New HSR Rules Augur a Deeper Antitrust Review By Agencies
After some initial perceived uncertainty, the recent changes to the Hart-Scott-Rodino Act's premerger notification rules took effect on Feb.10.
The HSR rules specify the information and data that parties to a proposed merger must provide to federal antitrust agencies when notifying them about their transaction.
The changes to the rules significantly reshape the landscape of federal merger review, particularly with respect to the speed and efficiency of economic analysis performed at the agencies as part of most merger reviews.
This article will examine how the rule changes are to affect agency economists' analysis during the initial waiting period and the effect on how the agencies target or identify from among all notified transactions those that warrant in-depth reviews.
Finally, the article suggests how the new rules could lead to more predictability and certainty for merging parties.
The Rules
To briefly recap, the new rules introduce several key information requirements for filing parties, including the following.
Overlaps, Sales and Data
Narrative descriptions of any overlapping products and services, and relevant sales and customer data should go beyond simply identifying the overlapping products or services, and must include detailed descriptions from ordinary course documents, which may include descriptions of how the merging parties' offerings compete, or could compete, and relevant details about pricing, functionality, and target customers. Sales and customer data for these overlapping products are also required. [1]
Supply Chain Relationships
Narrative descriptions of supply chain relationships, as well as data on sales, purchases, and customers in those relationships include information about shared suppliers and customers. These offer insights into vertical integration and potential foreclosure effects.[2]
Document Production
The rules significantly expanded production of ordinary course documents to include internal documents discussing competition, market strategies and potential competitive responses.[3] This provides agencies with additional insights into the merging parties' internal assessments of the competitive landscape.
Minority Investors
Minority investor information includes details about private equity funds and other investors, shedding light on potential influence and control.[4]
Analysis
In my experience, much of the same information, while not required under the previous rules, was already routinely requested by investigating agencies to assess the need for an in-depth review. Agencies could issue voluntary access letters to the parties or otherwise ask informally to be provided with these data and types of information during the initial waiting period.
The fact that the same information is now required at filing indicates that the rule changes should result in quicker and better targeting of transactions requiring extended and in-depth review.
These changes benefit the merging parties as well as the reviewing agencies. As the Federal Trade Commission stated when it published the rules, the changes will "allow the Agencies to identify potentially unlawful transactions more quickly and with greater accuracy, narrowing the scope of their investigations in some cases, and in others, reducing the need to conduct a more burdensome in-depth investigation by issuing Second Requests."[5] Andrew Ferguson, the new chair of the FTC reaffirmed this expectation on the rules' Feb. 10 effective date.[6]
It is hard to imagine how earlier access to this information, where relevant, would not increase the efficiency of agency economists review.
Consider a hypothetical example transaction involving a proposed merger between two parties, one of which supplies inputs to the other. The sales and customer data for supply relationships, which must be filed with the HSR notification under the new rules, often allows for a quick assessment of the potential for foreclosure incentives being created by the transaction.
This could be a risk to competition, in this example, if other firms supplied by one of the merging parties are competitors to the merging party being supplied.
The transaction could create this incentive for the supplier to disadvantage those competitors, and an in-depth review would be likely to consider this possibility in greater detail.
The data filed with the notification can be used to make some simple calculations that may be helpful to investigating teams in their assessment of whether to review the transaction further.
These calculations can, for example, indicate the levels of downstream margins and competitor shares that might create an incentive for the merged entity to foreclose competition. Investigating teams can test whether alternative information sources corroborate or contradict the implied numbers, to determine whether this type of risk appears potentially meaningful.
Although these types of analyses would not necessarily be dispositive, they can enable agency teams to determine whether the transaction warrants further review.
Under the previous HSR rules, investigating staff would likely have detected the supply relationship and downstream competitive interaction in this hypothetical example, and staff economists would likely have requested the data needed for the simple analysis along the lines described.
But it would have consumed more of the initial waiting period, and potentially led to an extended waiting period, including through the agency issuing a second request for further information.
Under the new rules, agency economists will spend less time requesting basic information for transactions and more time on later stages of investigations, potentially including more substantial analyses. In these cases, their work should more accurately indicate whether a substantial risk of harm to competition exists, and this can be expected to improve the targeting of transactions for further review.
This has benefits for the agencies, by optimizing resource allocation, but also for most merging parties.
Notifying parties can now expect fewer transactions like the above hypothetical, which basic analyses could show would pose low risks to competition, but are instead subject to longer waiting periods because limited information was available to conduct analyses.
By more quickly resolving these inquiries, there is also potential for expedited review of clearly benign transactions.[7]
Additionally, parties may benefit from alignment with investigating agency staff on the data and information that is needed to assess the most common competition issues.
The FTC was clear that it expects the upfront information requirement to increase certainty in the review process. In its final rulemaking, the commission noted that the increased reporting requirement "imposes less delay and is less costly than issuing more second requests, and it imposes less delay and provides more certainty regarding the completeness of the information than relying on more extensive voluntary submissions of information."[8]
This indicates that agency staff are expected to have greater confidence in their assessments, and to issue fewer second requests, under the increased data and information requirements. And this confidence may be self-reinforcing over time if it becomes broadly clear that fewer transactions that warrant further review are being missed, or are slipping through.
The improved targeting of transactions for in-depth review will help notifying parties better predict when their deals may face intense scrutiny.
This is especially true for transactions involving relevant supply relationships, as such information was not previously required at filing. The upside is potential savings in time and expense, as early analyses can more reliably indicate antitrust risks.
Conclusion
This may be a rosy outlook, and we don't know if the potential benefits will be fully realized. The changes certainly represent a significant step in the evolution of U.S. merger review.
Although the increased information requirements create greater initial burdens for merging parties, they should lead to greater certainty and predictability through a more efficient and effective review process.
Craig Malam is a partner at Edgeworth Economics.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of their employer, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
CITATIONS
[1] New HSR Rules are Effective February 10, 2025 (Kirkland & Ellis) accessed February 19, 2025: https://www.kirkland.com/publications/kirkland-alert/2024/11/new-hsr-rules-areeffective-february-10-2025.
[2] A General Counsel's Guide to the New HSR Rules (Pillsbury Law) accessed February 5, 2025: https://www.pillsburylaw.com/en/news-and-insights/general-counsel-hart-scottrodino-premerger-notification-rules.html.
[4] https://www.dwt.com/insights/2024/10/ftc-announces-new-hsr-form-and-premergerrules.
[5] Final Rule, p. 89217.
[6] Commissioner Ferguson was quoted as sharing on social media that rules "will allow [the FTC] to find anticompetitive mergers efficiently, while more quickly getting out of the way of deals that will benefit the American people." The Trump Administration at Four Weeks, Steptoe, accessed February 19 2025: https://www.steptoe.com/en/newspublications/stepahead-antitrust-and-competition-insights/the-trump-administration-atfour-weeks.html.
[7] Early terminations were suspended under the previous administration on February 4, 2021. The suspension was lifted as the new rules took effect.
[8] Final Rule, p. 89250.
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