In recent years, mergers and acquisitions have run into regulatory and political headwinds as administrations and legislators on both ends of the political spectrum have taken more antagonistic stances to company consolidation.
While most companies pursuing mergers or acquisitions are unlikely to draw the ire of a president or senator, many will soon be required to file significantly more detailed Hart-Scott-Rodino Act forms, a premerger notification, to the Federal Trade Commission and Department of Justice.
HSR filing is currently required for only larger transactions, with the 2025 adjusted threshold set at $126.4 million. Companies under that threshold aren’t required to file a pre-merger notification. If the transaction is between $126.4 million and $478 million, filing depends on the size of party thresholds. Once the transaction is over $478 million, a notification is generally required.
On Nov. 10, 2024, the FTC passed a new rule that will greatly expand the amount of information required in an HSR filing. The rule was originally slated to take effect on Feb. 10, but a regulatory freeze instituted by President Donald Trump on Jan. 20 means the rule could be postponed by up to 60 days.
While this new rule only applies to transactions of a certain size, there were more than 2,000 qualifying transactions in 2024 alone.
Robert Baldwin, a partner at Hogan Lovells, told Law Week that the HSR filing as it stands is pretty skeletal.
“It’s really basic information about revenue, legal structure, minority shareholdings, and the main way that the government got information about potential competitive issues was competition-related or synergy-related documents that parties attached to their filings,” Baldwin said.
He noted that a typical HSR filing would also have about one or two dozen deal-specific documents attached to it that covered market shares or market position.
Under the new rule, the FTC and DOJ will require significantly more information in the HSR filing. “It’s going to be an incredible increase in the burden on the majority of filing parties,” Baldwin said.
Baldwin explained that, broadly, there are three types of filings: those that involve an overlap, those that don’t involve an overlap and ones that don’t really raise competition issues. But he noted that the ones that don’t raise competition issues are a small percentage.
“For the majority of filings, which are overlap filings, there are three significant changes they are making that are going to increase the burden, which the government has conservatively estimated to be a quadrupling of the time and cost to complete the filings,” Baldwin said.
The first category of changes requires companies to include narrative descriptions of products and services where the companies overlap, supply relationships they share with each other or their competitors and their respective rationales for the merger, none of which was required previously, Baldwin explained. He did note that these new requirements are similar to what’s required in other jurisdictions around the world.
Along with reporting more information, companies will have to provide the government with more documents. In addition to the competition-related documents that parties are required to file now, Baldwin said that they will need to file any ordinary course documents prepared for the CEO or board of directors that discuss competition-related issues on where the companies overlap on products or services that they sell.
“When you open that up to ordinary course documents, that’s tens of thousands of documents that could get pulled in,” Baldwin said. “For foreign deals, we also now need to translate those documents, we didn’t have to translate the documents before. So tons of cost, tons of time in pulling all those documents, reviewing the documents and if they’re not in English, translating.”
The final significant change is information disclosures related to the merging companies’ directors. Baldwin told Law Week that the government is specifically targeting this aspect to look for what it refers to as “interlocking directorates.”
“If a company has two designees who serve on the boards of two competing companies … that potentially raises competition issues because those directors could share information back to one investor about what those companies are up to, so they’re going to investigate deals around that,” Baldwin said.
The government also wants to take a closer look at minority shareholders, particularly private equity and venture capital firms, according to Baldwin.
“Right now, if you’re a private equity fund that’s making an acquisition or making a significant investment, those funds don’t need to disclose who are their significant minority or [limited partner] investors in those funds,” Baldwin said. “Often that’s extremely sensitive, highly proprietary information. That now needs to get disclosed.”
While the changes extend beyond those three categories, Baldwin said that these in particular are what’s significantly increasing the burden on companies.
One concern about the new filing regime is confidentiality, according to Baldwin. While the filings aren’t public and are exempt from FOIA requests, there are potential issues that can arise when one of the agencies investigates the deal.
“They will often call customers of the companies involved in the deal or other market participants, suppliers, other competitors, to gauge their reaction to the transaction,” Baldwin said.
This is particularly an issue for deals that aren’t finalized, as it can tip off customers, suppliers or even employees of the merging companies that one is potentially in the works, and it’s a scenario that Baldwin has seen before.
“We’ve certainly worked with companies before where, through that investigatory process, word starts to get out, employees learn about it, employees start to look for other jobs because they’re concerned about the impact of the deal,” Baldwin said. “All of that is certainly a concern to companies submitting these filings.”
“The effect of all of this is, companies need to be doing a lot more work and putting in a lot more thought up front about what are the consequences of what we’re about to disclose to the government,” Baldwin added. “Not only from a risk perspective of us getting investigated but also, what does it mean for our employees? What does it mean for our customers? Do we have a communications plan in place to make sure we’re appropriately managing all the various risks that these new disclosures could bring about?”
For now, Baldwin said that they’re working with clients to track both the current filing scheme and the new filing scheme, in case it does go into effect on Feb. 10. As of Jan. 24, part of that work for Baldwin included monitoring the FTC’s website with a couple dozen refreshes a day, to see if the effective date had changed.