There is no reason to believe the proposed changes would accomplish this. Instead, they would impose unnecessary compliance costs on the least troubling transactions, with little to no improvement in the agencies’ ability to screen for anticompetitive mergers.

The proposed rulemaking comes on the heels of last year’s highly anticipated release of new Draft Merger Guidelines, which were finalized this past December. As guidelines, they are not rules and thus not enforceable, but they will function as guidance for businesses and courts. The guidelines signal a pivotal shift in the chief antitrust enforcers’ priorities, though it remains to be seen if the courts will ultimately follow them.

The HSR Form rules, on the other hand, will be enforceable and would dramatically increase the volume of documents and data to be submitted by parties seeking to merge. The FTC estimates that the burden per filer will quadruple from the current 37 hours per filing to 144 hours under the changes, resulting in an additional $350 million in labor costs. Several law firms contend the burden would be much higher. Further, the FTC’s estimates fail to consider the costs of delaying transactions or abandoning them altogether.

Deterrence / Such abandonments may be in line with FTC chair Lina Khan’s intentions in changing the HSR Form. Khan, along with her counterparts at the DOJ, treat mergers and acquisitions as inherent threats to competition rather than opportunities to innovate.

On October 5, 2023, the Brookings Institution hosted a conversation on antitrust enforcement with Khan and Assistant Attorney General Jonathan Kanter, head of the DOJ’s Antitrust Division. While discussing the FTC’s administration of the HSR Act, Khan said, “As a law enforcer, a key goal is deterrence.” That certainly appears to be the goal of the proposed HSR rules, as both the HSR Form rules and the Merger Guidelines send a clear message to businesses: Do not attempt to merge.

Khan claims that she is returning to the text of the antitrust statutes and ensuring that the FTC is abiding by the goals of Congress when passing them. However, when Congress passed the HSR Act, procedural deterrence was not the goal. In the Congressional Record of 1976, while discussing the act, cosponsor Rep. Peter Rodino stated that “lengthy delays and extended searches should consequently be rare” and that “the prospect of protracted delays” might kill most mergers. This concern prompted Congress to limit the initial review period for proposed mergers under the HSR Act to just 30 days, a time limit to which Khan has expressed strong discontent.

Mini second request / The FTC cited and quoted statements from Rodino in the notice of proposed rulemaking on the HSR Form—in fact, the notice quoted language from the same page in the Congressional Record as the language above—but it omitted his statements on avoiding unnecessary delays. Instead, in a footnote, the notice quoted the sentence immediately prior:

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.

Khan seems to consider this an open invitation for antitrust officials to probe firms’ own merger analysis, but that is neither what the legislative history nor the text of the statute says. The proposed changes to the HSR Form include several new narratives and compilations of data that parties do not ordinarily prepare when deciding to merge. Companies would be required to submit narratives on all strategic rationales for the transaction and a competitive effects analysis for existing or potential supply and vertical relationships. Further, the new HSR Form includes several labor market narratives that would require merging parties to provide explanations and data about potential labor effects that may arise from the proposed transaction.

Much of this information isn’t assembled by merging parties in the ordinary course of business. Instead, the proposed rule would turn the HSR Form into a “mini second request,” to quote former FTC attorney Amanda Wait in a comment to a Bloomberg Law reporter. Second requests are used to obtain additional information from merging parties when the FTC or DOJ have lingering antitrust concerns after the parties’ initial filings. Descriptive accounts regarding labor markets and other business relationships have typically been obtained using these second requests.

Some antitrust experts contend that the FTC’s rulemaking authority under the HSR Act should be read in light of the statutory authority to issue second requests. The pertinent language under the Clayton Act specifies that “documentary material and information relevant to a proposed acquisition as is necessary and appropriate to enable the Federal Trade Commission and the Assistant Attorney General to determine whether such acquisition may, if consummated, violate the antitrust laws.” The key words here are “necessary and appropriate.”

These terms are best read together, according to Justin Hurwitz of the International Center for Law and Economics and the University of Pennsylvania’s Carey Law School. In a Regulatory Review article last year, he wrote, “Given that all necessary information could be acquired through a second request, ‘appropriateness’ is a question of whether ‘necessary’ information should be requested of all transactions subject to premerger notification or only of those subject to second requests.”

Right now, the FTC and DOJ issue second requests for only 3 percent of transactions, according to Logan Billman and Steven Salop in a 2023 article in the Antitrust Law Journal. Of those transactions receiving a second request, over 70 percent were either settled with consent decrees or never completed. This suggests that second requests are an efficient tool for the antitrust agencies to challenge the most worrisome mergers within their allotted budgets without placing undue burden on all merging parties.

More effective and efficient? / Khan claims that the increased paperwork on the front end of the premerger filing process would increase efficiency and help businesses on the back end. She suggests that a transaction that would have ordinarily received a second request might be allowed to close sooner thanks to the additional information obtained under the new form.

But her claim makes little sense when one considers historical HSR enforcement trends. Every year, the FTC and DOJ publish an HSR Annual Report that includes total HSR reportable transactions, the number of second requests issued, and the percentage of transactions receiving “early termination.” Early termination is granted when the agencies see no anticompetitive concerns with a transaction, and the parties are then allowed to close the deal before the end of the 30‐​day mandatory waiting period. Of the 32,647 transactions reported under the HSR Act from 2001 to 2020, 19,716 were granted early termination. That means the current HSR Form was sufficient to determine that over 60 percent of reportable transactions posed no anticompetitive threats. Under the proposed changes to the HSR Form, the large percentage of transactions posing no anticompetitive concern would bear significantly higher compliance costs.

Khan’s purported benefits make even less sense in light of the number of transactions receiving second requests that are ultimately cleared as is. According to Billman and Salop, of the 969 second requests issued between 2001 and 2020, 274 were cleared as is.

All told, if the proposed HSR Form had been put in place in 2000, nearly 20,000 transactions that were judged to pose no anticompetitive concern would have needlessly faced quadrupled compliance burdens. The benefits Khan envisions would have come from only 274 transactions over the 20‐​year period. It’s hard to align those numbers with her statements on the benefits and costs of the proposed changes.

Not one of the 44 HSR Annual Reports was cited in the proposed HSR Rules, which raises questions as to whether the FTC has good‐​faith intentions of creating a more effective and efficient merger review process. The FTC seems more interested in creating additional regulatory hurdles for merging parties. The congressional mandate for the HSR Annual Report expired in 2000, but the FTC and DOJ continue to publish it. It is unreasonable for the FTC to ignore its own data on HSR enforcement when promulgating an HSR rule.

The text and legislative history of the HSR Act clearly demonstrate the statutory goal of balancing the FTC and DOJ’s ability to gather necessary information for premerger review with the need to not inappropriately burden merging parties with unnecessary delays. The proposed changes to the HSR Form overemphasize the former while disregarding the latter. The FTC essentially suggests using a sledgehammer to drive an assortment of small screws.

Readings

• “Antitrust Deal Cops to Peek at Worker Abuses, Stirring Backlash,” by Dan Papscun. Bloomberg Law, September 15, 2023.
• “Changes to Hart–Scott–Rodino Act a Boon for Lawyers, Not for Competition,” by Fred Ashton. American Action Forum, June 29, 2023.
• “Merger Enforcement Statistics: 2001–2020,” by Logan Billman and Steven C. Salop. Antitrust Law Journal 85(1): 1–66 (2023).
• “Premerger Notification Proposal Faces a Rocky Path,” by Justin (Gus) Hurwitz. Regulatory Review, August 28, 2023.