Federal Court overturns FTC’s expanded premerger notification requirements

The recent decision by the United States District Court for the Eastern District of Texas to vacate the FTC’s 2024 rule that expanded premerger notification requirements under the Hart-Scott-Rodino (HSR) Act has significant implications for companies involved in mergers and acquisitions. This ruling potentially invalidates requirements that have significantly increased the time and costs associated with HSR filings.

Although the current HSR filing requirements remain in place, the court has temporarily stayed its order for seven days to allow the FTC to seek emergency relief from the Fifth Circuit. Companies that are planning HSR-reportable transactions should stay vigilant for any appeals or emergency stay requests. It is crucial for these companies to work with outside counsel to understand which form requirements apply to their pending and future transactions, given the uncertainty arising from this decision.

The 2024 rule adopted by the FTC introduced a plethora of new categories of required information in premerger notifications. The additional requirements included organizational charts, transaction rationale disclosures, competition documents, overlap descriptions, supply relationship details, and information pertaining to subsidies from foreign entities. The FTC claimed that compliance with the new form would take an average of 105 hours, compared to 37 hours under the previous form, representing a significant increase in time and resources.

The court’s decision to grant summary judgment for the plaintiffs was based on two key grounds. Firstly, the court ruled that the final rule exceeded the FTC’s statutory authority under the HSR Act. The court determined that the benefits of the rule did not reasonably outweigh its costs, as required by the Act. The FTC’s purported benefits of the new requirements, such as identifying harmful mergers and saving agency resources, were found to be speculative and unproven. Notably, the FTC could not point to a single illegal merger in the 46-year history of the previous form that would have been prevented by the new requirements.

Secondly, the court found that the rulemaking process was arbitrary and capricious under the Administrative Procedure Act. The FTC failed to demonstrate that the benefits of the rule justified its costs, and the agency did not adequately justify its rejection of less burdensome alternatives. The ruling represents a significant limitation on agency authority in the merger review process and provides relief to companies engaged in deals that are subject to HSR reporting requirements.

While this decision offers significant benefits to deal parties, the FTC may choose to seek appellate review. Companies involved in mergers, acquisitions, and other HSR-reportable transactions should seek guidance from experienced antitrust counsel to navigate the implications of this ruling and ensure compliance with HSR regulations. Be sure to stay informed about further developments as this legal battle unfolds.