Premerger Notification; Reporting and Waiting Period Requirements

Federal RegisterJun 29, 2023

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FEDERAL TRADE COMMISSION

16 CFR Parts 801 and 803

RIN 3084-AB46

Premerger Notification; Reporting and Waiting Period Requirements

AGENCY:

Federal Trade Commission.

ACTION:

Notice of proposed rulemaking.

SUMMARY:

Pursuant to Section 7A(d) of the Clayton Act, the Federal Trade Commission (“FTC” or “Commission”) is proposing amendments to the premerger notification rules (“the Rules”) that implement the Hart-Scott-Rodino Antitrust Improvements Act (“the Act” or “HSR”) and to the Premerger Notification and Report Form (the “Form”) and Instructions (“Instructions”). These proposed changes would result in a redesign of the premerger notification process through both a reorganization of the information currently required and the addition of new information and document requirements. In addition, these changes would implement the Merger Filing Fee Modernization Act of 2022. The proposed amendments would involve changes to both the Rules and the Instructions, and the Commission proposes explanatory and ministerial changes to the Rules as well as necessary amendments to the Instructions to effect the proposed changes.

DATES:

Comments must be received on or before August 28, 2023.

ADDRESSES:

Interested parties may file a comment online or on paper, by following the instructions in the Invitation to Comment part of the

SUPPLEMENTARY INFORMATION

section below. Write “16 CFR Parts 801-803—Hart-Scott-Rodino Coverage, Exemption, and Transmittal Rules, Project No. P239300” on your comment. File your comment online at

https://www.regulations.gov/

by following the instructions on the web-based form. If you prefer to file your comment on paper, mail your comment to the following address: Federal Trade Commission, Office of the Secretary, 600 Pennsylvania Avenue NW, Suite CC-5610, (Annex H), Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT:

Robert Jones, Assistant Director, Premerger Notification Office, Bureau of Competition, Federal Trade Commission, 400 7th Street SW, Room CC-5301, Washington, DC 20024, or by telephone at (202) 326-3100.

SUPPLEMENTARY INFORMATION:

Overview

The Act and Rules currently require the parties to certain mergers and acquisitions to submit premerger notification filings (“HSR Filings”) to the Commission and to the Assistant Attorney General in charge of the Antitrust Division of the Department of Justice (“the Assistant Attorney General”) (collectively, “the Agencies”), and to wait a short period of time before consummating such transactions. The reporting and waiting period requirements are intended to enable the Agencies to determine whether a proposed merger or acquisition may violate the antitrust laws, including Section 7 of the Clayton Act, 15 U.S.C. 18, if consummated and, when appropriate, to seek an injunction in federal court in order to enjoin anticompetitive acquisitions prior to consummation.

Section 7A(d)(1) of the Clayton Act, 15 U.S.C. 18a(d)(1), directs the Commission, with the concurrence of the Assistant Attorney General, in accordance with the Administrative Procedure Act, 5 U.S.C. 553, to require that premerger notification be in such form and contain such information and documentary material as may be necessary and appropriate to determine whether the proposed transaction may, if consummated, violate the antitrust laws. In addition, Section 7A(d)(2) of the Clayton Act, 15 U.S.C. 18a(d)(2), grants the Commission, with the concurrence of the Assistant Attorney General, in accordance with 5 U.S.C. 553, the authority to define the terms used in the Act, exempt classes of transactions that are not likely to violate the antitrust laws, and prescribe such other rules as may be necessary and appropriate to carry out the purposes of Section 7A.

In this notice of proposed rulemaking (“NPRM”), the Commission proposes amending the Rules (Part 801 and Part 803 and its appendices), the Form, and the Instructions to reorganize the information currently required with an HSR Filing and to require additional information critical to the Agencies' initial review. These changes would improve the efficiency and effectiveness of that initial review by providing the information the Agencies need to identify during the initial 30-day waiting period any transaction that may pose competition concerns and potentially narrow the scope of any investigation or reduce the need to conduct a more in-depth investigation of the proposed transaction. These amendments also incorporate the changes to implement the collection of information mandated by the Merger Filing Fee Modernization Act of 2022 (“2022 Amendments”) contained within the Consolidated Appropriations Act, 2023 (Pub. L. 117-328, 136 Stat. 4459) to Section 7(a) of the Clayton Act, 15 U.S.C. 18a. Finally, the Commission proposes explanatory and ministerial changes to the Rules as well as necessary amendments to the Instructions to effect the proposed changes.

Background

The premerger notification program is designed to provide the Commission and the Assistant Attorney General with the information and documentary material necessary and appropriate for an initial evaluation of the potential anticompetitive impact of transactions. The HSR premerger notification program is an essential tool for effective and efficient merger enforcement because it enables the Agencies to investigate acquisitions that may substantially lessen competition or tend to create a monopoly in violation of Section 7 of the Clayton Act and to challenge them before they are consummated and the businesses of the two companies are “scrambled” or integrated such that effective post-merger relief is much more difficult. Congress intended that premerger review would “strengthen the enforcement of Section 7 by giving the government antitrust agencies a fair and reasonable opportunity to detect and investigate large mergers of questionable legality before they are consummated.”

Premerger notification and review, including a mandatory waiting period during which they cannot consummate the transaction, gives the Agencies the procedural tools necessary to seek to prevent mergers in court before they cause harm or the operations of the firms become so integrated that the premerger state of competition cannot be restored.

H.R. Rep. No. 94-1373 at 5 (1976).

The HSR Act and Rules specify that transactions subject to the HSR Act cannot be consummated until 30 days for most transactions (cash tender offers and certain types of bankruptcies observe a 15-day waiting period)

after the parties submit an HSR Filing to the Agencies. These statutory deadlines for conducting an initial review are extraordinarily short, and the Agencies must work quickly to determine whether to take steps to prevent the consummation of potentially anticompetitive transactions. During the initial waiting period, the FTC's

Premerger Notification Office (“PNO”) staff must review each HSR Filing to ensure it complies with the HSR Rules. Staff at both Agencies initially review the information and documents for substantive antitrust concerns, identify and assess the relevant facts, conduct a preliminary antitrust analysis, form preliminary recommendations regarding the investigation's direction, and communicate those recommendations within each Agency. As staff formulate recommendations, they must also initiate clearance from the other agency for those transactions that merit collection of additional information to avoid any duplication of effort and ensure that only one agency investigates the transaction. Senior leadership at the investigating agency must review staff's recommendations and determine whether to issue a Request for Additional Information (“Second Request”),

which starts the second phase of the agency's merger investigation. If there are other jurisdictions investigating, Agency staff coordinate with relevant state Attorneys General or international counterparts. All of this must happen during the initial waiting period, which is typically 30 days.

15 U.S.C. 18a(b)(1)(B); 11 U.S.C. 363(b)(2).

15 U.S.C. 18a(e).

Given the large number of HSR Filings submitted each year, the Agencies must use their resources efficiently and effectively to focus primarily on transactions that may harm competition. Information submitted as part of the HSR premerger notification process is a key starting point, and the information contained in the HSR Filing should be sufficient to allow the Agencies to conduct a thorough but quick evaluation of whether the proposed transaction is one that requires more in-depth investigation through the issuance of Second Requests.

However, after a comprehensive review of the premerger notification process and based on the Agencies' experience conducting in-depth investigations of challenged mergers, the Commission believes that the information currently reported in an HSR Filing is insufficient. In fact, the challenges of premerger review have expanded considerably over time as result of several factors. First, there has been tremendous growth in sectors of the economy that rely on technology and digital platforms to conduct business and, given the dynamic nature of these markets and the importance of acquisition strategies to success and market growth, mergers and acquisitions in these sectors present a unique challenge for the Agencies.

In these sectors, some transactions involve firms whose premerger relationship is not clearly horizontal or vertical; rather, merger activity in these sectors increasingly involves firms in related business lines where the Agencies must closely examine the potential for direct competition in the future.

See, e.g.,

Fed. Trade Comm'n, Non-HSR Reported Acquisitions by Select Technology Platforms 23-24 (2021).

In addition, the very nature of HSR-reportable transactions has become more complex over time. Transaction structures have evolved to include not only the Ultimate Parent Entity (UPE) and its acquiring entity,

but also other entities within the acquiring person. For instance, there can be numerous entities between the UPE and acquiring entity, and other investors can have a stake in any one of these entities. As a result, these investors could have a direct role in effectuating the transaction. Individuals or entities other than the those directly involved in the transaction may be able to exert influence over the transaction as well. The existence of subsidies or loans, among other means, may subject the buyer to additional pressures from individuals or entities not directly a party to the reportable transaction. Indeed, the use of board observers has become a more frequent way for outside players to gain direct access to company strategy. Each of these factors can affect a transaction's impact on the competitive landscape.

16 CFR 801.1(a).

Consistent with this concern, the Commission's NPRM also proposes changes to implement the collection of information about certain subsidies, as mandated by the 2022 Amendments. Congress determined that foreign subsidies can distort the competitive process or otherwise change the incentives of the firm in ways that undermine competition following an acquisition and are particularly problematic when provided by entities or countries that are strategic or economic threats to the United States.

The proposed changes require filing parties to provide information about subsidies received from foreign entities of concern, as discussed in more detail below.

Title II of the Merger Filing Fee Modernization Act of 2022, Public Law 117-329, Div. GG, sec. 201(a)(1) at 3826, 136 Stat. 4459. Congress pointed to remarks of former Commissioner Noah Phillips that “one area where antitrust needs to reckon with the strategic interests of other nations is when we scrutinize mergers or conduct involving state-owned entities . . . companies that are controlled, by varying degrees, by the state . . . [and] often are a government tool for implementing industrial policies or to protect national security.”

Id.

at sec. 201(a)(5).

Another factor that has an impact on the complexity of premerger review is that consistent with the law and binding judicial precedent, the Agencies have stepped up efforts to review transactions for

all

their potential competitive impacts. The Agencies are responding to evidence that the U.S. economy is becoming increasingly concentrated overall.

This concentration may reflect decreased competition, which can result in higher prices for consumers, decreased innovation, reduction in output, and lower wages for workers. For example, economists have estimated that workers' share of national income has fallen sharply since 2000, such that the workers' share of income today is now 6 to 8 percentage points below the 1980 level.

These findings reveal that despite the Agencies' efforts to prevent market consolidation through merger enforcement, many markets suffer from a lack of robust competition and mergers continue to cause harm.

As President Biden noted in his Executive Order on Promoting Competition, industry consolidation and weakened competition “deny Americans the benefits of an open economy,” with “workers, farmers, small businesses, and consumers paying the price.”

See, e.g.,

Council of Econ. Advisers Issue Brief, Benefits of Competition and Indicators of Market Power at 4 (Apr. 2016),

https://obamawhitehouse.archives.gov/sites/default/files/page/files/20160414_cea_competition_issue_brief.pdf

(noting change in revenue share earned by the 50 largest firms in each sector); David Autor et al.,

The Fall of the Labor Share and the Rise of Superstar Firms,

135 Q.J. Econ. 645 (2020) (finding that the top 4 firms in the top sectors of the economy became steadily and significantly more concentrated); Thomas Philippon,

Causes, Consequences, and Policy Responses to Market Concentration

, in

Aspen Economic Strategy Group, Maintaining the Strength of American Capitalism

(2019) (reviewing literature on concentration in the U.S. economy).

See, e.g.,

Gene M. Grossman and Ezra Oberfield,

The Elusive Explanation for the Declining Labor Share,

14:1 Ann. Rev. Econ. 93-124 (2022).

See, e.g.,

Keith Brand, Chris Garmon, Ted Rosenbaum,

In the Shadow of Antitrust Enforcement: Price Effects of Hospital Mergers from 2009-2016,

(forthcoming in J.L. Econ.); Zack Cooper et al.,

The Price Ain't Right? Hospital Prices and Health Spending on the Privately Insured,

134 Q.J. Econ. 51 (2019); Gautam Gowrisankaran, Aviv Nevo, and Robert Town,

Mergers When Prices are Negotiated: Evidence from the Hospital Industry,

105 Am. Econ. Rev. 172 (2015); Orley Ashenfelter, Daniel Hosken, and Matthew C. Weinberg,

Did Robert Bork Understate the Competitive Impact of Mergers? Evidence from Consummated Mergers,

57 J.L. & Econ. S67 (2014).

Exec. Order No. 14,036, 86 FR 36,987 (July 14, 2021).

See also

The White House, Fact Sheet: Executive Order on Promoting Competition in the American Economy (July 9, 2021),

https://www.whitehouse.gov/briefing-room/statements-releases/2021/07/09/fact-sheet-executive-order-onpromoting-competition-in-the-american-

economy/

(noting that “Economists find that as competition declines, productivity growth slows, business investment and innovation decline, and income, wealth, and racial inequality widen.”).

Each year, many of the transactions that are investigated by the Agencies are also investigated by another jurisdiction under their laws and procedures and this adds to the complexity of premerger review. Moreover, the Agencies' experience gained while cooperating with international competition agencies that are conducting their own merger investigation reveals that better information can help address the increased complexity of premerger review and improve its efficiency. As compared to the Form, most international jurisdictions have merger filing forms that ask filers to provide significantly more information that their staff considers relevant to the competition analysis, including details about the transaction's structure and rationale, horizontal overlaps, vertical and other relationships, and more detailed sales data. Importantly, many other jurisdictions rely on narrative responses from the parties that contain basic information about business lines or company operations, and several require the parties to self-report overlaps.

For all these reasons, the Commission believes that the information currently collected by the Form is insufficient for the Agencies to conduct an effective and efficient initial evaluation of a transaction's likely competitive impact on all of those who might be affected, including consumers, small businesses, and workers. In the Agencies' experience, the current Form does not provide their staff with complete information, including information about the transaction; the filers' business operations and those of any related entities; the premerger relationship between the acquiring person and the acquired entity; individuals or entities that may have influence over the operation of the relevant business lines; the full range of potential competitive implications of the transaction, including effects on workers; and prior acquisitions.

To supplement the shortcomings of HSR Filings, Agency staff must often rely on voluntary cooperation from third parties—customers and competitors of the merging parties—during the initial waiting period to learn basic information about the parties' business dealings and the markets in which they compete. In addition, staff needs to conduct independent research using publicly available information to supplement the modest amount of material submitted with the HSR Filing. Neither of these is reliable as a substitute for information provided by the parties themselves and certified as a complete response. Moreover, the additional effort required to discover basic business information about the parties to the transaction and their premerger relationship is inefficient and can result in both too few in-depth investigations when the information collected does not uncover a significant premerger competitive relationship as well as in-depth investigations that are either too broad or too narrow due to the insufficient detail about those relationships that is currently provided in HSR Filings. The information collected by the parties for their own premerger assessment of the transaction is paramount for the Agencies' antitrust assessment and should be collected and submitted with the initial filing.

The Commission therefore proposes additional questions and document requests to provide the Agencies with the information necessary to facilitate their initial review, as discussed further in this NPRM.

“The House conferees contemplate that, in most cases, the Government will be requesting the very data that is already available to the merging parties, and has already been assembled and analyzed by them. If the merging parties are prepared to rely on it, all of it should be available to the Government.” 122 Cong. Rec. H30877 (Sept. 16, 1976) (remarks of Rep. Rodino).

At the same time, it has become clear to the Commission that certain required information currently submitted in the Form to aid the Agencies' review is not as helpful as originally intended. For instance, as a general screening tool, reporting revenue by specific dollar amounts for specific industry codes, as defined by the North America Industry Classification System (“NAICS”), does not materially assist the Agencies in their initial review. Reporting revenue ranges for the NAICS codes, would sufficiently convey which lines of business of the filing person generate the most revenue. In addition, the requirement to report manufacturing revenues at a granular level has become less helpful to the Agencies during their initial review as a result of changes made by the United States Census Bureau (“Census”) to one of its revenue classification systems. Finally, the Commission believes that the identification of minority investors in target entities, other than those that will “roll over” their investments post-consummation, is of limited use. The Commission therefore proposes deleting these requirements, as discussed in further detail below.

The Commission anticipates that the proposed reorganization and collection of additional information in HSR Filings would greatly enhance the Agencies' ability to complete the review of a reportable transaction in a short period of time, and that they are necessary and appropriate in order for the Agencies to vigorously enforce the nation's antitrust laws. The changes would improve the efficiency and effectiveness of the Agencies' initial review process and reduce the need to rely on the voluntary submission of additional information by the parties and third-party industry sources during the initial waiting period.

Finally, the Commission notes that since the implementation of the Act and Rules in the late 1970s, there has never been a large-scale reorganization of the information required in an HSR Filing. As a result, the Commission is proposing a comprehensive redesign of the premerger notification process through both a reorganization of the information currently required and the addition of new information requirements. As the Agencies are currently working to complete an electronic filing (“e-filing”) platform, the exact structure of the redesign is unclear at this time. The Commission believes that the development and roll-out of an e-filing platform will mark a significant improvement in the submission and processing of HSR Filings, with benefits for both filers and the Agencies. Thus, in this NPRM, the Commission is providing an overview of the proposed reorganization of the information currently required and the proposed new information requirements. The exact form of the redesign and how filers will submit this information will be more clearly laid out in any Final Rule after the Commission reviews all comments to this NPRM.

Proposed Changes to the Rules

I. Proposed Changes to Part 801

A. Section 801.1: Proposed Definitions of “Foreign Entity or Government of Concern” and “Subsidy”

On December 29, 2022, the President signed into law the Consolidated Appropriations Act, 2023, which included amendments to the HSR Act in t2022 Amendments. Public Law 117-328, 136 Stat. 4459. Congress found that foreign subsidies, particularly those from “countries or entities that constitute a strategic or economic threat

to United States interests,”

“can distort the competitive process by enabling the subsidized firm to submit a bid higher than other firms in the market, or otherwise change the incentives of the firm in ways that undermine competition”

post-merger. The 2022 Amendments require the Commission, with concurrence of the Assistant Attorney General, and in consultation with Chairperson of the Committee on Foreign Investment in the United States, the Secretary of Commerce, the Chair of the United States International Trade Commission, the United States Trade Representative, and heads of other appropriate agencies (“Relevant Agencies”), to promulgate a rule to require persons making an HSR Filing to disclose subsidies received from countries or entities that are strategic or economic threats to the United States. Congress identified those threats as “foreign entities of concern” as defined in section 40207 of the Infrastructure and Jobs Act, 42 U.S.C. 18741(a), and required the Commission to collect information about subsidies from these entities as part of HSR Filings.

Title II of the Merger Filing Fee Modernization Act of 2022, Public Law 117-329, Div. GG, sec. 201(a)(2) at 3826, 136 Stat. 4459.

Id.

at sec. 201(a)(1).

After conducting its own internal diligence to draft a rule and in consultation with the Relevant Agencies on this topic, the Commission proposes amending § 801.1 to add proposed paragraphs (r)(1) and (2), which define “foreign entity or government of concern” and “subsidy,” respectively.

1. Section 801.1(r)(1) Foreign Entity or Government of Concern

In the 2022 Amendments, Congress found that foreign subsidies are particularly problematic when granted by countries or entities that constitute a strategic or economic threat to U.S. interests. To identify such subsidies, the Commission proposes new rule § 801.1(r)(1). This proposed rule defines, in proposed subsection (i), subsidies that would have to be disclosed, per Congress' mandate, if received from a “foreign entity of concern” as the term is defined in section 40207 of the Infrastructure Investment and Jobs Act (“IIJ Act”), 42 U.S.C. 18741(a). The Commission therefore proposes adopting this definition in § 801.1(r)(1)(i).

The Commission recognizes, however, that the definition of a “foreign entity of concern” in the IIJ Act does not explicitly include foreign governments or government agencies. To the extent that HSR filers have received any subsidy directly from the government of a country designated by 42 U.S.C. 18741(a)(5)(C), the Commission believes that including these subsidies would be consistent with Congress' mandate to capture information regarding subsidies when granted by entities posing a strategic and economic threat to the United States. Indeed, the Agencies' understanding of the subsidies' competitive significance would be incomplete without including subsidies granted by foreign governments or government agencies of foreign countries that are covered nations under 42 U.S.C. 18741(a)(5)(C). Therefore, the Commission proposes requiring persons making an HSR Filing to report subsidies received from governments (and their agencies) of foreign countries that are covered nations under 42 U.S.C. 18741(a)(5)(C) in proposed § 801.1(r)(1)(ii).

Finally, the Commission proposes that proposed §§ 801.1(r)(1)(i) and (ii) retain the references to the respective sections of the IIJ Act rather than incorporating the current text of these sections to assure that the proposed rule remains consistent with any subsequent amendments to these sections within the IIJ Act.

2. Section 801.1(r)(2) Subsidy

The 2022 Amendments found that “[f]oreign subsidies, which can take the form of direct subsidies, grants, loans (including below-market loans), loan guarantees, tax concessions, preferential government procurement policies, or government ownership or control, can distort the competitive process.”

Thus, the 2022 Amendments require the Commission to collect information about such subsidies to enable the Agencies to determine whether the transaction, if consummated, would violate the antitrust laws. But the statute does not define the term “subsidy” and its specific definition has, in fact, been heavily debated and negotiated in both U.S. legislation and international treaties in other contexts. The Commission is mindful of the relevant caselaw and expertise of other U.S. agencies that have developed over decades and, after consultation with the Relevant Agencies on this topic, the Commission proposes the adoption of the definition of subsidies in Title VII of the Tariff Act of 1930 (“Tariff Act”), 19 U.S.C. 1677(5)(B).

Id.

The Tariff Act definition of “subsidy” is consistent with the definition in the World Trade Organization's Agreement on Subsidies and Countervailing Measures (“SCM”), to which the United States is a party.

The Commission believes that because this definition is found both in U.S. law and in the SCM, both U.S. and foreign filing parties, or the law firms that represent them, should be familiar with and able to apply. The Commission also believes this definition is consistent with the Congressional mandate in the 2022 Amendments.

19 U.S.C. 3511(d)(12).

The Commission thus proposes adopting this definition in § 801.1(r)(2) and that the proposed rule retain the reference to the Tariff Act definition rather than incorporating the current text of that section to assure that the proposed rule remains consistent with any subsequent amendments to the Tariff Act.

The incorporation of this proposed change into the Instructions is discussed below at III.E.1.

II. Proposed Changes to Part 803

A. Sections 803.2, 803.5, and 803.10: Adoption of Electronic Filing

The Commission proposes amending §§ 803.2(e) and (f); 803.5(a)(1), (3), and (b); and 803.10(c)(1)(i) and (ii) to eliminate references to paper and DVD filings to physical offices. In March 2020, the COVID-19 pandemic and resulting closures of federal office buildings prevented the Commission and Assistant Attorney General from physically accepting HSR Filings, as had been the practice since the original adoption of the Rules in 1978. As a result, on March 17, 2020, the Agencies began accepting filings electronically.

Given the success of that system, the Commission proposes amending the Rules as noted above to adopt electronic filing and eliminate references to paper and DVD filings. This change benefits both the Agencies and filing parties by reducing reliance on the delivery and acceptance of paper filings or DVDs.

Press Release, Fed. Trade Comm'n, Premerger Notification Office Implements Temporary e-Filing System (March 13, 2020),

https://www.ftc.gov/news-events/news/press-releases/2020/03/premerger-notification-office-implements-temporary-e-filing-system.

B. Section 803.2: Requiring Separate Forms for Acquiring and Acquired Persons

The Commission proposes amending § 803.2(a) and deleting § 803.2(b)(1)(v) so that filing persons that are both the acquiring and acquired person are required to make separate filings. Currently, the Rules, Instructions, and Form permit filers that are both an acquiring and an acquired person in a transaction to file only one Form. This

scenario arises most commonly when a seller will receive voting securities of the buyer as consideration for the sale of the target. In such transactions, both the acquisition of the target by the buyer and the acquisition of the buyer's voting securities by the seller may be reportable. Thus, the buyer and seller can each be an acquiring and an acquired person.

Although the Rules permit filers to use one Form for the two transactions in these cases, § 803.2(b)(1)(v) requires that separate responses be provided for Items 5 through 8, one set of responses as the acquiring person and one set as the acquired person. In the Commission's experience, filers that opt to combine the information on a single Form often do not include everything that is required, and these filings are, in fact, very confusing for the Agencies to review. In contrast, when filers choose to submit two separate Forms for such transactions, these filings provide all the required information and in a much clearer format. The Commission thus proposes amending § 803.2(a) and deleting § 803.2(b)(1)(v) to require acquiring persons and acquired persons to submit separate HSR Filings, one as the acquiring person and one as an acquired person, in instances where filers qualify as both. This proposed approach would make the Agencies' initial review much easier by more clearly separating information related to the acquiring person from the acquired person. No new information would be required, and technology allows parties to save copies of filings to reduce the need to input repetitive information.

C. Section 803.5(b): Requiring Draft Agreements or Term Sheets

The Commission proposes amending § 803.5(b) to require filers who have not executed a definitive transaction agreement before making an HSR Filing to submit a draft agreement or term sheet that describes with sufficient detail the scope of the entire transaction that will be consummated after observing the waiting period required by the Act. Section 803.5(b) currently allows filers in any non-§ 801.30 acquisition to file on the basis of “a contract, agreement in principle or letter of intent to merge or acquire [that] has been executed” and an affidavit attesting to that execution as well as the good faith intention to complete the transaction. In permitting parties to file before the signing of a definitive agreement, the Commission has relied on the assumption that the filings would “contain sufficiently definitive information about the transaction to permit accurate analysis.”

In the Commission's experience, however, filings submitted on the basis of bare preliminary agreements, such as an indication of interest, non-binding letter of intent, or agreement in principle (“Preliminary Agreements”), typically do not meet this standard.

43 FR 33450, 33511 (July 31, 1978).

Often, Preliminary Agreements reflect only very early discussions between the parties, and since there is currently no obligation to file a draft or final agreement once the HSR Filing is submitted, the Agencies must spend time during the initial waiting period simply trying to discover the scope and timing of the transaction. Moreover, given the preliminary nature of such a filing, the parties have often not yet undertaken a robust analysis of the transaction and therefore have drafted few, if any, documents responsive to Items 4(c) or 4(d) of the current Form. Permitting parties to submit an HSR Filing prior to a complete substantive analysis of the transaction, and at times even before the parties have done diligence on rationales or justifications for the transaction, puts the Agencies at a distinct disadvantage during the initial waiting period in determining what the transaction is and whether it may violate the antitrust laws if consummated.

Additionally, HSR Filings made during the early phases of negotiations may be too uncertain to merit review. The original Statement of Basis and Purpose from 1978 (“1978 SBP”) provides clear guidance that “[b]ecause of the time and resource constraints upon the agency staffs,” the Agencies should not expend resources to review transactions so lacking in specifics that they could be considered merely “hypothetical.”

Yet allowing for the submission of a filing on the basis of a Preliminary Agreement often triggers the use of limited resources for hypothetical transactions, first to discover the full range of potential viable transactions, and then to assess the competitive impact of those potential iterations.

Id.

at 33510-511.

The Commission therefore proposes amending § 803.5(b) to eliminate the ability to submit an HSR Filing on any Preliminary Agreement without providing a term sheet or draft agreement that reflects sufficient detail about the proposed transaction to allow the Agencies to understand the scope of the transaction and to confirm that the transaction is more than hypothetical. The Commission also proposes a corresponding change to the Instructions, as noted at III.C.6. Because detailed term sheets or draft agreements are often prepared in the ordinary course of deal negotiations, the Commission does not expect this change would impose a significant burden on filing parties. However, the Commission recognizes that eliminating the parties' ability to make filings prior to the negotiation of such documents may change the timing of filing and would likely result in more robust filings that would take additional time to prepare. On balance, the Commission believes that this proposed change is consistent with the original intent of the Rules to prevent expending scarce Agency resources on hypothetical transactions and would allow the Agencies to focus on transactions definitive enough to permit accurate analysis.

D. Section 803.8: Translation of Documents

The Commission proposes amending § 803.8 to require submission of English-language translations for all foreign-language documents submitted with the initial HSR Filing. Section 803.8(a) currently provides that parties need not translate foreign-language materials submitted with the initial filing, and that English-language outlines, summaries, extracts, or verbatim translations need only be provided if they already exist. Section 803.8(b), in contrast, has required since 1983 that all foreign-language documents responsive to a Second Request be provided with English translations.

The Commission proposed mandatory translation in 1981, 46 FR 38710 (July 29, 1981), and issued a final rule in 1983, 48 FR 34427 (July 29, 1983).

In the Commission's experience since the early 1980s when Rule 803.8 was first adopted, it is no longer enough to require translations of only those foreign-language documents submitted in response to Second Requests because today's HSR Filings quite frequently contain foreign-language materials. These materials typically include key documents, such as the transaction agreements submitted in response to current Item 3(b) of the Form, the relevant financials submitted in response to current Item 4(b), and the documents submitted in response to current Items 4(c) and 4(d) of the Form. Parties often submit foreign-language materials in their HSR Filings with no translation at all or with only rough English-language outlines, summaries, or extracts, which may not accurately and fully convey the contents of the foreign-language document. As a result, the Agencies must either obtain their

own translations of these documents or miss out on potentially critical information, leaving the Agencies at a disadvantage during their initial review. Given the wide variety of foreign languages the Agencies typically see, it would be very costly for the Agencies to retain translation services for each filing that may contain some foreign-language material. Further, obtaining translations adds significant delay within the already time-constrained initial waiting period and would not allow for filing parties to review the translations for errors. These translations may be especially important for those transactions that report foreign subsidies.

To address this issue, the Commission proposes combining §§ 803.8(a) and 803.8(b). Proposed § 803.8 would therefore be one paragraph requiring that verbatim English translations be provided with all foreign-language materials submitted as part of an HSR Filing or in response to a Second Request. For either an initial HSR Filing or in response to a Second Request, both the original document and the English translation would need to be submitted. Proposed § 803.8 would not require any particular method of translation but would specify that, whatever translation method the parties choose, all verbatim translations must be understandable, accurate, and complete. This proposed change would also be reflected in the Instructions, as specified below in III.A.4.

Although the Commission noted in its 1983 final rulemaking that requiring translations created a burden for filing parties,

the Commission now believes that translation tools available to the parties have become more abundant and that these tools provide many options for translation that should significantly reduce the burden of providing translations. Translations of foreign-language documents would greatly benefit the Agencies in allowing staff to know the content of responsive documents submitted in a foreign language. The Commission invites comment on whether there are categories of documents identified in this NPRM that would present a significant burden to translate and what other alternatives might achieve the Commission's goal of being able to understand and assess foreign-language documents while creating less burden for filing parties.

48 FR 34427, 34440 (July 29, 1983).

E. Section 803.10: Commencement of Waiting Periods

The Commission proposes amending § 803.10(c)(1)(i) to clarify when filings made electronically are to be credited as received by the Agencies. Specifically, the Commission proposes amending this rule to clarify that compliant filings will be credited as received on the date filed if: (i) the electronic submission is complete by 5:00 p.m. Eastern Time; and (ii) such date is not a Saturday, Sunday, legal public holiday (as defined in 5 U.S.C. 6103(a)), or the observed date of such legal public holidays.

These clarifications are consistent with current and historical practices. Of course, historically, the Rules did not need to specify this information, since the receipt of physical filings (either on paper or DVD) required the offices of the Assistant Attorney General and Commission to be open. But because electronic filing platforms can allow submission of filings even when Agency staff is not available to receive the filings, the proposed amendments make clear that filings are only credited as received during regular business hours on regular business days. These proposed changes would provide clarity and thus benefit both filing parties and the Agencies.

F. Section 803.12: Information To Be Updated With Refiling

The Commission proposes amending § 803.12(c) to specify which responses to the items in the proposed Instructions would need to be updated if the acquiring person chooses to withdraw its HSR Filing and refile it (an “Updated HSR Filing”). The procedure for voluntary withdrawal and refiling permits the acquiring person to restart the initial waiting period, so long as no material changes have been made to the transaction, to provide the Agencies an additional 15 or 30 days (depending on the transaction type) to review the transaction without issuing a Second Request. If the Updated HSR Filing is received within two business days of withdrawal, no new fee is required, but filers currently must provide a new affidavit and certification and update current Item 4 of the Form to provide the Agencies with more recent information that is likely relevant to the continued review.

The Commission proposes eliminating the requirement to provide updated financials, currently required by Item 4(a) and (b), in the Updated HSR Filing. The Commission's experience has shown that, given that the withdraw and refile procedure is completed within approximately one month of the original filing, the financial documents required by Item 4(a) and (b) are rarely changed and therefore updating them is not essential in this phase of its investigation.

The Commission proposes requiring updated Transaction-Related Documents with the Updated HSR Filing, which, as discussed below in III.D.1.a., would comprise the current Item 4(c) and (d) documents subject to proposed modifications of the custodians and clarifications. Documents responsive to current Item 4(c) and (d) typically reflect the most relevant thinking of key individuals with knowledge of the transaction within the acquiring person and are required as part of an Updated HSR Filing. Therefore, the Commission believes these documents are essential to the Agencies' initial antitrust assessment of the transaction.

The Commission also proposes adding two new requirements for the Updated HSR Filing: updated transaction agreements and updated information about subsidies from Foreign Entities of Concern. Though the voluntary withdrawal and refiling process is only available if the transaction is materially the same, the Commission believes that the Agencies would benefit from having a complete understanding of all aspects of the status of and rationale for the transaction, including any changes that have occurred since the day the HSR Filing was submitted. Therefore, the Commission proposes requiring that the Updated HSR Filing include the latest version of the transaction agreements, including the most recent drafts, if a final version has not been executed. The Commission believes this proposed requirement would not impose a substantial burden, since this would be a limited set of documents that should be readily available to the acquiring person.

The Commission also proposes requiring that the Updated HSR Filing include updated information regarding Subsidies from Foreign Entities or Governments of Concern, which is discussed below at III.E.1. The Commission believes that most updated HSR Filings would reflect no new information related to subsidies given the short period of time since the original HSR Filing. However, if new information about subsidies from foreign entities of concern were to become available, the Commission believes that it would be consistent with Congressional intent for the Agencies to have access to this information.

Proposed Changes to the Instructions

III. Part 803 Appendix A and Appendix B

As mentioned above, the Agencies are developing an e-filing platform through which filers would submit information required by the HSR Rules via an online portal. As a result, this NPRM does not contain a new draft Form. Instead, this NPRM presents the information requirements as Instructions for collecting and submitting documents and information required by the HSR Rules. The proposed Instructions reorganize the information to reflect the planned layout of the e-filing platform in development, which would be described in any final rule. Prior to the implementation of the e-filing platform, the proposed Instructions contemplate filers would submit the proposed requests for information and narratives via uploads in a standard format such as PDF and Excel.

The proposed changes to the information that filing parties would be required to provide are detailed below. The Commission recognizes that, in total, these proposed changes would be significant and impose additional burden on some filing parties. Some proposed changes ask for additional information or documents that the Commission believes are in the possession of the filing persons in a form that could be readily uploaded into the e-filing platform. Other proposed changes would require filing parties to compile or generate the requested information specifically for the HSR Filing, such as items requesting narrative responses, which would involve additional effort. As explained below, the Commission has determined that the additional burden associated with these proposed changes is justified because the requested documentary material and information is necessary and appropriate for effective and efficient review of HSR Filings to determine within the initial waiting period whether the transaction may, if consummated, violate the antitrust laws.

15 U.S.C. 18a(d).

Based on the Agencies' experience conducting merger investigations, and as discussed above, the Commission believes that the limited information currently available to the Agencies in the HSR Filing is no longer sufficient to conduct an effective initial screening of the transaction for all types of competitive harm that may result from the transaction. The proposed set of reorganized revenue information, additional documents, and narrative responses would create a much more complete, accurate, and robust basis on which to screen the transaction for the various potential competitive effects, including those that arise from non-horizontal transactions or combinations involving competing employers. These proposals would also provide a more reliable and robust set of information to determine when the transaction does not warrant an in-depth investigation, which often requires a substantial investment of time and resources for both the investigating agency and the merging parties. Based on the Agencies' experience in reviewing and challenging illegal mergers, the proposals target the information that is most relevant and readily available to filing persons and would require it to be presented in a coherent and organized way that will facilitate quick antitrust review by the Agencies during the initial waiting period. But the Commission welcomes comments on the burden associated with and the appropriate balance of having to provide information in the form of revenues, documents, and narratives as part of the proposed changes in this NPRM and invites alternative proposals that meet the objectives described below.

At their core, the proposed changes are motivated by the fundamental purpose of the HSR Act, which is to allow the Agencies, within a short period of time to review the information submitted with the Filing and identify potentially problematic transactions prior to consummation, and, where appropriate, initiate an in-depth review by issuing Second Requests. The fact that the Agencies must conduct their evaluation in an initial waiting period of 15 or 30 days, depending on the transaction type, means that the Agencies must have enough information to consider a wide range of potential effects on competition on an expedited basis. Based on the cumulative learning of the Commission and Assistant Attorney General over the course of decades of investigations, the Commission proposes requiring new information and narratives to address particular areas where the Agencies have found specific deficiencies in the type of information currently required by the Form. In addition, this NPRM would implement changes required by the 2022 Amendments, which are consistent with the need for sufficient information to screen for all types of competitive concerns.

Despite the added burden for filing persons, on balance, the Commission believes that the benefit to the Agencies' merger review would be significant and would help address information asymmetries between Agency staff and the filing persons in the initial waiting period. The Agencies expend substantial resources during the initial waiting period to discover and confirm basic business information about the filing persons, information that is well-known to them but not to Agency staff and is not available from any other source. These information asymmetries have become more acute as deals and companies have become more complex. In the Commission's experience, the inefficiency created by information asymmetries can overwhelm the initial review process, especially when the volume of HSR reportable transactions is high.

The proposed changes would also benefit filing persons where information contained in an HSR Filing would demonstrate to the Agencies that the transaction at issue does not need further investigation. Indeed, both the Agencies and filing persons have an interest in ensuring that HSR Filings are robust enough for the Agencies to quickly identify transactions that do not require further investigation during the initial waiting period. It is the Commission's aim to be cognizant of all such interests in proposing the substantial changes contained in this NPRM.

The Agencies experienced a surge in HSR reportable transactions during 2021 and 2022. For instance, FY 2021 HSR reportable transactions were double those of FY 2020 (1,637 versus 3,520), and in FY 2022, reportable HSR transactions remained high, at over 3,200. The pace and volume of HSR filings (generally two filings per transaction) during that time (in addition to on-going merger investigations) required the Agencies to adjust their HSR review process, including suspending the granting of requests for early termination of the waiting period.

For ease of reference, the Commission includes the following materials regarding the proposed changes in this NPRM:

• An outline of the reorganization contemplated in the proposed Instructions,

• A chart that identifies proposed new locations of the current Items of the Form including whether substantive changes are proposed, and

• A chart of proposed new categories of required information.

These materials appear immediately below.

Proposed Instructions Outline

• General Instructions and Information

• Ultimate Parent Entity Information

○ UPE Details

○ Organization Structure

• Transaction Information

○ Parties

○ Filing Fee

○ Transaction Details

○ Transaction Description

○ Joint Ventures

○ Agreements and Timeline

• Competition and Overlaps

○ Business Documents

○ Competition Analysis

○ NAICS Codes

○ Controlled-Entity Overlaps

○ Minority-Held Entity Overlaps

○ Prior Acquisitions

• Additional Information

○ Subsidies from Foreign Entities or Governments of Concern

○ Defense or Intelligence Contracts

○ Identification of Communications and Messaging Systems

○ Other Jurisdictions

• Certification

• Affidavits

Cross Reference Between Current Form and Proposed Instructions

Current form item

New location

Substantive changes?

Fee Information

Transaction Information/Filing Fee

No.

Corrective Filing

Transaction Information/Transaction Details

No.

Cash Tender Offer

Transaction Information/Transaction Details

No.

Bankruptcy

Transaction Information/Transaction Details

No.

Foreign Jurisdictions

Additional Information/Other Jurisdictions

Yes.

Early Termination

Transaction Information/Transaction Description

No.

Item 1(a)

Ultimate Parent Entity Information/UPE Details

No.

Item 1(b)

Ultimate Parent Entity Information/UPE Details

No.

Item 1(c)

Ultimate Parent Entity Information/UPE Details

No.

Item 1(d)

Ultimate Parent Entity Information/UPE Details

No.

Item 1(e)

Ultimate Parent Entity Information/UPE Details

No.

Item 1(f)

Ultimate Parent Entity Information/Organization Structure

Yes.

Item 1(g)

Ultimate Parent Entity Information/UPE Details

No.

Item 1(h)

Ultimate Parent Entity Information/UPE Details

Yes.

Item 2(a)

Transaction Information/Parties

No.

Item 2(b)

Transaction Information/Transaction Details

No.

Item 2(c)

Transaction Information/Transaction Details

No.

Item 2(d)

Transaction Information/Transaction Details

No.

Item 3(a) (Entities)

Transaction Information/Parties

No.

Item 3(a) (Description)

Transaction Information/Transaction Description

Yes.

Item 3(b)

Transaction Information/Agreements and Timeline

Yes.

Item 4(a)

Ultimate Parent Entity Information/UPE Details

No.

Item 4(b)

UPE Information/UPE Details

No.

Item 4(c)

Competition and Overlaps/Business Documents

Yes.

Item 4(d)

Competition and Overlaps/Business Documents

Yes.

Item 5(a)

Competition and Overlaps/NAICS Codes

Yes.

Item 5(b)

Transaction Information/Joint Ventures

Yes.

Item 6(a)

Ultimate Parent Entity Information/Organization Structure

Yes.

Item 6(b)

Ultimate Parent Entity Information/Organization Structure

Yes.

Item 6(c)(i)

Competition and Overlaps/Minority-Held Entity Overlaps

Yes.

Item 6(c)(ii)

Competition and Overlaps/Minority-Held Entity Overlaps

Yes.

Item 7(a)-(d)

Competition and Overlaps/Controlled-Entity Overlaps

Yes.

Item 8(a)

Competition and Overlaps/Prior Acquisitions

Yes.

Proposed New Requirements and Categories of Information

Proposed new sections

Location

New Definitions

General Instructions and Information.

Document Log

General Instructions and Information.

Translations

General Instructions and Information.

Organization of Controlled Entities

Ultimate Parent Entity Information/Organization Structure.

Identification of d/b/a or f/k/a names

Passim.

Identification of Additional Minority Interest Holders

Ultimate Parent Entity Information/Organization Structure.

Narrative Describing Ownership Structure of the Acquiring and Acquired Entities

Ultimate Parent Entity Information/Organization Structure.

Organizational Chart for Funds and Master Limited Partnerships

Ultimate Parent Entity Information/Organization Structure.

Identification of Other Types of Interest Holders that May Exert Influence

Ultimate Parent Entity Information/Organization Structure.

Identification of Officers and Directors

Ultimate Parent Entity Information/Organization Structure.

Description of Acquiring Person

Ultimate Parent Entity Information/Transaction Details.

Narrative Describing Transaction Rationale

Ultimate Parent Entity Information/Transaction Details.

Diagram of the Transaction

Ultimate Parent Entity Information/Transaction Details.

Identification of Related Transactions

Ultimate Parent Entity Information/Transaction Details.

Expansion of Transaction Agreements to be Produced

Ultimate Parent Entity Information/Agreements and Timeline.

Production of other Agreements between the Acquiring and Acquired Persons

Ultimate Parent Entity Information/Agreements and Timeline.

Provision of a Transaction Timeline

Ultimate Parent Entity Information/Agreements and Timeline.

Production of Certain Documents of the Supervisory Deal Team Lead(s)

Competition and Overlaps/Business Documents.

Production of Certain Strategic Plans

Competition and Overlaps/Business Documents.

Production of Certain Drafts

Competition and Overlaps/Business Documents.

Organizational Chart of Authors and Certain Recipients of Documents

Competition and Overlaps/Business Documents.

Narrative Describing Horizontal Overlaps

Competition and Overlaps/Competition Analysis.

Narrative Describing Supply Relationships

Competition and Overlaps/Competition Analysis.

Narrative Describing Labor Markets

Competition and Overlaps/Competition Analysis.

Identification of Minority Held Entities with Revenue Overlaps

Competition and Overlaps/Minority-Held Entity Overlaps.

Provision of Geolocation for Certain Locations of Operations

Competition and Overlaps/Controlled-Entity Overlaps.

Identification of Additional Prior Acquisitions

Competition and Overlaps/Prior Acquisitions.

Disclosure of Subsidies from Foreign Entities or Governments of Concern

Additional Information.

Identification of Certain Defense or Intelligence Contracts

Additional Information.

Identification of Communications and Messaging Systems

Additional Information.

Mandatory Disclosure of Foreign Filings

Additional Information.

Voluntary Waivers for International Competition Authorities

Additional Information.

Voluntary Waivers for State Attorneys General

Additional Information.

Statement of Penalties for False Statements

Certification.

Prevention of Destruction of Documents

Certification.

The following discussion of the proposed changes in this NPRM tracks the Proposed Instructions Outline above, explaining which information requirements are materially the same as those currently included in the Form and Instructions, which the Commission proposes changing, and which are proposed new categories of required information.

Throughout the proposed Instructions, references to paper and DVDs have been eliminated, as discussed in II.A. above.

A. General Instructions and Information

The Commission proposes creating a General Instructions and Information section within the proposed Instructions that would largely parallel the General section of the current Instructions but would be significantly reorganized. Within the proposed General Instructions and Information section, the Commission proposes substantive changes to the following sections: Filing Person, Definitions, Responses, and Translations, as detailed below.

1. Definitions and Explanation of Terms

The Commission proposes creating two new definitions and deleting an existing definition within the proposed Instructions.

a. Economic Research Service's (ERS's) Commuting Zones (CZ)

The Commission proposes adding a definition for Economic Research Service's Commuting Zones. As discussed below at III.D.2.c., the Commission proposes new questions that would require the submission of information about the filing person's employees to aid the Agencies' evaluation of the potential impact of proposed transactions on labor markets. These proposed questions would require data to be submitted using the Department of Agriculture's Economic Research Service Commuting Zones for the year 2000. These codes are available at

https://www.ers.usda.gov/data-products/commuting-zones-and-labor-market-areas/.

b. North American Product Classification System (NAPCS) Data

The Commission proposes eliminating the reporting of 10-digit North American Product Classification System (“NAPCS”) based codes, as discussed in more detail below at III.D.3. Thus, the Commission proposes deleting the NAPCS definition from the proposed Instructions.

c. Standard Occupational Classification

The Commission proposes adding a definition for Standard Occupational Classification. As discussed below at III.D.2.c., the Commission proposes new questions that would require the submission of information about the filing person's employees to aid the Agencies' evaluation of the impact of proposed transactions on competition for workers in labor markets. The proposed definition of Standard Occupational Classification (“SOC”) would require filers to submit data by the first six digits of the relevant code, as published by the United States Bureau of Labor Statistics, available at

https://www.bls.gov/soc/2018/#classification.

2. Filing

As discussed above at II.B., the Commission proposes amending § 803.2 and deleting § 803.2(b)(1)(v) to require filing persons to submit separate forms when filing as an acquiring and acquired person. The proposed Instructions would also reflect this proposed change.

3. Responses

The Commission proposes replacing the current Responses section with a new Responses section that would provide details on how to provide the information responsive to the proposed new questions. This would include eliminating instructions that are specific to filings made on paper or DVD, see above at II.A. The proposed revised Responses section would also describe the information that filing persons would need to provide in a log of responsive documents and narrative responses to be submitted with an HSR Filing. This information would generally be the same as the information currently required for documents submitted in response to Items 4(c) and 4(d) of the current Form, with two proposed expansions.

First, the Commission proposes requiring the filing person to identify the request(s) to which the document would be responsive. Though the proposed Instructions do not include item numbers at this time, indented and bolded headings in the proposed Instructions should each be considered a separate request. The Commission routinely requires this type of referencing for document submissions pursuant to compulsory process, including in response to a Second Request, and it is extraordinarily helpful in quickly identifying materials responsive to a specific request. This proposed requirement would allow the Agencies to understand the content of filings more quickly by providing a cross-reference between information and documents, facilitating a more efficient review.

Second, the Commission proposes modifying the requirements for identification of authors of documents prepared by third parties. For documents prepared by third parties at the request of a filing person, such as market studies, quality of earnings analyses, confidential information memoranda, management presentations, or board presentations, the Commission proposes that, in addition to providing the name of the third party that prepared the document, the filing person would be required to provide the name, title, and company of the individual within the filing person who supervised the preparation of the document or for whom the document

was prepared. Understanding who, within the filing person, was responsible for overseeing or receiving the work of outside consultants would materially assist the Agencies in identifying key decision-makers for the transaction. In the case of documents that were not commissioned by the filing person, such as subscription market reports, unsolicited banker's books, or documents received from the other filing person, the Commission proposes that the filing person would only be required to list the document title and name of the third party that prepared the document.

These proposed changes would allow the Agencies to quickly assess which documents were key to the decision to pursue the transaction and who within the filing person coordinated the assessment that resulted in that decision.

4. Translations

As noted above at II.D., the Commission proposes amending § 803.8 to require the filing person to submit English translations of all foreign-language documents. The proposed Instructions would also reflect this change.

B. Ultimate Parent Entity Information

The Commission proposes the creation of an Ultimate Parent Entity (UPE) Information section within the proposed Instructions. Currently, information about the structure of the acquiring and acquiring persons is required in various sections of the Form: Item 1 contains basic contact information; Item 2 identifies the ultimate parent entities; Item 3 identifies the acquiring and acquired entities; and Item 6 identifies certain controlled and minority-held entities, as well as certain minority holders of the filing person. The Commission proposes the reorganization, clarification, and expansion of these items to require additional information about the acquiring person and acquired entity(s) in order for the Agencies to receive a more complete picture of the scope of the operations of each, and to identify points of contact for questions about the HSR Filing or potential Second Requests, as well as key interest holders. These proposed changes, discussed below, would fall within the following proposed categories: UPE Details and Organization Structure.

1. UPE Details

The proposed UPE Details section within the proposed Instructions would contain most of the information currently required in Item 1 of the Form. The Commission proposes adding a new Size of Person Stipulation item that would allow the filing person to stipulate that the size of person test is met, when applicable, making it easier for staff to determine that the size of person test is met and streamlining the review process as a result.

The Commission also proposes clarifying which financials are required from acquiring persons who are natural persons. As a result of feedback from filers over the years, the Commission is aware that this item causes confusion. The proposed language in the Instructions would make it clear that natural persons who are acquiring persons must include the annual reports and/or annual audit reports of (1) the acquiring entity(s) and any entity controlled by the natural person whose dollar revenues contribute to a NAICS overlap, and (2) the highest-level entity(s) the natural person controls. It is the intent of the Commission that the Instructions require this information from natural persons, and the proposed change would make that intent clear.

Finally, the Commission proposes requiring all filing persons to identify the person to whom Second Requests should be addressed. Current Item 1(g) requires the identification of two individuals to contact regarding the HSR Filing, and current Item 1(h) requires the identification of an individual located within the United States for the limited purpose of receiving a notice of a Second Request. But the Instructions currently limit application of Item 1(h) to filings made by foreign persons, so for U.S. filers, Second Requests are sent to the person identified in Item 1(g). The Commission now understands that U.S. filing persons sometimes have separate points of contact to answer questions regarding the HSR Filing as compared to questions regarding the receipt of Second Requests. Therefore, the Commission proposes requiring all filing persons to separately provide contacts for questions related to the HSR Filing and Second Requests.

These proposed changes would provide clarity for filing persons, and the Agencies would benefit from receiving more precise information about the UPE.

2. Organization Structure

The proposed Organization Structure section within the proposed Instructions would expand the required information about how the UPE is organized and the identity of other individuals and entities that may have influence over business decisions or access to confidential business information. The proposal would require the identification of entities within the acquiring person or acquired entity, minority shareholders, and other non-controlling entities, and create new requirements to identify certain other interest holders that may exert influence, as well as officers, directors, and board observers.

a. Entities Within the Acquiring Person and Acquired Entity

The proposed Entities Within the Acquiring Person and Acquired Entity section would contain information currently required by Items 1(f) and 6(a) of the Form. Item 1(f) requires the identification of the acquiring entity(s) or acquired entity(s) (as appropriate). Item 6(a) requires the acquiring person to list all entities it controls with total assets of $10 million or more (though foreign entities with no sales into the United States may be omitted). The acquired person currently has the same obligation, but the scope is limited to the acquired entity(s); the acquired person is not required to provide information about entities that are not part of the transaction. The Commission proposes requiring additional information about the reported entities within the filing persons.

First, the Commission proposes requiring filing persons to organize the list of controlled entities by operating company or business. As filing persons have become more complex, an alphabetically or geographically organized list of the controlled entities, which is currently permitted by Item 6(a) of the Form, often does not provide the Agencies with a sufficient overview of the scope of the businesses that the acquiring person and acquired entity(s) control. Some filers currently organize the list of entities held by the acquiring person or acquired entity by operating company, and in the Commission's experience, this is a much more useful way to present the information. Understanding which companies are part of an operating group or portfolio company would allow staff to identify the actual market participants from among all legal entities. The Commission thus proposes requiring that lists of controlled entities be submitted in this manner to aid the Agencies' review during the initial waiting period.

Second, for each such operating company or business, the Commission proposes that filers identify the name(s) by which the company or business does business, as well as any name(s) by which it formerly did business within the three years prior to filing. While it remains important for the Agencies to receive legal entity names, these names

are often unrelated to the names used in the marketplace and may be unfamiliar to industry participants. Being able to connect the legal names to the “doing business as” and “formerly known as” names would greatly assist the Agencies in understanding the scope of the operations of the acquiring person and acquired entity and allow the identification of other public information about the entity during the initial waiting period.

b. Minority Shareholders and Other Non-Controlling Entities

The proposed Minority Shareholders and Other Non-Controlling Entities section would contain information currently required by Item 6(b) of the Form, which requires identification of holders of 5% or more, but less than 50%, of the acquiring UPE and acquiring entity by the acquiring person, and of the acquired entity(s) by the acquired person. In order to provide the Agencies with a more complete understanding of the individuals or entities that have significant investments in the filing persons, the Commission proposes amending the current Item 6(b) requirements and expanding them to require the identification of additional minority interest holders.

The acquisition of a minority position may be reportable under the Act, and failure to make an HSR Filing and observe the waiting period may result in significant civil penalties. 15 U.S.C. 18a(g).

The identification of certain minority holders of the filing persons has been required since the first iteration of the Form in 1978, though the level of detail that has been required has changed over time.

Prior to 2011, Item 6(b) only required the identification of holders of minority interests in voting securities. In 2011, Item 6(b) was amended to require the identification of holders of 5% or more but less than 50% of unincorporated entities.

The Commission, however, made an exception for limited partnerships and only required the identification of the general partner. At that time, the Commission understood that limited partners had no control over the operations of the fund or portfolio companies and therefore did not see them as essential to the Agencies' initial review.

Since that time, the Commission has come to understand that the Agencies would benefit from more complete information about all minority holders of the filing parties, including the identification of limited partners. As a result, the Commission proposes collecting information about minority holders of all entities within the acquiring person that are related to the transaction and requiring the identification of certain limited partners.

See

43 FR 33450 (July 31, 1978); 52 FR 7066 (Mar. 6, 1987); 76 FR 42471 (July 19, 2011).

76 FR 42471 (July 19, 2011).

Proposed Rules, 75 FR 57110, 57118 (Sept. 17, 2010), adopted in 2011, 76 FR 42471 (July 19, 2011).

The current limitation on providing minority holder information for only the acquiring ultimate parent entity and acquiring entity often prevents the identification of key interest holders. For example, co-investors often do not invest at the UPE or acquiring entity level but may hold a 5% or greater interest in an entity that is in between the UPE and the acquiring entity in the ownership structure. In particular, when funds make acquisitions, it can be the case that more than one fund may be substantively involved in the acquisition, using a variety of corporate or unincorporated entity types. The identification of not only the controlling person but also significant minority investors can be an important component of the Agencies' evaluation of the potential competitive effects of the transaction during the initial waiting period,

and obtaining a broader picture of relevant minority investments, where they exist, would aid the Agencies in their assessment of the nature of competitive decision-making within the relevant entity.

43 FR 33450, 33531 (July 31, 1978).

In the case of limited partnerships, Item 6(b) currently does not require the identification of limited partners, even if they hold 5% or more. At the time this item was adopted, the Commission understood that limited partners had no control over the operations of the fund or portfolio companies and therefore did not see them as essential to the Agencies' initial review.

However, after more than a decade, the Commission now believes that it is inappropriate to make generalizations regarding the role of investors in limited partnership structures. Identification of limited partners can provide valuable information about co-investors and lead to the identification of potentially problematic overlapping investments resulting from the transaction that could violate Section 7.

Thus, it is important that the Agencies know the identities of limited partners to understand the transaction in its entirety and to uncover investment relationships that may have competitive significance.

Proposed Rules, 75 FR 57110, 57118 (Sept. 17, 2010), adopted in 2011, 76 FR 42471 (July 19, 2011).

See, e.g.,

In re Red Ventures Holdco and Bankrate, FTC Dkt. C-4627 (Nov. 3, 2017) (enforcement action involving overlapping limited partnership holdings);

United States

Dairy Farmers of Am.,

426 F. 3d 850 (6th Cir. 2005) (DFA stakes in competitors Flav-O-Rich and Southern Belle violated Section 7).

Accordingly, for the acquiring person, the Commission proposes the reporting of certain minority holders of (1) the acquiring entity, (2) any entity directly or indirectly controlled by the acquiring entity, (3) any entity that directly or indirectly controls the acquiring entity, and (4) any entity within the acquiring person that has been or will be created in contemplation of, or for the purposes of, effectuating the transaction. For entities affiliated with a master limited partnership, fund, or investment group, the “doing business as” or “street name” of that group would also be required.

Under these proposals, minority holders that would have to be reported would include all entities or individuals, including limited partners, that hold 5% or more of the voting securities or non-corporate interests of one of the identified entities. To be clear, the Commission proposes requiring limited partnerships to identify all holders of 5% or more, but less than 50%, to harmonize the requirement for limited partnerships with the requirements for limited liability companies and corporations. The requirement to identify the general partner of a limited partnerships would remain the same.

The Commission acknowledges that these proposed requirements may require significant additional information from investment entities, such as funds and master limited partnerships, for which organizational structures are often more complex. But the Commission believes that the disparate treatment of LLCs as compared to limited partnerships is no longer appropriate. Further, the complexity of these organizational structures makes it all the more important that the filing person provide this information with the HSR Filing. The complex structure of investment entities is not adequately captured by the current Form, and there is often no other source for Agencies to learn of these relationships. Though the introduction of the definition of “associate” in 2011

provides the Agencies with some valuable information with which to identify competitively significant relationships that exist through related holdings, it does not provide enough detail about all of the potential players involved in the structure of the acquiring person. As a result, the Commission believes that the

proposed identification of all minority investors of 5% or more in entities related to the transaction would allow the Agencies to more quickly identify potential competitive issues related to these holdings during the initial waiting period.

76 FR 42471 (July 19, 2011).

To reduce the additional burden associated with these proposed changes, the Commission proposes limiting the information about minority holders collected from the acquired person. Currently, the acquired person must list certain minority interest holders of the acquired entity(s), but this requirement does not distinguish between minority holders that will be cashed out as a result of the transaction, and those that will continue investment after the transaction. On balance, the Commission believes that identifying only the minority holders that would continue to have an interest in the acquired entity(s), directly or indirectly, would provide the most relevant information to the Agencies during the initial waiting period. Therefore, the Commission proposes that the acquired person only be required to identify minority holders of the acquired entity(s) that will continue to hold interest in the acquired entity(s) or will acquire interests in any entity within the acquiring person as a result of the transaction. The Commission recognizes that in certain transactions to which § 801.30 applies, the acquired person might not have this information. In such cases, it would be permissible for the acquired person to indicate that the information is unknown.

c. Other Types of Interest Holders That May Exert Influence

The proposed Other Types of Interest Holders that May Exert Influence section would require the identification of entities or individuals that may have material influence on the management or operations of the acquiring person beyond those with the minority interests discussed above. Because these other interest holders retain the ability to influence decision-making by the acquiring person after the transaction, it is important for the Agencies to know about these relationships during the initial waiting period.

The Commission has long recognized the potential influence of minority holders and the possibility that they may seek to change competitive decisions of the target firm.

In the 1978 SBP, the Commission explained that competitors, customers, or suppliers holding a significant interest in one of the parties can raise antitrust concerns.

As originally conceived, minority holdings reported in Item 6 were designed to alert the Agencies to situations in which the potential antitrust impact of the transaction does not result solely or directly from the transaction itself, but may arise from direct or indirect shareholder relationships between the parties to the transaction.

See

United States

E.I. du Pont de Nemours & Co.,

353 U.S. 568 (1957) (du Pont's 23% stake in General Motors violated Section 7 by giving it an advantage over other suppliers and thereby resulting in a substantial lessening of competition). In considering the proper remedy, the Supreme Court found that divestiture of only voting rights was insufficient due to the on-going “special relationship” could still result in competitive harm.

United States

E.I. du Pont de Nemours & Co.,

366 U.S. 316, 332 (1961).

43 FR 33450, 33531-32 (July 31, 1978).

Id.

at 33531.

As entity structures have evolved and become more complex, the Commission now believes that relationships beyond those created by holding voting securities or non-corporate interests can give rise to similar and significant competitive concerns. For instance, some credit arrangements permit the creditor to exercise rights and influence similar to those of equity holders. Additionally, some equity interests that do not provide rights to vote for the board of directors can, nevertheless, provide rights to vote on or influence business practices of the company, including investments in future product or service lines. Further, contractual arrangements allowing individuals or entities to nominate directors or board observers have proliferated. In addition, some entities outsource the management of operations to third parties that do not beneficially own interests in the company. Each of these relationships can be relevant to understanding the transaction and its potential competitive effects. Without information about these relationships, the Agencies cannot easily identify those transactions where these relationships exist and may affect the competitive dynamics before and after the transaction.

As a result, the Commission proposes that the acquiring person identify certain individuals (other than employees of the acquiring person) or entities that, in relation to the acquiring entity or any entity it directly or indirectly controls or is controlled by, (i) provide credit; (ii) hold non-voting securities, options, or warrants; (iii) are board members or board observers, or have nomination rights for board members or board observers; or (iv) have agreements to manage entities related to the transaction. Credit relationships would be limited to creditors that have, or would have, in conjunction with or result of the transaction, provided credit totaling 10% or more of the value of the entity in question. Holders of non-voting securities, warrants, or options would be limited to those the value of which equals or exceeds 10% of the entity or could be converted to 10% or more of the voting securities or non-corporate interests of the company.

The Commission recognizes that the compilation of this information would add to the burden of preparing an HSR Filing for an acquiring person with a complicated investment structure, but it is important that the HSR Filing contain this information because individuals or entities that fall into any of the four categories described above can have a material influence on the operations or strategy of the acquiring person. As with minority investors, these relationships can affect the competition analysis of the transaction, and the proposed identification of these individuals or entities would allow the Agencies to know the identity of those in a position to influence post-merger competition decisions.

d. Officers, Directors, and Board Observers

The proposed Officers, Directors, and Board Observers section would require the identification of the officers, directors, or board observers (or in the case of unincorporated entities, individuals exercising similar functions) of all entities within the acquiring person and acquired entity, as well as the identification of other entities for which these individuals currently serve, or within the two years prior to filing had served, as an officer, director, or board observer (or in the case of unincorporated entities, roles exercising similar functions). This information would allow the Agencies to know of existing, prior, or potential interlocking directorates and to assess the competitive implications of such relationships under both Sections 7 and 8 of the Clayton Act.

Although Section 8 does not technically apply to unincorporated entities, information sharing and coordination can still raise concerns under Section 1 of the Sherman Act.

Section 8 of the Clayton Act generally prohibits a person from serving as an officer or director of competing corporations, subject to certain categorical and de minimis exceptions. This section of the Clayton Act aims to prevent information sharing and coordination between competitors through a per se ban that prohibits the same individual from serving as an

officer or director of two competing firms.

Like Section 7, Section 8 was designed to “nip in the bud incipient violations of the antitrust laws by removing the opportunity or temptation to such violations through interlocking directorates.”

United States

Sears, Roebuck & Co.,

111 F. Supp. 614, 616 (S.D.N.Y. 1953).

In the Agencies' experience, many acquiring persons have board members who also serve on the boards of other companies. As a result, the Agencies often investigate existing board relationships as well as potential interlocks that would result from the transaction as part of its initial review. Section 8 bars interlocks that arise through rights to appoint board members to a competitor

or officers or directors serving on the boards of competing companies. Investment entities that acquire board seats across a diverse portfolio of companies may be particularly likely to encounter Section 8 compliance issues via a merger or acquisition.

See, e.g.,

Complaint,

United States

CommScope Inc.,

1:07-cv-2200 (D.D.C.) (Dec. 6, 2007)

https://www.justice.gov/atr/case-document/complaint-69

(alleging violations of Sections 7 and 8 where buyer also acquired rights to appoint members to the board of its competitor). See also Press Release, U.S. Dep't of Just., Tullett Prebon and ICAP Restructure Transaction after Justice Department Expresses Concerns about Interlocking Directorates, (Jul. 14, 2016). The Department of Justice has announced its intent to reinvigorate Section 8 enforcement, after seven directors resigned from corporate board positions. See Press Release, U.S. Dep't of Just., Justice Department's Ongoing Section 8 Enforcement Prevents More Potentially Illegal Interlocking Directorates (Mar. 9, 2023),

https://www.justice.gov/opa/pr/justice-department-s-ongoing-section-8-enforcement-prevents-more-potentially-illegal.

The Agencies also consider whether the acquiring person would be expanding into the business of the other company that shared a board member such that the two companies would have competing sales in excess of the de minimis amounts permitted by Section 8.

Currently, filers are not required to disclose the identity of the members of their boards of directors, and this makes it difficult for the Agencies to complete their assessment of potential Section 8 issues during the initial waiting period. Having information about potential interlocking directorates in the HSR Filing would allow the Agencies to take steps to prevent the sharing of board-level confidential information much more quickly. This information is also relevant to the competition analysis of the transaction, as well as concerns about potential gun-jumping, which may violate the Act or Section 1 of the Sherman Act.

This is particularly important given that post-merger enforcement of Section 8's

per se

ban can be ineffective after the individual has been privy to the confidential business information of two competitors: Section 8 provides a one-year grace period to remedy an illegal interlock that arises after the individual is elected or chosen to be an officer or director.

Moreover, Section 8 does not provide for civil penalties or other monetary relief, only injunctions barring the individual from serving on the two boards.

Any sharing of competitive information between or among competitors, including during the pendency of merger review, that results in competitive harm may be a violation of Section 1 of the Sherman Act, or Section 5 of the FTC Act. Complaint,

United States

Gemstar,

cv 1:03-00198 (D.D.C. 2003),

https://www.justice.gov/atr/case-document/complaint-108;

Complaint, In re Insilco Corp., No. C-3783 (F.T.C. 1998),

https://www.ftc.gov/sites/default/files/documents/cases/1998/01/insilcocmp.pdf.

15 U.S.C. 19(b).

Information about board observers can also be relevant to the Agencies' analysis of the proposed transaction. Board observers are not subject to the Section 8 ban on interlocking directorates, and yet may have access to the same materials that are shared with officers and directors. In December 2020, the Commission issued an advance notice of proposed rulemaking (“ANPRM”) that, among other things, sought to gather information about sources of influence on corporate decision-making outside the scope of voting securities.

The Commission noted the possibility that there are ways to gain influence over a company other than through the acquisition of voting rights, for instance through board observers, and pointed to the increasing use of board observers as part of the governance structure. Because the acquisition of rights to be a board observer is not a reportable event under the HSR Act, the Commission sought information about whether having rights as a board observer provides opportunities to influence an issuer's business decisions.

85 FR 77042 (Dec. 1, 2020).

“At the very least, board observers gain insight into an issuer's strategic decision-making, which is not only useful to the investor sponsoring the board observer, but may also be useful to competitors in the market, especially when those board observers also serve as officers or directors of a competitor. Companies likely benefit from interacting with board observers because company management can obtain additional investor insight without having to alter the composition or voting balance on the board.”

Id.

at 77050.

The Commission received two comments in response to the ANPRM that discuss the role of board observers, and each comment indicated that individuals serving as board observers typically receive the same information as the board of directors, although there may be ways to exclude them from reviewing privileged or competitively sensitive information.

In the Commission's experience, board observers have become more prevalent and could be privy to the same information as members of the board. For that reason, information about who these individuals are and whether they also serve as officers, directors, or board observers with other companies is important for understanding other sources of influence on the company's competitive decision-making and whether such individuals could share information between competitors. The Commission believes that having this information available during the initial waiting period would permit the Agencies to take steps to minimize the sharing of information prior to consummation.

See

Am. Bar. Ass'n, Comment on Hart-Scott-Rodino Coverage, Exemption, and Transmittal Rules ANPRM, 10-11 (Feb. 1, 2021),

https://www.regulations.gov/comment/FTC-2020-0086-0015;

Comput. & Commc'n Indus. Ass'n, Comment on Hart-Scott-Rodino Coverage, Exemption, and Transmittal Rules ANPRM, 11 (Jan. 26, 2021),

https://www.regulations.gov/comment/FTC-2020-0086-0002.

The Commission thus proposes that filing persons provide information about the officers, directors, and board observers (or in the case of unincorporated entities, individuals exercising similar functions) of the acquired entity(s) and entities within acquiring person(s), as applicable, for the prior two years, and for each individual, identify any other companies for which those individuals would serve or have served during the prior two years as officers, directors, or board observers. The Commission also proposes requiring the same information for the prospective officers, directors, or board observers of the acquired and acquiring entities after the transaction, as well as for any officers, directors, or board observers of new entities created as a result of the transaction (and, in each case, for unincorporated entities, individuals serving those functions). If it would be impossible to identify the specific officers, directors, and board observers, filers should describe who would have the authority to choose them. Information received through these proposals would help the Agencies identify individuals with the ability to participate in or influence competitively relevant decision-making related to the filing persons or with access to confidential business information, allowing the Agencies to engage in more effective enforcement of the antitrust laws. The Commission believes that this information should be known to or readily accessible by the filing parties, and in some cases already

collected as part of an incorporated entity's antitrust compliance program.

C. Transaction Information

The Commission proposes the creation of a Transaction Information section within the proposed Instructions. Currently, information about the transaction is required in several sections of the Form: the initial portion of the current Form requires information about the filing fee and whether early termination of the waiting period is requested; Item 2(a) requires identification of the ultimate parent entities of the acquiring and acquired persons; Item 2(b) identifies the type of transaction; Item 2(c) identifies the § 801.1(h) threshold that will be crossed; Item 2(d) seeks information about the percentage and value of the voting securities, non-corporate interests, and/or assets to be required; Item 3(a) asks for identification of the acquiring and acquired persons and entities, as well as a description of the transaction; Item 3(b) requires the listing and attaching of the most recent transaction agreement, or letter of intent; and Item 5(b) requires information about joint ventures and formations. The Commission proposes the reorganization, clarification, and expansion of these items to require information that will aid the Agencies in understanding the totality of the transaction during the initial waiting period. These proposed changes, discussed below, would require information about the transaction to be reported in the following proposed categories: Parties, Filing Fee, Transaction Details, and Transaction Description.

1. Parties

The proposed Parties section within the proposed Instructions would require the identification of the acquiring and acquired persons and the acquiring and acquired entities. This information is currently collected in Item 3(a) of the Form, and the Commission is not proposing any material changes to this requirement.

2. Filing Fee

The proposed Filing Fee section within the proposed Instructions would require identification of the total filing fee required for the transaction and information about the payment, including identification of the paying entity and the Electronic Wire Transfer confirmation number.

This information is currently collected in the Fee Information section of the Form, and the Commission is not proposing any material changes to this requirement.

If electronic wire transfers are not available to the filing party, the Instructions would continue to provide instructions for paying by check.

3. Transaction Details

The proposed Transaction Details section within the proposed Instructions would require the same information currently required by Items 2(b)-2(d) of the Form that detail whether the transaction involves the acquisition of voting securities, non-corporate interests or assets, and the approximate value of each, as well as whether a notification threshold is crossed. The Commission is not proposing any material changes to these requirements.

4. Transaction Description

The Commission proposes creating a Transaction Description section within the proposed Instructions to reorganize information currently required in the Transaction Description portion of Item 3(a) of the Form, and to expand the required information, as described below.

a. Business of the Acquiring Person

The Commission proposes requiring the acquiring person to describe its business operations. Currently, Item 3(a) of the Form requires filing persons to briefly describe the transaction, including whether assets, voting securities, or non-corporate interests (or some combination) are to be acquired. Filers must also describe the business operation being acquired or what the assets being acquired comprise.

Although this information helps the Agencies understand what is proposed to be acquired, it does not provide any insight into the full range of business operations or other entities involved in the transaction on the part of the acquiring person. In the Commission's experience, understanding the scope of the acquiring person's business operations is critically important to determining whether the transaction poses any potential competition concern. Although this information is well known to the acquiring person, it is often not easily or quickly collected and confirmed from public sources during the initial waiting period.

81 FR 60257 (Sept. 1, 2016).

As a result, the Commission proposes requiring the acquiring person to briefly describe the business operations of all entities within the acquiring person to provide a clear overview of all aspects of the acquiring person's pre-transaction business to facilitate the Agencies' antitrust review during the initial waiting period. Many businesses have pre-prepared descriptions of their operations for use in press releases, marketing materials, and investor materials. Unlike the requirement to describe the entities or assets to be acquired, which would apply to both the acquiring and acquired person, the requirement to describe business operations would be limited to the acquiring person.

b. Business of the Acquired Entity

As noted above, Item 3(a) of the Form requires filing parties to briefly describe the transaction, including whether assets, voting securities, or non-corporate interests (or some combination) are to be acquired. Filing persons must also describe the business operation being acquired or what the assets being acquired comprise. The Commission is not proposing any material changes to this requirement.

c. Non-Reportable UPE(s)

Item 2(a) of the Form currently requires the identification of any UPE that is not required to file, and the Commission is not proposing any material changes to this requirement.

d. Transaction Description

Item 3(a) of the Form currently requires a brief description of the transaction. The Commission is not proposing any material changes to this requirement.

e. Transaction Rationale

The Commission proposes adding a new requirement that filing persons provide a narrative that would identify and explain each strategic rationale for the transaction. As helpful as the documents responsive to current Items 4(c) and 4(d) of the Form can be, they do not always convey each filing person's cumulative views on the rationale(s) for the transaction. Indeed, such documents (when they are submitted and when they discuss rationales) often contain differing, and at times conflicting or mutually exclusive, statements regarding the transaction depending on when they were prepared or by whom. For example, different members of the deal team might have different perspectives on the potential motivations for the transaction at different times, and the submitted documents do not resolve the filing person's ultimate thinking regarding the topic. Since documents responsive to Items 4(c) and 4(d) do not consistently provide an overview of the rationale(s) for the transaction, it would be of immense value for the Agencies to have during the initial waiting period a

statement that discusses each the strategic rationale(s) from the perspective of each filing person.

The Commission thus proposes that the acquiring and acquired person be required to submit a narrative describing all strategic rationales for the transaction, including, for example, those related to competition for current or known planned products or services that would or could compete with a current or known planned product or service of the other reporting person, expansion into new markets, hiring the sellers' employees (so-called acqui-hires), obtaining certain intellectual property, or integrating certain assets into new or existing products, services or offerings. The Commission also proposes that the filing person identify which documents submitted with the HSR Filing support the rationale(s) described in the narrative. This proposed requirement would help ensure that the provided narrative is grounded in the filers' ordinary-course documents and not mere advocacy designed to portray a favorable view of the transaction. Moreover, any cited documents that support the narrative would also provide additional context for the Agencies as they assess the parties' stated rationale(s) in relation to any potential competitive consequences of the transaction. Understanding the business reason(s) for pursuing the transaction can materially affect the course and direction of the Agencies' antitrust review during the initial waiting period.

f. Transaction Diagram

The Commission proposes a new requirement that the filing persons provide a diagram of the deal structure along with a corresponding chart that would explain the relevant entities and individuals involved in the transaction. The brief narrative currently required in Item 3(a) of the Form does not require filers to explain all the relevant entities or identify steps involved in the transaction and their sequence. As a result, the Agencies frequently request a more detailed account of these steps during the initial waiting period, but these submissions are voluntary, not uniform in their detail, and often lack important aspects of the transaction that may bear on the competitive analysis and the determination of whether the transaction warrants in-depth review. In the Commission's experience, particularly in the case of complex or multi-step transactions, diagrams are generally more helpful than simple narratives in conveying the relationships of the relevant entities and the deal structure.

The Commission's proposal that filing persons submit a diagram of the deal structure along with a corresponding chart explaining the entities involved in the transaction would further assist the Agencies' conceptualization of the transaction and save considerable time in obtaining basic information about the entities involved and how the transaction would affect the operations of those entities. Such diagrams are often prepared by companies in the ordinary course of business for other purposes, such as for transaction diligence requirements.

g. Related Transactions

While Item 3(a) of the current Form asks parties to indicate whether there are additional filings related to the transaction, filers sometimes overlook this requirement. The proposed Instructions would clarify that filing persons must identify related transactions. The proposed Instructions would also provide a list of common circumstances in which multiple filings are required to guide filing parties in their responses. These proposed changes would provide clarity for both filing persons and the Agencies.

h. Early Termination

The proposed Early Termination section would ask whether the filing party requests early termination of the waiting period. This question is currently asked on page one of the Form, and the Commission is not proposing any material changes to this requirement.

5. Joint Ventures

The proposed Joint Ventures section within the proposed Instructions would require information about transactions structured as a joint venture or formation pursuant to §§ 801.40 or 801.50. This information is currently collected in Item 5(b) of the Form and requires information about the contributions each person will make to the entity, what consideration will be received, the business in which the new entity will engage, and an allocation of revenue to industry codes. As discussed in section III.A.1.b. above and III.D.3. below, the Commission is proposing eliminating the use of 10-digit NAPCS codes. Therefore, the Commission proposes also eliminating the requirement to identify the NAPCS codes in which the joint venture will derive revenue. The Commission is not proposing any other material changes to this requirement.

6. Agreements and Timeline

The proposed Agreements and Timeline section within the proposed Instructions would require filing persons to provide a term sheet or draft agreement that reflects sufficient detail about the proposed transaction to demonstrate the transaction is more than hypothetical, if a definitive agreement has not been executed, as described above in the proposed amendments to § 803.5(b) at II.C. In addition, the Commission proposes additional changes regarding which agreements must be submitted. These proposed changes, discussed below, include a requirement to submit the entirety of all agreements related to the transaction and a new requirement to submit other agreements between the filing persons that are not related to the transaction, as well as a timetable for the transaction.

a. Transaction-Specific Agreements

The Commission proposes requiring that all transaction-specific agreements be submitted with HSR Filings. Currently, Item 3(b) of the Form requires the submission of all documents that constitute the agreement(s) among the acquiring person(s) and the person(s) whose assets, voting securities, or non-corporate interests are to be acquired, as well as agreements not to compete and other agreements between the parties. The production of schedules to agreements is not currently required, unless the schedules contain agreements.

In the Commission's experience, the structure of transactions has become increasingly complex, often comprising not only multiple agreements between the filing persons but agreements with third parties. Understanding the entirety of the transaction, including but not limited to non-competition and non-solicitation agreements and other agreements negotiated with key employees, suppliers, or customers in conjunction with the transaction, is crucial to determining the totality of the transaction and assessing during the initial waiting period the transaction's potential competitive impact. Moreover, schedules increasingly include descriptions of key terms and provisions.

16 CFR 803 Appendix Notification and Report Form Instructions at page V.

The Commission thus proposes requiring filing persons to produce all agreements, inclusive of schedules, exhibits, and the like, that relate to the transaction, regardless of whether both parties to the transaction are signatories. It is the Commission's understanding

that these documents are collected and are typically included in materials necessary for closing. Having a complete set of transaction-related agreements would provide the Agencies with a more complete understanding of the transaction under review.

b. Other Agreements Between the Parties

The Commission also proposes requiring filing persons to submit all agreements between any entity within the acquiring person and any entity within the acquired person in effect at the time of filing or within the year prior to the date of filing. Understanding the scope of any existing contractual relationships between the filers would materially assist the Agencies' review by revealing any business interactions or relationships that exist prior to the transaction and that may be affecting premerger competition. These might include licensing agreements, supply agreements, non-competition or non-solicitation agreements, purchase agreements, distribution agreements, or franchise agreements, among others. Understanding the full extent of the filing parties' existing contractual relationships would allow the Agencies to identify those relationships that contribute to the premerger competitive dynamics, which is material to assessing how the transaction may affect post-merger competition.

c. Timeline

The Commission also proposes that filing persons provide a narrative timeline of key dates and conditions for closing. Just as it is critical for the Agencies to understand the totality of the transaction during the initial waiting period, it is also critical to understand the timing of key milestones and the conditions to closing, which are often complex and not easily understood from the transaction documents themselves. The Agencies often cannot confirm basic deadlines for the transaction from the transaction documents and in those cases, the Agencies expend a great deal of time and effort to confirm with filers key dates, including the timing of pre-closing conditions, during the initial waiting period. Understanding deal timing is critical to each Agency's decisions regarding how to manage its merger workload on a priority basis, focusing available resources on those deals whose closing dates are imminent. This basic information about the timing of the transaction is not adequately captured in the current Form, and, to the extent the filing person knows at the time of the HSR Filing and can readily provide it, this information would help the Agencies understand key deal milestones and better manage the timing and focus of the investigation during the initial waiting period.

D. Competition and Overlaps

The Commission proposes creating a Competition and Overlaps section within the proposed Instructions. This section would collect, in one place, information that reveals any existing business relationships between the filing persons that requires the Agencies to take a closer look to determine whether the transaction warrants an in-depth investigation, which is the primary purpose of premerger notification and review. Information collected in this section would include information and documents currently collected in several parts of the Form: in Items 4(c) and 4(d), which require the production of certain documents created in conjunction with the evaluation of the transaction; Item 5(a), which requires the allocation of revenue from U.S. operations to industry and product codes; Item 6(c), which identifies certain minority-held entities of the filer; Item 7, which provides information about industries in which the acquiring person and acquired entity both participate; and Item 8, which requires the identification of certain prior acquisitions made by the acquiring person. The Commission proposes expanding and reorganizing the information and requiring additional documents that would bear directly on the premerger competitive relationship between the filing persons. The proposed Competition and Overlaps section would provide a new source of relevant information related to horizontal overlaps, as well as new information about supply relationships and employees, which would enable to Agencies to quickly identify and assess the potential impact of the transaction across many dimensions of competition. These proposed changes, discussed below, would be organized in the following proposed categories: Business Documents, Competition Analysis, NAICS Codes, Controlled-Entity Overlaps, Minority-Held Entity Overlaps, and Prior Acquisitions.

1. Business Documents

The proposed Business Documents section within the proposed Instructions would require the submission of documents currently required by Items 4(c) and 4(d) of the Form and additional categories of documents. The Commission's proposal for requiring additional documents is informed by a comparison of documents submitted by filing persons with the HSR Filing and those submitted during the Agencies' in-depth investigations that are not required by the current Form but would have been highly probative to the initial antitrust assessment of the transaction during the initial waiting period. The specific types of proposed business documents are discussed below.

a. Transaction-Related Documents

The proposed Transaction-Related Documents section would comprise the same types of documents currently required by Item 4(c) of the Form, which the Commission proposes to expand to include documents prepared by or for the supervisory deal team leads, and Item 4(d), which the Commission proposes to clarify without material changes. The Commission also proposes requiring the submission of certain previous draft versions of these documents.

i. Documents Prepared by or for Officers, Directors, or Supervisory Deal Team Lead(s)

In the proposed Documents Prepared by or for Officers, Directors, or the Supervisory Deal Team Lead section, the Commission proposes expanding the scope of requested documents evaluating the transaction by adding a requirement to submit such documents prepared by or for the supervisory deal team lead(s). Currently, Item 4(c) requires filing persons to provide all studies, surveys, reports, plans, and analyses prepared by or for officers or directors to evaluate the acquisition with respect to market shares, competition, competitors, markets, potential for sales growth, or expansion into products or geographic markets. These transaction-specific assessments of competition, past and future, provide the Agencies with invaluable insights into each party's view of how the transaction could change the competitive landscape and, most importantly, narrow the inquiry to particular markets and companies that each party believes to be its competitors. Since the beginning of the premerger notification program, 4(c) documents have been a key screening tool for the Agencies to identify those transactions that require more than a cursory review during the initial waiting period. The proposed section would retain the same definition of transaction-related documents to be submitted but add the supervisory deal team lead(s) to the list of individuals to whom this item would apply.

In some companies, an officer may lead the day-to-day activities of the deal team and would be considered the supervisory deal team lead, resulting in

no change to the documents currently required as part of Item 4(c) of the Form. But someone other than an officer or director often functionally leads the deal team. In the Commission's experience, in those cases, responses to current Item 4(c) often do not contain documents with sufficient information about the filing person's analysis of the competitive implications of the transaction to enable the Agencies to identify potentially problematic transactions. In fact, based on documents submitted in response to Second Requests, it is the Agencies' experience that individuals other than officers and directors are often the authors or recipients of documents that are otherwise responsive to Item 4(c) of the Form but are not required to be submitted with the HSR Filing because they were not prepared by or for an officer or director. These documents, typically in the possession of the supervisory deal team lead(s), often include information that would have been crucial to the Agencies' analysis of the transaction during the initial waiting period.

The Commission thus proposes that in addition to requiring documents prepared by or for officer and directors, filing persons must also submit these transaction-related documents prepared by or for supervisory deal team lead(s). Identification of any supervisory deal team lead would not be based upon title alone. The Commission proposes that the filing person determine the individual or individuals who functionally lead or coordinate the day-to-day process for the transaction at issue. A supervisory deal team lead need not have ultimate decision-making authority but would have responsibility for preparing or supervising the assessment of the transaction and be involved in communicating with the individuals, such as officers or directors, that have the authority to authorize the transaction. Any such individual(s) might be the leader(s) of an investment committee, tasked with heading the analysis of mergers and acquisitions, or otherwise given supervisory capacity over the flow of information and documents related to transaction.

The Commission believes this proposal strikes a balance between the interests of the Agencies and those of filing persons in requesting additional documents responsive to Item 4(c) of the Form. Requiring filing persons to include materials prepared by and for supervisory deal team lead(s) would allow the Agencies to receive additional key materials relevant to the analysis of the transaction without requiring information from all deal team members, in light of the opportunity to obtain additional documents through the issuance of Second Requests.

ii. Confidential Information Memoranda

The proposed Confidential Information Memoranda section would collect the information currently required by Item 4(d)(i) of the Form. The Commission is not proposing any material changes to this requirement.

iii. Studies, Surveys, Analyses, and Reports

The proposed Studies, Surveys, Analyses, and Reports section would collect the information currently required by Item 4(d)(ii) of the Form. The Commission is not proposing any material changes to this requirement.

iv. Synergies and Efficiencies

The proposed Synergies and Efficiencies section would collect the information currently required by Item 4(d)(iii) of the Form, and the Commission proposes to clarify that forward-looking analyses are responsive. Currently, Item 4(d)(iii) asks for all studies, surveys, analyses, and reports evaluating or analyzing synergies, and/or efficiencies prepared by or for any officer(s) or director(s) (or, in the case of unincorporated entities, individuals exercising similar functions) for the purpose of evaluating or analyzing the acquisition. The Commission proposes to specifically include a reference to models and financial projections to make clear that filers should submit forward-looking assessments of synergies or efficiencies. This information is especially important for screening the competitive impact of products or services not yet generating revenue but projected to do so. As before, financial models without stated assumptions would not need to be provided. For many transactions, especially those involving markets in which competition occurs via on-going innovative efforts, these forward-looking assessments will materially benefit the Agencies' identification of transactions that warrant in-depth review.

v. Drafts

Along with expanding the required Transaction-Related Documents as described above, the Commission also proposes requiring the submission of drafts responsive to these requests. It has been a long-standing position of the Commission's PNO that the submission of draft versions of documents responsive to Item 4(c) or 4(d) is not required unless there is no final version, in which case the most recent draft has been required, or unless a draft was sent to the board of directors. Under this guidance, if a draft version of a document is sent to the Board, it ceases to be a “draft” and must be submitted, even if a final version is also submitted. As a result, the Commission has not typically received many draft documents as part of HSR filings.

The Agencies routinely ask for and receive draft documents in response to Second Requests and, in the Agencies' experience, these drafts often reveal additional information about the transaction that would have been important to the Agencies' review during the initial waiting period, such as references to specific product markets or competitors that were removed in subsequent versions. In addition, these drafts can contain highly relevant, probative, or candid statements about the competitive impact not reflected in the final version of the document. In some cases, it appears that the draft documents have been edited to remove candid assessments of factors relevant to competition prior to circulation to officers or directors. In others, the dates of the documents suggest that otherwise responsive drafts were not finalized or shared with officers or directors until after making an HSR Filing.

The Commission therefore proposes clarifying in the Instructions that drafts of responsive transaction-related documents must be submitted if that document was provided to an officer, director, or supervisory deal team lead(s). This proposed change would ensure that the Agencies have access to documents that reflect pre-transaction assessments of business realities, as opposed to “sanitized” versions, to aid in their analysis during the initial waiting period. The addition of the supervisory deal team leader(s) to this requirement should capture draft materials important to managing the transaction but avoid the burden of having to submit prior versions that were not reviewed by senior managers or decision-makers. As stated elsewhere in this NPRM, the Commission aims to strike a balance between the Agencies' need to obtain material information about the transaction and the burden on filing parties, so the scope of this request is limited so as not to require filing parties to search numerous company personnel beyond officers, directors, and supervisory deal team lead(s).

The Commission recognizes that requiring draft transaction-related documents creates an additional burden for filing parties to collect and submit more documents to the Commission with their HSR filings and that, to some

degree, previous versions of submitted documents may contain repetitive information. Moreover, HSR filings that contain large document submissions could overwhelm the Agencies and undermine the goal of effective and efficient screening for transactions that require an in-depth investigation. For this reason, the Commission seeks comment on a potential alternate approach in which filing parties collect draft Transaction-Related Documents as part of preparing HSR filings but do not submit these documents until and unless agency staff reviewing the transaction requests the draft documents during the initial waiting period. In the event that agency staff requests the draft documents, the filing person would be required to submit them within 48 hours in order to retain the initial waiting period. The Commission invites comment on whether this alternative approach would reduce the burden for the parties and the Agencies compared with submitting all versions with the HSR Filing as described above, whether there are logistical issues with providing the collected draft documents within 48 hours, and the estimated volume of drafts collected.

b. Periodic Plans and Reports

The proposed Periodic Plans and Reports section would require filing persons to submit certain high-level strategic business documents that were not created in contemplation of the transaction but still contain information relevant to the antitrust analysis. As a result of decades of experience, the Agencies are aware that, as part of diligence for a potential transaction, companies often collect a targeted set of ordinary course documents that do not need to be submitted as part of an HSR Filing. Such documents typically include strategic plans and documents that are useful to those negotiating or evaluating the transaction because they discuss general market dynamics, competitors, or other potential mergers and acquisitions. The Commission understands that these documents are collected to provide key transaction decision-makers with the company's internal assessment of commercial realities of the premerger marketplace.

The Commission therefore proposes requiring certain plans and reports created in the ordinary course of business and not prepared solely for the purpose of evaluating the proposed transaction to be submitted as part of the HSR Filing. Periodic plans and reports created in the ordinary course of a company's business often contain detailed assessments of core business segments, markets, competitors, other acquisition targets, and projections about future competitive dynamics—insights that have direct bearing on the Agencies' antitrust assessment of the transaction in the initial waiting period. The Commission proposes requiring the submission of semi-annual and quarterly plans and reports that discuss market shares, competition, competitors, or markets of any product or service that is provided by both the acquiring person and acquired entity, if those documents were shared with a chief executive of an entity involved in the transaction, or with certain individuals who report directly to a chief executive. The Commission also proposes requiring the submission of all plans and reports submitted to the board of directors (or, in the case of unincorporated entities, individuals exercising those functions) that discuss market shares, competition, competitors, or markets of any product or service that is provided by both the acquiring person and acquired entity.

These proposed new document requirements would be limited in certain specific ways to minimize the overall number of documents submitted with the HSR Filing. First, the new Periodic Plans and Reports section would not require documents that analyze “the potential for sales growth or expansion into product or geographic markets” as is required by current Item 4(c). Additionally documents responsive to this item would be limited to those prepared or modified within one year of the date of the HSR Filing. The Commission believes that the submission of a limited set of ordinary course business documents that were not prepared specifically to evaluate the transaction but discuss premerger and future competitive dynamics and strategies broadly would provide valuable insight and context for the transaction-related documents submitted with the HSR Filing. These ordinary course business documents are routinely submitted during in-depth investigations in response to Second Requests and routinely contain unique information about the state of premerger competition, which if available during the initial review period would help the Agencies determine if an in-depth review is warranted and if so, its proper scope.

The Commission is aware that this new requirement has the potential to result in the submission of a large number of documents for complex or large transactions. The Commission is also aware of the potential impact on the filing persons and on the Agencies of large document submissions. The Commission seeks to balance these interests and invites comment on how or whether narrowing the set of custodians for periodic reports and plans, or any other proposed limits, would still generate information about the premerger state of competition that is not specific to the transaction while reducing any burden on filers and the Agencies.

Finally, the Commission notes that filing persons should not exchange additional information with respect to planned products or services to provide a response to this proposed requirement but should respond instead on the basis of regular diligence and the knowledge or belief of the filing person. The Commission recognizes that an acquired person would have limited information about the acquiring person's operations, including products under development, and the Commission does not intend these proposed changes to encourage additional information sharing of this type of information.

c. Organizational Chart of Authors

As the final part of its proposed Business Documents section, the Commission proposes requiring filing persons to identify the authors of all responsive documents submitted with the HSR Filing and to provide additional information about each individual. Given the short period of time for review during the initial waiting period, it is crucial for the Agencies to have a clear understanding of how authors of key documents fit into the organization or entities of each filing person to determine the importance and perspective of the responsive documents submitted with the HSR Filing and to identify key employees within the organizations. Thus, the Commission proposes requiring an organizational chart(s) that would reflect the position(s) within the filing person's organization held by identified authors, and for privileged documents, the recipients of each document submitted with the HSR Filing. The Commission also proposes requiring the filer to identify the individuals searched for responsive documents. It would be sufficient to indicate by notation on the organization chart(s) which individuals were searched.

Providing a chart will help contextualize reporting relationships, as well as the relative seniority, of the authors and recipients and allow the Agencies to more quickly assess which documents contain high-level assessments from key employees. The benefit of being able to identify important decision-makers within the filing person and having context for key documents would allow the Agencies to

quickly assess the probative value of the documents

2. Competition Analysis

The Commission proposes creating a new Competition Analysis section within the proposed Instructions. This proposed section would create new requirements for filing persons to provide narratives that would, among other things, describe their basic business lines and provide product or service information for all related entities; identify current and potential future horizontal overlaps and supply relationships between the filing persons; and provide information about their employees and what services these employees provide. These proposed narrative requests would provide the Agencies with crucial information about current and future competitive relationships between the filing parties, including whether they compete to hire employees, which is information that is not required by the current Form.

a. Horizontal Overlap Narrative

The Commission proposes creating a new Horizontal Overlap Narrative section that would require each filing person to provide an overview of its principal categories of products and services (current and planned) as well as information on whether it currently competes with the other filing person. Such information is core to the Agencies' substantive antitrust analysis during the initial waiting period and is not readily accessible from sources other than the filers themselves. In drafting the Horizontal Overlap Narrative, each filing person would describe its current and planned principal categories of products and services in the way that those business lines are referred to in the company's day-to-day operations so that the Agencies could more readily understand the information in the context of current market realities. If any of the submitted documents support the information contained in the narrative, the filing person would also identify such documents.

The products or services offered by the filing persons that currently or potentially compete with each other are often referred to by antitrust professionals as “horizontal overlaps.” The identification and assessment of such horizontal overlaps is an essential starting point for the Agencies' substantive review of any transaction to determine whether it has the potential to violate the antitrust laws. As discussed elsewhere, NAICS code reporting can result in underreporting of horizontal overlaps, and not every HSR Filing contains 4(c) documents that could potentially reveal overlaps not identified by NAICS code reporting. In such cases, the HSR Filing does not contain basic screening information that the Agencies need to determine whether the transaction merits closer scrutiny during the initial waiting period. Premerger notification is intended to allow the Agencies to scrutinize any transaction that eliminates competition between existing or potential competitors, and it is important for every HSR Filing to identify any existing or potential horizontal overlap created by the transaction.

As a result, the Commission proposes that within the Horizontal Overlap Narrative, each filing person would be required to list each current or known planned product or service that competes with (or could compete with) a current or known planned product of the other filer. For each such overlapping product or service, the filing person would provide sales, customer information (including contacts), a description of any licensing arrangements, and any non-compete or non-solicitation agreements applicable to employees or business units related to the product or service.

The proposed requirement for this information about each filing person's market presence in overlapping products or services would enable the Agencies to quickly identify and assess the significance of the filers' respective businesses both in relative and absolute terms. Proposed customer information would enable the Agencies to understand the customer base of the overlapping businesses and to promptly conduct, at the beginning of the initial waiting period, further industry research with customers likely to be affected by the transaction or those who are particularly knowledgeable about the parties' business operations, relevant industry dynamics, and other market participants. Contacting customers to confirm basic market dynamics is a key step in the antitrust analysis conducted by Agency staff during the initial waiting period, and the parties are frequently asked to provide this information on a voluntary basis once one Agency has granted clearance to the other to conduct an initial investigation of the transaction. However, since this information is not compulsory, the Agencies do not always receive it in a timely fashion during the initial waiting period, hampering the ability of the Agencies to use that period to effectively screen for transactions that merit the issuance of Second Requests.

The proposed requirement to describe any licensing, non-compete, or non-solicitation agreements involving the overlapping products or services would enable the Agencies to assess specific categories of existing contracts that are likely to affect how the transaction will impact competition for those products or services. These existing relationships bear on premerger market conditions and may reflect that the filers already view themselves as competitors (in the case of non-compete or non-solicitation agreements) or as key trading partners (in the case of licensing agreements).

The Commission acknowledges the burden drafting the proposed Horizontal Overlap Narrative could create for some filers, especially for transactions involving close competitors with multiple overlapping product or service lines. But identifying those transactions that present broad and complex competition issues is a critical first step for the Agencies. Once identified, the Agencies must then properly manage their review, first determining which markets could be impacted by the transaction and then deciding which of those necessitate in-depth review. On balance, this proposed requirement would significantly improve the information available to the Agencies to identify any existing or potential horizontal overlap to assess the competitive implications of a transaction during the initial waiting period. The Commission notes that in the Agencies' experience, companies who are horizontal competitors prior to the transaction frequently assess the antitrust risk associated with the transaction prior to making an HSR Filing, and therefore the information required by this proposal may already be available, in whole or part, to include with the HSR Filing. Although the Agencies have not previously required this type of narrative to be submitted as part of the Form, other jurisdictions have required such narratives for many years.

b. Supply Relationships Narrative

The Commission proposes creating a Supply Relationships Narrative section that would require each filing person to provide information about existing or potential vertical, or supply, relationships between the filing persons. A prior version of the Form required similar information about vertical vendor-vendee relationships, but the requirement was eliminated in 2001 because the type of information collected did not prove useful enough to the Agencies as a screen for potential non-horizontal relationships to justify

the burden of providing it at that time.

Based on the Agencies' experience investigating vertical mergers in the intervening decades, the Commission believes that the current proposal would provide sufficiently robust information to allow the Agencies to identify vertical and other non-horizontal issues, including those presented by diagonal mergers. Non-horizontal relationships can be hard to detect in certain sectors where supply chains are not well defined, for instance in the provision of services rather than physical products. The Agencies have an interest in knowing whether a transaction in which the filing persons operate in related markets would result in any change in market structure or incentives that might affect post-merger competition. Early identification of potential non-horizontal competitive issues is critical to determining whether further investigation is needed, as structural changes in these relationships require additional fact development to determine the nature and scope of potential non-horizontal competitive concerns, which can often be complex and unique. These issues are difficult to discern from the information currently required by the Form, and filing parties are in a unique position to identify existing or future non-horizontal business relationships between them.

The Form originally required information about any vendor-vendee relationship between the reporting parties regarding manufactured product during the most recent year; this information was intended to help the Agencies identify supply relationships that could give rise to concerns about foreclosure or other competitive consequences of vertical integration. The Commission eliminated this requirement in 2001 because it was not effective in identifying vertical issues, not because vertical acquisitions present no potential competitive risks. 66 FR 8680, 8686-87 (Feb. 1, 2001). Since 2001, the Form has not collected specific information related to vertical relationships.

The Commission thus proposes to collect, in a narrative response, information for related sales and purchases between the filing persons or with other companies that use the filing person's products, services, or assets to compete with the other filing person. Filing persons would report sales to the other filing person and to any other business that, to the best of the filing person's knowledge, uses its product, service, or asset as an input for a product or service that competes or is intended to compete with the other filing person's products or services. Filing persons would also provide information (including contact information and a description of the supply agreement) for other customers that use the product, service, or asset to compete with other filing person. Filing persons would provide similar information for purchases made from the other filing person and from any other business that, to the best of the filing person's knowledge, competes with the other filing party to provide a substantially similar product, service, or asset. This information would allow the Agencies to identify whether the transaction would create opportunities for post-merger foreclosure of rivals arising from vertical or diagonal relationships.

The Commission acknowledges that this will increase the burden on filers whose transaction involves existing supply relationships or who supply or purchase from companies that compete with the other filing party. But the Commission believes that requiring filing parties to provide a narrative that reveals existing and potential supply relationships between the acquiring person and acquired entity is important for the Agencies because it would allow them to quickly identify those transactions that raise concerns about non-horizontal competitive effects.

c. Labor Markets Information

The Commission proposes creating a new Labor Markets section that would require each filing person to provide certain information about its workers in order to screen for potential labor market effects arising from the transaction. The Agencies have increasingly recognized the importance of evaluating the effect of mergers and acquisitions on labor markets and have stepped up efforts to identify and investigate potential labor market effects arising from reportable transactions. Transactions have been challenged on the basis that consummation would result in labor market harms,

and consent agreements have included provisions that stop the use of certain non-compete clauses that limit the ability of potential market entrants to hire key employees.

Press Release, U.S. Dep't of Just., Justice Department Sues to Block Penguin Random House's Acquisition of Rival Publisher Simon & Schuster, (Nov. 2, 2021),

https://www.justice.gov/opa/pr/justice-department-sues-block-penguin-random-house-s-acquisition-rival-publisher-simon. See also

Concurring Statement of Commissioner Slaughter and Chair Khan regarding

FTC and State of Rhode Island

Lifespan Corporation and Care New England,

at 1-2 (Feb. 17, 2022),

https://www.ftc.gov/system/files/ftc_gov/pdf/public_statement_of_commr_slaughter_chair_khan_re_lifespan-cne_redacted.pdf

(recommending including a count in the complaint that the proposed merger would have violated Section 7 of the Clayton Act in a relevant labor market).

Press Release, Fed. Trade Comm'n, FTC Imposes Strict Limits on DaVita, Inc.'s Future Mergers Following Proposed Acquisition of Utah Dialysis Clinics (Oct. 25, 2021),

https://www.ftc.gov/news-events/news/press-releases/2021/10/ftc-imposes-strict-limits-davita-incs-future-mergers-following-proposed-acquisition-utah-dialysis.

In transactions that involve two firms that purchase labor from the same labor market(s), the Agencies consider whether the transaction may substantially lessen competition for buyers of labor services. Every firm competes for labor in at least one labor market and, more commonly, in multiple labor markets. Companies that compete in the same product market may also compete in the same labor market. Employers, however, may compete in the same labor market even when they do not compete in the same product or input market.

Yet the Form does not collect any information about employees that would allow the Agencies to conduct an initial screening for potential labor market effects, which has materially hampered their ability to protect employees from the harmful effects of mergers. To identify whether the filing persons compete to employ the same types of workers in a particular geographic area, the Commission proposes requiring certain information concerning each filing person's workers before the transaction and any plans that would affect workers post-consummation. This proposed section would identify potential labor market overlaps and allow the Agencies to engage with the filers on potential labor market issues during the initial waiting period.

i. Largest Employee Classifications

The Commission proposes creating a Largest Employee Classifications section that would serve as a screening tool based on the SOC system, developed by the Bureau of Labor Statistics, which classifies workers into occupational categories. Labor markets have two dimensions: the type or features of work performed, and the location of the work. Because describing every relevant feature of each job would be burdensome for parties, the Commission proposes requiring filing persons to classify their workers into occupational categories based on the SOC system, a widely used system for reporting worker statistics. While SOC categories do not always provide exact comparisons, SOC codes would nevertheless provide the Agencies with an objective classification standard which can be used as an initial screen for potential labor market overlaps. The use of these codes as a screening tool is not intended to endorse their use for any other purpose, such as defining a relevant labor market. To implement this proposed screening

tool, the Commission proposes requiring filers to list their five largest categories of workers by the relevant 6-digit SOC classification and to provide the total number of employees for each 6-digit code identified.

ii. Geographic Market Information for Each Overlapping Employee Classification

The Commission proposes creating a Geographic Market Information for Each Overlapping Employee Classification section that would serve as a screen for the geographic component of labor markets based on the United States Department of Agriculture's ERS system. The ERS commuting zones were designed to delineate local economies based on where people live and work.

Filers would be required to identify the top five largest 6-digit SOC codes in which both parties employ workers. This should provide enough information for the Agencies to use SOC classifications as an initial proxy for labor issues while balancing the burden on filers by limiting the request to their five largest categories of workers. Also, for each of the five largest SOC codes in which both parties employ workers, this section would require filing persons to list the overlapping ERS-defined commuting zone(s) from which the employees commute and the total number of employees within each commuting zone. This proposed requirement would be limited to overlapping geographies, expressed as commuting zones, to capture sufficient information to identify potential labor market concerns without requiring filing parties to provide a complete list of all commuting zones in which they have workers.

See

U.S. Dep't of Agric., ERS Commuting Zones and Labor Market Areas,

https://www.ers.usda.gov/data-products/commuting-zones-and-labor-market-areas/.

This information would represent a material improvement in the data available to the Agencies during the initial waiting period. By relying on existing metrics that are familiar to U.S. companies and by limiting the request to the top five SOC classifications, the Commission's intent is to minimize the burden on filers. Nonetheless, the Commission seeks comment on whether this information would be difficult or costly to collect, and any alternative means by which the Commission could screen HSR Filings for potential labor market overlaps, for example by collecting information on the number and types of workers employed at each of the filing person's facilities.

iii. Worker and Workplace Safety Information

The Commission proposes creating a Worker and Workplace Safety Information section that would require filing persons to identify any penalties or findings that were issued against the acquiring person or acquired entity by the U.S. Department of Labor's Wage and Hour Division, the National Labor Relations Board, or the Occupational Safety and Health Administration during the five-year period before the filing. If a firm has a history of labor law violations, it may be indicative of a concentrated labor market where workers do not have the ability to easily find another job. The proposed five-year period limitation would capture the most relevant information for analysis during the initial waiting period while lessening the burden on filers to search through older files. This information is not always publicly available but is known to the filers and is relevant to identifying potential labor market effects.

3. NAICS Codes

The Commission proposes creating a NAICS section within the proposed Instructions. This section proposes changes to certain information currently required by Item 5(a) of the Form, which now asks filing persons to submit information regarding dollar revenues and lines of commerce with respect to operations conducted within the United States during the most recently completed fiscal year. This includes products manufactured in the United States, regardless of where they are sold, products manufactured outside the United States but sold into the United States or through a U.S. entity, and products or services derived from U.S. operations, whether sold to a U.S. or foreign customer.

The current version of Item 5 of the Form requires the reporting of revenue by industry and product codes developed by Census to track economic activity in the United States. Over the years, the Commission has revised Item 5 as it sought to balance the need to receive filing persons' revenue information with the burden on filers to provide that revenue information.

As part of the redesign of the premerger notification process contemplated in this NPRM, the Agencies reviewed the totality of revenue information currently required in Item 5(a) to determine which information is especially valuable, which is due for an update, and which is not sufficiently reliable or needed to conduct a robust initial assessment of reported transactions. As a result, the Commission now believes that it can further revise revenue reporting requirements to make reported revenue information more informative for the Agencies and less burdensome for filing parties. The Commission thus proposes a substantively different approach to revenue information through six proposed changes. The Commission also proposes a ministerial change to adopt the 2022 version of the NAICS codes, which are the most recent released by Census. Through these proposed changes, the Commission would expand and clarify the industry and product codes that filing persons would have to report, as well as limit the requirements on how revenue must be reported.

See

43 FR 33450, 33520 (July 31, 1978) (revenue reporting based upon Standard Industrial Classification codes of the U.S. Bureau of the Census); 66 FR 35541 (July 6, 2001) (amending the Form and Instructions to report revenue by North American Industry Classification System codes of the U.S. Bureau of the Census); 76 FR 42471 (July 19, 2011) (elimination of the requirement to report “base year” data); 84 FR 30595 (June 27, 2019) (amending the Form and Instructions to report manufacturing revenue by North American Product Classification System-based codes of the U.S. Bureau of the Census).

First, the Commission proposes eliminating the requirement that filing persons provide the precise amount of revenue attributed to each NAICS code. The Commission intends for the proposed change to streamline revenue reporting for filers and result in figures that would be just as useful to the Agencies for identifying important business lines of each person. It is the Commission's understanding that many businesses do not maintain detailed revenue information by NAICS code in the ordinary course of business and generating this information can require great effort. In fact, even obtaining estimates of revenue to the nearest $100,000, as is currently required, can still be burdensome for filers. The Commission therefore proposes that filing persons would only need to estimate revenue at five levels: pre-revenue (for certain products and services, as described below); less than $10 million; between $10 million and $100 million; between $100 million and $1 billion; and more than $1 billion. The Commission anticipates these ranges would provide the Agencies with an important overview of the magnitude of revenue generated by particular products and services, an important factor in the analysis of transactions during the initial waiting period, while at the same time reducing the burden of reporting revenues for filers. The Commission welcomes comments on

the proposed ranges, as well as other potential ways to capture the relative magnitude of the business of the acquiring person or acquired entity attributable to each NAICS code.

Second, the Commission proposes that NAICS codes be reported on a descriptive basis, encompassing all U.S. operations. Revenue reporting in Item 5(a) currently relies on the filing persons' ordinary course financial records. In the Commission's experience, reliance on these financial records often results in under-reporting or reporting in codes that may not actually be descriptive of the products or services provided. To address this issue, the Commission proposes requiring individuals familiar with the business operations of each operating company (or subdivision) to review the available NAICS codes to select the codes that would best describe the full line of products and services related to U.S. operations, regardless of whether the company tracks revenue by such codes in the ordinary course of business or relies on them for other reporting requirements. The Commission intends for this change to shift the collection of NAICS codes from how a company records revenue to align more closely with the full range of products and services offered. Because the Commission proposes to eliminate the requirement to specifically quantify the amount of revenue attributable to the codes, as described above, the Commission does not anticipate that this change will substantially increase the burden of collecting the information. Further, codes related to non-manufacturing activities estimated to have generated less than $1 million in the last fiscal year would not need to be listed, unless they overlap with a code reported by the other filing person.

Additionally, the Commission recognizes that some NAICS codes are imprecise, which can result in two filing persons engaged in similar businesses using different NAICS codes. Therefore, the Commission proposes that if more than one code might be appropriate, the filing persons would be required to list all the codes that describe the products or services offered and use end notes as needed to clarify selections and any potential overlap where the same revenues are reported in more than one NAICS code. This would assist the Agencies in understanding the businesses of the filing persons during the initial waiting period and address some of the shortcomings of NAICS code reporting.

Third, the Commission proposes changing how NAICS codes should be organized. Currently, filing persons must aggregate revenue across all entities within the acquiring person or acquired entity. But often the acquiring person or acquired entity comprises multiple operating companies or units, which may be engaged in multiple lines of business. For example, large companies can contain multiple operating units or subsidiaries that do business under separate brands and offer diverse products or services. Similarly, funds that file as acquiring persons may control many different operating companies. The Commission thus proposes to require acquiring persons and acquired entities with more than one operating company or unit to identify which entity(s) derives revenue in each code. This proposed requirement would facilitate efficient review and quickly identify the operating company(s) that may or may not be relevant to the antitrust analysis. From this information, the Agencies could quickly identify which entity within the filing person has competing or related business activities with the other filing party.

Fourth, the Commission proposes requiring the reporting of certain NAICS codes for certain pipeline or pre-revenue products. Currently, filers are not required to provide information about products or services that did not derive revenue in the last fiscal year. Yet these pre-revenue or early revenue activities are often core to the transaction rationale and essential to understanding the potential competitive impact of the transaction during the initial waiting period. This information is known to the filing person and is not available from other sources, as it is typically highly sensitive. As a result, the Commission proposes adding a requirement for acquiring and acquired persons to report NAICS codes for certain pipeline or pre-revenue products. The acquiring person would be required to identify any NAICS codes for products and services under development if those codes would overlap with the codes for current or known pipeline products or services of the acquired entity(s). The acquired person would identify the NAICS codes that would apply to the products or services of the acquired entity(s) that are under development or pre-revenue and anticipated to have annual revenue totaling more than $1 million within the following two years. The Commission believes the benefit to the Agencies would be substantial and anticipates that the burden associated with the collection of these codes would be minimal, as identification of these products and services would likely be completed during ordinary diligence. The Commission under

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