backFTC Expands Required Merger Disclosures
Federal agencies are asking parties to open the hood of their pre-merger transactions a little wider. On Thursday, the FTC voted unanimously to adopt a final rule seeking to reign in an acquisition market that it saw as slipping away from antitrust oversight (the Final Rule). The Final Rule enlarges disclosure requirements and expands agency review under the Hart-Scott-Rodino Antitrust Improvements Act of 1974 (HSR) Act, which requires parties to obtain FTC and DOJ approval before consummating mergers or acquisitions that may violate antitrust laws.
Though merger transactions reported to the FTC under the HSR Act have steadily increased in the past decade, catalyzed by a post-pandemic boom (up nearly 300% from 2013 to 2021), the percentage of pre-merger enforcement actions – by both the FTC and DOJ – has steadily decreased. Indeed, in 2023 the agencies combined initiated just twelve premerger enforcement actions in response to 1,805 HSR Forms (notwithstanding, a “major area of focus of the FTC was protecting competition in healthcare markets,” as healthcare transactions made up the majority of these enforcement actions despite representing only 3.6% of total reported transactions).
The Final Rule updates the half-century old HSR Form used by parties in submitting the details of their transaction to the federal government, filling gaps regulators saw as an impediment to modern antitrust review. Typically, once parties have submitted their HSR Form, the FTC and DOJ have just thirty days to investigate and decide whether to issue a Second Request, extending the investigation period by another thirty days, at the conclusion of which the agencies can allow the transaction to proceed or seek an injunction in federal court. To give the agencies more ammunition during this short timeframe, the Final Rule broadens disclosure in the following ways:
- Increased disclosure of party holdings and affiliated entities (due to increased involvement of private equity and corporate structure changes), emphasizing disclosure of minority shareholders, officers, and directors;
- Identifying impacts on labor markets (reflecting another avenue of labor regulation for the FTC besides its struggling Noncompete Rule);
- Disclosure of existing or future business relationships for risk of post-merger foreclosure (focusing on non-horizontal mergers, which purportedly have broader market impacts);
- Disclosure of developing products to evaluate future risks to innovation competition; and
- Disclosure of prior serial acquisition strategies, defined as a pattern of buying many smaller competitors as opposed to larger or more established firms (the Final Rule specifically uses several healthcare industry mergers as examples, such as an ongoing lawsuit in Texas against statewide consolidation of many small anesthesia practices).
While it is clear that federal agencies will be asking for and obtaining more information, what remains to be seen is whether receipt of such additional information actually leads to a reversal in the trend in fewer pre-merger regulatory challenges. If it does, however, since the healthcare industry already represents the vast majority of agency challenges, is the subject of continued Congressional pressures, and was heavily referenced in the Final Rule, it will likely be the first to feel its effects.
Reporter, K. Tyler Dysart, Atlanta, +1 404 572 3532, tdysart@kslaw.com.