Last week, the Federal Trade Commission (FTC) and Department of Justice (DOJ) enacted significant changes to the information required for notifying acquisitions and mergers under the HSR Act. TechFreedom Senior Competition Counsel Bilal Sayyed issued the following statement:

The FTC and DOJ have adopted substantial changes to the information required to notify mergers under the HSR Act that, if challenged as inconsistent with the Administrative Procedure Act, would be unlikely to pass a “cost-benefit” analysis. While I am cognizant that the Commission, with the DOJ, have not adopted the most onerous requirements proposed in the NPRM from June 2023, the new requirements will increase the cost and time required to prepare most HSR filings.  While these requirements will fall most heavily on negotiated transactions, there are new information and document requirements for all transactions, including the very significant percentage of transactions that are unlikely to raise competitive concerns. 

The new requirements substantially mirror the information the agencies request now after receiving clearance to investigate a transaction. But the new requirements apply that information request to all “negotiated” transactions. TechFreedom’s comments on the NPRM suggested that the agencies adopt a rule that distinguished the very small percentage of transactions that raised initial competitive concerns—the 10%-to-15% that, historically, have triggered an initial investigation by either agency—from the 85%-to-90% that, historically, have not risen to that level. To some extent—the significance is not clear—the agencies have indeed done this: they have differentiated between negotiated transactions and (most of) those that are not negotiated, which, as defined by the Commission, will exclude many transactions unlikely to raise competitive concerns from the new filing requirements. Even so, a significant percentage of transactions notified to the government will be hit with a new “merger tax”: increased legal fees associated with preparing the new form, increased time devoted by the businesses to the identification and collection of documents. This tax would be imposed regardless of whether the transaction would plausibly raise any competitive concerns at all. 

The effect of this merger tax is likely to be significant and fall most heavily on those firms with the least ability to absorb it. These increased costs will narrow the path of “exit through acquisition” for smaller, innovative firms; at the margin, larger firms, with their greater ability to absorb the increased regulatory and financial burden of complying with the new filing requirements (for both parties), will be more attractive purchasers of these smaller, innovative firms. The new requirements may encourage start-ups and other small companies to sell out to the largest companies—something that the Commission and DOJ have suggested may negatively impact long-term innovation and entry; such effects are difficult to identify at the filing stage and may not be a specific effect of the transaction.

The more expansive information and document requests required to complete the form are also likely to swamp agency staff unless the staff adopt screening principles to identify problematic mergers. The antitrust agencies are already under-staffed and under significant budgetary pressure. The increase in the requirements necessary to complete the filing may encourage the enforcement bureaus’ leadership to turn every filing with an overlap or reportable supply relationship into an informal, early-stage investigation. Have the customers been called? Has the staff investigated the supply alternatives to competitors? Have the parties complied with the new “narrative” filing requirements? If the agency staff can manage this process at the back-end—after receiving the filing—the Commission (and DOJ) should be able to better identify what transactions are likely to require more information at the front end—at the time of the HSR filing—and, in time, better differentiate the information and document requests across categories of transactions. While some additions to the information required to complete an HSR filing might be justified as potentially informative of whether a transaction raises competitive concerns,  the agencies have overreached here. 

We applaud the Commission for dropping its ban on grants of early termination, coincident with the effective date of the revised filing requirements. The agencies would continue to serve the public, and their own efforts, by identifying changes to the HSR Act and its implementing rules that: (i) narrow the filing requirements and filing obligations for transactions unlikely to raise competitive concerns; and (ii) better identify those transactions that may raise competitive concerns. The multi-year effort to revise the merger notification form is an incomplete step towards those goals. 

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About TechFreedom: TechFreedom is a nonprofit, nonpartisan technology policy think tank. We work to chart a path forward for policymakers towards a bright future where technology enhances freedom, and freedom enhances technology.

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