Antitrust Officials Pile On the Paperwork

The Federal Trade Commission is trying to make it harder for companies to merge by burying them in paperwork. The FTC’s proposed overhaul of a critical part of the U.S. merger review process would increase the average time to prepare a merger filing from 37 hours to 144. According to the agency’s calculations, that’s roughly $350 million in added costs for an estimated 7,100 filings a year, which would be a boon for lawyers but a burden for businesses.

The one-size-fits-all proposal to add dozens of hours of paperwork per deal—regardless of competitive concerns—is an overreach by the FTC and the Justice Department’s antitrust division that will disproportionately chill investments at the lower end of the reporting threshold. While some of the changes are reasonable adjustments to address evolving business and transaction structures, subjecting thousands of competitively neutral transactions to expanded reporting hurdles is hard to justify when only a slim minority of deals raise antitrust concerns.

Requiring a merging company to identify all communication systems or messaging applications “that could be used to store or transmit information or documents related to its business operations,” for instance, is premature at the filing stage. While this information could be relevant for a full-fledged antitrust merger investigation, it’s difficult to see the relevance for a preliminary evaluation of competitive issues.

Additionally, the requirement to provide all drafts of transaction-related documents (e.g., management presentations) that were shared with officers, directors or deal team supervisors could cover hundreds of documents, many of which may be subject to withholding or redaction for privilege.

The FTC and Justice say the changes will “improve the efficiency and effectiveness” of the initial review period and “potentially narrow the scope of any investigation or reduce the need to conduct a more in-depth review of the transaction.” We believe the changes will have little effect on the speed and outcome of the initial review. And we should know—one of us has prepared hundreds of merger filings across an array of industries, and the other has reviewed dozens of mergers at both Justice and the FTC.

To see why the proposed rule is misguided, it is important to understand the premerger regime. Enacted in 1976, the Hart-Scott-Rodino Act establishes a process for the FTC and Justice Department to review and challenge deals before they are consummated by imposing two types of waiting periods. The initial waiting period allows agency staff to determine whether a transaction warrants further scrutiny. During this time, agencies may open a preliminary investigation and request more information for review. For most deals, no further inquiry is necessary, and most transactions never reach that stage.

The agencies may extend the initial waiting period by issuing a “Second Request.” This process requires companies to produce extensive tranches of documents and data and make executives and employees available for depositions or investigational hearings. A Second Request can take six months or longer to complete and routinely costs millions of dollars in legal fees.

Tripling the amount of time required to prepare a premerger filing makes little sense when less than 2% of reported deals received a Second Request in 2021.

The agencies argue that the proposed changes are justified because they bring U.S. merger review more in line with that of other jurisdictions, such as the European Union. It is true that the EU and other jurisdictions require information that isn’t in the current HSR Form. But unlike the U.S., many jurisdictions have streamlined proceedings for transactions that clearly don’t present competitive issues.

To be sure, several elements of the proposed HSR changes—such as providing an explanation of the deal rationale—are reasonable.

But a glaring issue with the proposed rule is that some of the information requests are subjective and could provide undue leverage to reject filings in an effort to restart the waiting period. Submissions could be rejected based on reasonable differences over the adequacy of responses, even if made in good faith.

Example: Companies must identify and provide sales, customer and other information for current and planned products that compete or could compete with their merger counterpart. It isn’t hard to envision cases in which companies and regulators disagree over the nature and scope of this actual and (to an even greater extent) potential competition.

A blanket approach to reform is unwise, will add millions of dollars in costs, and will deter economically and socially beneficial investments and transactions. We urge individuals and businesses to weigh in on this potentially burdensome proposal before the close of the public comment period on Aug. 28.

Mr. Williams is a partner at Perkins Coie. He advises clients on antitrust merger control matters, including premerger notification requirements and merger investigations before the Justice Department and the FTC. Mr. Hauser is counsel at Perkins Coie. He has served as an antitrust attorney at the Justice Department and the FTC.