Mid-Atlantic Health Law TOPICS

On November 12, 2024, the Federal Trade Commission (FTC) issued a new final rule on “Premerger Notification; Reporting and Waiting Period Requirement”. This rule (the New Rule) addresses areas the FTC identified as deficiencies under the current implementation of the Hart-Scott-Rodino Improvements Act of 1976 (HSR).

HSR obligates premerger reporting requirements for parties in certain mergers and acquisitions, and creates a waiting period, typically 30 days, during which the FTC and the Department of Justice (DOJ) review these reports. It also allows the government to take action prior to a merger if it believes the merger would violate antitrust provisions, and further allows the government to require adjustments to holdings of the parties when it determines that the merger, once consummated, violates antitrust provisions.

The New Rule requires significant additional disclosures on a new notification form for mergers and acquisitions meeting the HSR filing thresholds.

More specifically, the minimum “size- of-transaction” threshold for filing for acquisitions of voting securities, noncorporate interests, or assets increased from $119.5 million to $126.4 million on February 6, 2025. This means that parties involved in a transaction worth $126.4 million or more generally must file. However, acquisitions that meet the size-of-transaction threshold but are valued at less than $505.8 million may only require an HSR notification if the “size-of-person” threshold is met.

The size-of-person threshold is met if one party to the transaction has annual net sales or total assets of at least $252.9 million (increased from $239 million) and the other party has annual net sales or total assets of at least $25.3 million (increased from $23.9 million). If a transaction is worth $505.8 million or more, an HSR notification is required regardless of whether the size-of-person threshold is met.

Rationale

The New Rule was developed in response to the changes in modern mergers. Most mergers had previously been between companies that were competitors. More recently, businesses have increasingly acquired companies that are part of their supply chain, or are involved in the development of singular products. Businesses have also diversified their “product” lines and are increasingly monetizing their data and developing associated services.
Additionally, the FTC has taken note of the influx of private equity engaging in smaller transactions which do not trigger premerger filings, but have created industry and/or geographic holds on markets by single parent entities.

As the number of deals has increased, the FTC has also found itself reviewing more than double the number of deals that it did a decade ago. The government has stated that by streamlining the information received, and pushing the burden of production to the merging parties, the FTC hopes to alleviate some of the strain.

Additional Disclosures

The New Rule requires filings to include the disclosure or production of:

• The organizational structure of the buyer, and if the ultimate parent entity is a fund, an organizational chart of the fund must be included;
• Additional information regarding minority investors, such as co-investors and certain limited partners;
• All current officers and directors of the buyer, and officers and directors of certain entities controlled by the buyer, if such individuals also serve as officers or directors of another entity that derives revenue in one or more North American Industry Classification System (NAICS) codes being reported by the seller, or of another entity that has operations in the same industry as the seller;
• More detailed information about any foreign entities involved in the transaction;
• Any defense and intelligence contracts, as well as subsidies from foreign entities or governments of concern;
• The strategic rationale for the transaction and which documents submitted with the filing, if any, support the rationale, which must include a transaction diagram if one exists;
• All agreements relating to the transaction, including exhibits, schedules and side letters (letters of intent are no longer sufficient), and if the transaction documents do not sufficiently describe the transaction, then a document that does contain details regarding the parties, the structure, the purchase price, estimated closing, employee retention policies, transaction expenses and post-closing governance structure, must be submitted;
• Documents created in the course of business even though not created specifically for analyzing the transaction that is the subject or the HSR filing, including regularly prepared plans and reports created within a year of the HSR filing and that have been provided to the CEO or the Board that “analyze market shares, competition, competitors, or markets pertaining to any product or service” that the other merging party offers or plans to offer;”
• Relevant prior acquisitions by both parties from within five years of the filing with respect to transactions where a filing party derived revenue in an identified 6-digit NAICS industry code overlap or produced a competitive overlap product or service. Previously, this requirement only applied to the acquiring party.

The New Rule also incorporates the disclosure of non-horizontal business relationships that could foreclose rivals. As such, buyers must disclose existing contracts with the seller in broad categories, such as leases, licensing agreements, master service agreements, and supply agreements. Non-competition and non-solicitation agreements must also be disclosed.

There is a new competitive “Overlap Description” and “Supply Relationship Description” which is supposed to address existing and emerging competition between the parties both in the United States and on a global basis.   In certain areas of competitive overlap and certain types of supply relationships, parties will need to disclose the top ten customers (or suppliers) (measured in dollars) and any supply or licensing arrangements for each such customer or supplier.  

Hospital Merger Impetus

Of note, the New Rule guidance states that “(t)he consequences of inadequate detection are revealed in a recent analysis of hospital mergers that were reported to the Agencies for premerger review co-authored by two economists from the commission’s Bureau of Economics. The paper examined a set of consummated hospital mergers and measured the effect of each merger on prices.

The authors found different outcomes among mergers that were subject to premerger review based on how much review the transaction received. Of the mergers reported to the Agencies, the largest average percentage price increase occurred for those mergers that received early termination of the initial waiting period.

This suggests that the HSR Filings failed to provide sufficient information to trigger additional investigations that could have blocked these harmful mergers before they were consummated.”

801.30 Transactions

In addition to the changes above, the New Rule has also created a new category of “select 801.30 transactions,” with limited disclosure, and therefore lower compliance costs, due to the low risk that a transaction may violate 
antitrust laws.

A select 801.30 transaction is one where the acquiring entity is acquiring interests from third parties (for example, shareholders in a cash tender offer). Select 801.30 transactions are those 801.30 transactions for which the (i) acquisition would not confer control; (ii) there is no agreement (or contemplated agreement between the parties); and (iii) the acquiring person does not have, and will not obtain, the right to serve as, appoint, veto, or approve board members (or the equivalent).

President Trump

The New Rule went into effect on February 10, 2025. Despite President Trump’s January 20, 2025 executive order directing all executive departments and agencies to consider postponing for 60 days the effective date of any rules that have been published in the Federal Register, the FTC decided to move forward with the February 10, 2025 effective date.

The pending lawsuit Chamber of Commerce of the United States of America et al v. Federal Trade Commission et al. alleges that the New Rule violates the Administrative Procedure Act and creates unduly burdensome requirements. The FTC has argued in response that the new requirements are necessary to make their review of merger filings more efficient and expedient. As of the date of the publication of this article, there has not been any delay in the effective date of the New Rule, and, therefore, HSR filings must now comply with the heightened disclosure requirements.

Kelcie L. Longaker
410-576-4264 • klongaker@gfrlaw.com