Author: Steven J. Cernak
Hart-Scott-Rodino or HSR, the U.S. premerger notification program, has undergone several major changes since the beginning of the pandemic. Some FTC Commissioners have suggested even more changes. HSR filers, both frequent and infrequent, need to understand these current developments.
As this blog has discussed frequently (see here, here, and here), the US was the pioneer among global competition law regimes in requiring parties to most large mergers and similar transactions to obtain approval from the jurisdiction’s enforcer before closing. Under HSR’s latest thresholds, both buyers and sellers for most transactions whose value exceeds $92M must submit a form and certain documents relating to the parties and the transaction and then wait for 30 days. The FTC and DOJ use that time to decide whether to ask for more information or allow the transaction to close. While those basics have not changed, some of the details are new.
Until the pandemic hit, the HSR system essentially had no way for parties to electronically submit forms and documents; instead, parties or their lawyers printed out paper copies and shipped them in by local couriers or overnight delivery services. Once the pandemic hit and government staffers started working from home, the FTC Premerger Notification Office, which oversees HSR submissions, had to develop a new system.
The resulting system requires parties to email the PNO and request a link that can then be used to upload the form and required documentary attachments. As with any system in which many large documents must be transferred, the time to upload the materials can vary by the size of the documents and the strength of the filer’s connection. While parties save the time and expense of delivery services, they should not count on instant uploads. Also, the PNO updated its instructions on the system several times in 2020 so that even filers who successfully submitted materials several months ago should look for revisions as recently as December. For instance, the materials must be submitted in pdf format with searchable text. As a result of these changes, frequent filers have had to adjust processes used for years to comply with the new procedures.
Parties have figured out those new processes, as evidenced by the huge number of filings over the last several months. While the number of HSR filings was down considerable early in the pandemic, that number increased until November 2020 had more than twice the number of filings of the same month in the previous year. February and March of 2021 also had increases of more than 100% year-over-year, disproving the guess by some observers, this author included, that the November figure was a blip caused by the end of the year and presidential administration.
The agencies continue to process all the filings, though not quite with the usual speed. To help the situation, the FTC suspended the early termination program by which the agencies affirmatively clear the most routine transactions in less than 30 days and allowed them to close. Now, all parties, even those to transactions that raise no antitrust issues, need to plan to wait the entire 30 days before closing.
When the agencies seek such additional information in the form of an HSR “second request,” the result can be many months of delay for, and perhaps a challenge to, the transaction. According to the definitive private survey of HSR reviews, the length of such significant reviews in the US trended down slightly in all of 2020 to an average total of 11.4 months. The figure for the 4th quarter, however, was over 13 months, perhaps hinting at a slowdown as the agencies face increasing political pressure to more closely review an increasing number of mergers.
One potential way to speed such reviews would be to increase the resources available to the agencies. One source of such resources are the filing fees that a buyer must pay for each HSR filing. While the thresholds for the mergers that must be notified under HSR are automatically adjusted each year, the fee schedule is not; in fact, the fees are the same since they were originally imposed in 2001. Two of the current FTC Commissioners have suggested to Congress that the fee schedule be adjusted, perhaps drastically, to provide greater resources to the agencies.
HSR processes and rules have constantly evolved since the legislation’s initial 1978 implementation but never as much as in the last year. Filing parties and their counselors need to adjust their processes and review time expectations to the new reality.