring versus an acquired party.
   1. Though rare, there are clarified requirements for filing a notification based on a letter of intent, draft agreement or term sheet. The Final Rule still allows for filings on the basis of preliminary, executed agreements, but if the agreement does not “describe with specificity the scope of the transaction,” the parties must submit additional dated documents with further details about the transaction. The new instructions note that key information to satisfy the “specificity” requirement includes: the identity of parties, the structure of the transaction, the scope of what’s being acquired, purchase price calculation, estimated closing timeline and certain other material terms.

Additional Time and Work Burden

According to the Agencies, the Final Rule will add an average of 105 hours per HSR Filing, with a greater increase of approximately 120 hours for those filing as an acquiring party. Though the acquired party’s form may be less time intensive, there will still be a significant increase in time to prepare compared to the previous filing form – an average increase of close to 70 hours under the new format. The initial filings under the Final Rule may likely take even more time to prepare than the FTC suggests, as filing parties and Agencies themselves adjust to the new information requirements and new filing format.

Timing

The Final Rule is effective as of February 10, 2025. This means all filings submitted on or after that date will have to comply with the Final Rule. We expect further compliance guidance from the FTC’s Premerger Notification Office in advance of the Final Rule’s effective date.

Practical Takeaways

• Though the Final Rule does eliminate or modify some of the extensive requests included in the proposed rule, the new filing form will require a significant increase in both the information to be collected and documents to be produced with an HSR filing.
• Because of this increase in information requested, parties should be prepared to account for this additional burden and longer filing process within the timeline of a proposed transaction, especially as both those preparing the filing and the Agencies work through the new requirements.
• The Final Rule continues to show the Agencies’ commitment to increasing scrutiny and oversight of consolidation, including in health care. Review of transactions will likely become more complex under the Final Rule and parties should expect to engage in more antitrust advocacy when undergoing mergers.
• The expanded information requirements of the Final Rule greatly increase the scope of Item 4 documents that will be responsive and required for filings. Filing parties should seek to understand these new requirements as they will likely impact their policies on document creation, organization and management.
• The Final Rule highlights the Agencies’ increasing focus on vertical merger enforcement, the involvement of private equity investments in transactions and the consequences of increased consolidation in certain markets due to previous unreported transactions. The increased information requirements of the Final Rule will give the Agencies increased insight into these areas of concern and parties should be prepared for additional inquiries and scrutiny if a proposed transaction triggers one or more of these areas of concern.

If you have any questions or require further information, please contact:

• Michael Greer at (317) 977-1493 or mgreer@hallrender.com;
• John Bowen at (317) 429-3629 or jbowen@hallrender.com;
• Hannah Clarke at (317) 429-3615 or hclarke@hallrender.com;
• Bennett Murphy at (317) 429-3618 or bmurphy@hallrender.com; or
• Your primary Hall Render contact.

Hall Render blog posts and articles are intended for informational purposes only. For ethical reasons, Hall Render attorneys cannot—outside of an attorney-client relationship—answer specific questions that would be legal advice.