So, it should come as no surprise that government laws, regulations and even official forms are occasionally updated. And it’s just happened again.
According to an October 10, 2024 press release issued by the U.S. Federal Trade Commission (FTC), entities seeking to execute a merger will have to undergo a bit more scrutiny beginning in 2025. The FTC voted unanimously 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. This is the first time the form has been revised in nearly five decades.
A final rule implementing the changes was published early this month and will reportedly improve the ability of the FTC and the Antitrust Division of the U.S. Department of Justice (DOJ) to detect illegal mergers and acquisitions prior to consummation. Essentially, the final rule requires additional information that is necessary to determine which deals require an in-depth antitrust investigation.
Historical Background
Under the HSR Act, parties to certain mergers and acquisitions are required to submit a premerger notification form (PNF) that discloses certain information about their proposed deal and business operations. The agencies use this information to conduct a premerger assessment within the time period allowed under the HSR Act, typically 30 days.
The HSR Act was intended to improve federal merger enforcement by requiring parties to notify the agencies of their proposed acquisition. A period of time is allowed to permit the appropriate agency to bring a lawsuit prior to consummation in the event a merger is deemed by the agency to be in violation of federal law. Mandatory premerger review is a key feature of U.S. merger law, according to the FTC.
Requirements and Rationale
Over the last several years, government officials were able to identify what they recognized to be critical gaps in the information provided on the PNF. The new form has been designed to fill in those gaps and capture more data that would allow officials to have a better assessment of the entities filing for these kinds of transactions. Among other items, the final rule now requires parties to disclose information on subsidies received from certain foreign governments or entities that are strategic or economic threats to the United States as required by the Merger Filing Fee Modernization Act of 2022.
Other key changes included in the final rule involve the following requirements:
- Additional transaction documents from the supervisor of each merging party’s deal team, as well as a small set of high-level business plans related to competition;
- A description of the business lines of each filer to reveal existing areas of competition between the merging firms (including for products or services that are in development) and supply relationships; and
- Disclosure of investors in the buyer, including those with management rights.
The rule also requires those seeking mergers and acquisitions to disclose information about minority investors, as well as merger and acquisition activity going back five years.
The FTC’s Premerger Notification Office (PNO) will be working to provide future compliance guidance in advance of the final rule’s effective date. Compliance guidance information will be shared on the PNO’s website in the coming weeks.
In addition to the above changes to the PNF, the FTC is introducing a new online portal for market participants, stakeholders and the general public to directly submit comments on proposed transactions that may be under review by the FTC.
Reactions and Conclusions
The FTC estimates companies will need to log 105 hours per response to comply with the final rule, which amounts to an increase of 68 hours compared to current averages. Provider groups said the new documentation load would unnecessarily burden companies looking to merge, according to news aggregator HealthcareDive.
The American Hospital Association (AHA) was also not pleased with the increased burden on hospitals looking to go through these transactions. They described it as essentially a “merger tax.” Nevertheless, the AHA was pleased that the final rule ended up being less onerous than the requirements as found in the proposed rule.
The FTC press release can be found here: FTC Finalizes Changes to Premerger Notification Form | Federal Trade Commission. For those wishing to view the full text of the final rule, click on the following link: Premerger Notification: Reporting and Waiting Period Requirements: Final Rule.