FTC Finalizes Comprehensive Overhaul of Premerger Notification Requirements

On Thursday, October 10, 2024, the Federal Trade Commission (FTC) announced its unanimous vote to implement a revamped premerger notification program. To secure bipartisan support among the FTC’s commissioners, the final rule overhauling the program’s filing requirements, form, and instructions pares back some of the more controversial provisions of the initial June 2023 proposal, which many antitrust attorneys had warned would dramatically increase the time and cost of filing. Nonetheless, it is a striking departure from a system that has remained largely unchanged since its inception five decades ago.

By way of background, the Hart-Scott-Rodino Act, passed in 1976, requires firms to notify the FTC and Department of Justice (DOJ) before consummating mergers or acquisitions that meet certain size thresholds, allowing the antitrust enforcement agencies to review, investigate, and sue to block transactions. The FTC published its first premerger notification rule two years later. Although the FTC has amended the filing requirements from time to time, the new rule announced Thursday represents the most drastic change since the premerger notification program’s inception.

With the DOJ’s concurrence, the FTC found that the new rule is necessary to address information gaps stemming from “changes in corporate structure and deal-making, as well as market realities in the ways businesses compete.” The FTC highlighted that in response to buyers’ increasing corporate complexity, which can result in a web of stakeholders that control or influence competitive decision-making, buyers will now be required to identify all of their premerger holdings. According to FTC Chair Lina Khan’s statement about this change to the rule, the FTC is targeting so-called “serial acquirers.” To assess whether a proposed transaction is part of a larger plan to consolidate a market through a series of smaller deals that fly under the antitrust enforcement agencies’ radars, filers must now identify a wider range of prior acquisitions. To address information gaps more broadly, the FTC has launched an online portal through which market participants, stakeholders, and the general public can directly comment on proposed transactions that may be under its review.

The new rule reflects shifting enforcement priorities as well. Given the significant uptick in enforcement actions aimed at vertical mergers—i.e., mergers between entities at different levels on the same supply chain, as opposed to direct competitors—filers must now report their supply relationships. The FTC has also zeroed in on acquisitions intended to stifle future competition and emerging rivals, and the new rule accordingly requires filers to describe products and services under development that do not yet generate revenues. 

Among the most prominent—and controversial—of the FTC’s initiatives under Chair Khan has been focusing on competition’s effects on labor. Even though the new rule eliminates many of the originally proposed labor market requirements, it still requires filers to include narrative-form “Competition Descriptions” detailing industry overlaps and supply relationships. The agencies will use these descriptions to assess whether a transaction warrants an in-depth investigation of potential labor market effects. Further, the antitrust enforcement agencies have established memoranda of understanding with the Department of Labor and National Labor Relations Board that will allow them to obtain relevant non-public information regarding labor law violations.

The new requirements described above are just a sampling of the dozens of new and modified requirements, which span the ministerial (e.g., translating foreign-language documents into English), the documentary (e.g., submitting documents prepared by or for not just officers and directors, but also supervisory deal team leads, as well additional business plans and information about minority investors), and the substantive (e.g., summarizing the rationale behind the transaction, and providing customer identities for overlapping businesses). The FTC estimates that, on average, complying with the final rule’s filing requirements will add 68 hours to each filing. The final rule will become effective ninety days after its publication in the Federal Register, which is expected soon.

Another important development, one that should be universally welcomed, is that, once the rule comes into effect, the FTC will lift its COVID-era suspension on early termination of the premerger review period, allowing expedited closing for mergers and acquisitions that obviously present no competitive issues.

The new premerger notification program rules are comprehensive and drastic. They upend the manner in which firms have approached their antitrust regulatory requirements for nearly five decades. Firms should prepare for additional time and expense for merger filings and should expect heightened scrutiny of proposed mergers and acquisitions. Ballard Spahr’s Antitrust and Competition Group, with its robust antitrust compliance and litigation experience, is well-positioned to advise firms on avoiding antitrust exposure when assessing deals and to prepare premerger notification filings in this new legal landscape.

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