FTC Announces 2024 Increase in HSR Notification Thresholds and Filing Fees

The Federal Trade Commission (FTC) has announced the annual revisions to the Hart-Scott-Rodino Antitrust Improvements Act (HSR Act) thresholds and HSR filing fees, which will become effective on March 6, 2024. The revised thresholds will apply to any merger or acquisition closing on or after the effective date.

The FTC is required to adjust the HSR thresholds annually based upon the change in gross national product. This year, the change in the “size of transaction” threshold has increased from $111.4 million to $119.5 million.

Under the HSR Act, when a deal satisfies the “size of person” and “size of transaction” thresholds, and no exemption from reporting is available, the deal must be reported to the FTC and the US Department of Justice, and the parties must wait for a designated period of time before closing the transaction.

Size of Person. The revised size of person thresholds will generally be met if one party involved in the deal has assets or annual sales totaling $239 million or more and one other party involved in the deal has assets or annual sales of at least $23.9 million. Satisfaction of the size of person thresholds is not required, however, if the transaction is valued at more than $478 million.

Size of Transaction. The revised size of transaction threshold will be met if the buyer will hold an aggregate amount of stock, non-corporate interests and/or assets of the seller valued at more than $119.5 million as a result of the deal.

The notification thresholds applicable to purchases of voting securities will increase as follows:

February 1, 2001 Thresholds (Original) Current Thresholds as of February 27, 2023 New Thresholds Effective March 6, 2024
$50 million $111.4 million $119.5 million
$100 million $222.7 million $239 million
$500 million $1.1137 billion $1.195 billion
25% if worth more than
$1 billion
25% if worth more than $2.2274 billion 25% if worth more than $2.39 billion
50% if worth more than
$50 million
50% if worth more than $111.4 million 50% if worth more than $119.5 million

The thresholds applicable to many exemptions, including those governing foreign acquisitions, also will increase. However, the $500 million threshold applicable to acquisitions of producing oil and gas reserves and associated assets will not change.

The civil penalty for failing to comply with the notification and waiting period requirements of the HSR Act has also increased to up to $51,744 per day for each day a party is in violation.

HSR Filing Fees. Additionally, the HSR filing fee thresholds and filing fee amounts have increased as follows:

Original Filing Fee Original Applicable Size of Transaction 2024 Adjusted Filing Fee 2024 Adjusted Applicable Size of Transaction
$30,000 Less than $161.5 million $30,000 Less than $173.3 million
$100,000 Not less than $161.5 million but less than $500 million $105,000 Not less than $173.3 million but less than $536.5 million
$250,000 Not less than $500 million but less than $1 billion $260,000 Not less than $536.5 million but less than $1.073 billion
$400,000 Not less than $1 billion but less than $2 billion $415,000 Not less than $1.073 billion but less than $2.146 billion
$800,000 Not less than $2 billion but less than $5 billion $830,000 Not less than $2.146 billion but less than $5.365 billion
$2,250,000 $5 billion or more $2,335,000 $5.365 billion or more

The new fees also will become effective on March 6, 2024.

FTC Announces 2024 Thresholds for Merger Control Filings under HSR Act and Interlocking Directorates under the Clayton Act

The Federal Trade Commission (“FTC”) has increased the dollar jurisdictional thresholds necessary to trigger the reporting requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (“HSR Act”), and the dollar value of each of the six filing fee thresholds; the revised thresholds will become effective 30 days after the date of publication in the Federal Register. The daily maximum civil penalty for being in violation of the HSR Act has increased, and is, as of January 10, 2024, $51,744.

The FTC also increased the thresholds for interlocking directorates under Section 8 of the Clayton Act; these revised thresholds are in effect as of January 22, 2024.

Revised HSR Thresholds

Under the HSR Act, parties involved in proposed mergers, acquisitions of voting securities, unincorporated interests or assets, or other business combinations (e.g., joint ventures, exclusive license deals) that meet certain thresholds must report the proposed transaction to the FTC and the Antitrust Division of the U.S. Department of Justice (“DOJ”) unless an exemption applies. The parties to a proposed transaction that requires notification under the HSR Act must observe a statutorily prescribed waiting period (generally 30 days) before closing. Under the revised thresholds, transactions valued at $119.5 million or less are not reportable under the HSR Act.

A transaction closing on or after the date the revised thresholds become effective may be reportable if it meets the following revised criteria:

Size-of-Transaction Test The acquiring person will hold, as a result of the transaction, an aggregate total amount of voting securities, unincorporated interests, or assets of the acquired person valued in excess of $478 million;

or

The acquiring person will hold, as a result of the transaction, an aggregate total amount of voting securities, unincorporated interests, or assets of the acquired person valued in excess of $119.5 million but not more than $478 millionand the Size-of-Person thresholds below are met.

Size-of-Person
Test
One party (including the party’s ultimate parent entity and its controlled subsidiaries) has at least $239 million in total assets or annual sales, and the other has at least $23.9 million in total assets or annual sales.

The full list of the revised thresholds is as follows:

Original Threshold 2023 Threshold 2024 Revised Threshold
$10 million $22.3 million $23.9 million
$50 million $111.4 million $119.5 million
$100 million $222.7 million $239 million
$110 million $245 million $262.9 million
$200 million $445.5 million $478 million
$500 million $1,113.7 million $1,195 million
$1 billion $2,227.4 million $2,390 million

The filing fees for reportable transactions and the six filing fee tiers also have been updated, as follows:

Filing Fee Size of Transaction under the Act
$30,000 For transactions valued in excess of $119.5 million but less than $173.3 million
$105,000 For transactions valued at $173.3 million or greater but less than $536.5 million
$260,000 For transactions valued at $536.5 million or greater but less than $1,073 million
$415,000 For transactions valued at $1,073 million or greater but less than $2,146 million
$830,000 For transactions valued at $2,146 million or greater but less than $5,365 million
$2.335 million For transactions valued at $5,365 million or more

The filing fee tiers, introduced in 2023, are adjusted annually to reflect changes in the GNP for the previous year.

The HSR Act’s dollar thresholds are only part of the analysis to determine whether a particular transaction must be reported to the FTC and DOJ; a full analysis requires consideration of exemptions to the filing requirements that may be available to an acquiror. Failure to notify the FTC and DOJ under the HSR Act remains subject to a statutory penalty of up to $51,744 per day of noncompliance.

Revised Thresholds for Interlocking Directorates

Section 8 of the Clayton Act prohibits one person from simultaneously serving as an officer or director of two corporations if: (1) each of the “interlocked” corporations has combined capital, surplus, and undivided profits of more than $48,559,000 (up from $45,257,000); (2) each corporation is engaged in whole or in part in commerce; and (3) the corporations are “by virtue of their business and location of operation, competitors, so that the elimination of competition by agreement between them would constitute a violation of any of the antitrust laws.”1

Section 8 provides several exemptions from the prohibition on interlocks for arrangements where the competitive overlaps “are too small to have competitive significance in the vast majority of situations.”2 A corporate interlock does not violate the statute if (1) the competitive sales of either corporation are less than $4,855,900 (up from $4,525,700); (2) the competitive sales of either corporation are less than 2 percent of that corporation’s total sales; or (3) the competitive sales of each corporation are less than 4 percent of that corporation’s total sales. The DOJ has been active recently in identifying and achieving remediation of interlocks that may violate Section 8.3

1 15 U.S.C. § 19(a)(1)(B).

2 S. Rep. No. 101-286, at 5-6 (1990), reprinted in 1990 U.S.C.C.A.N. 4100, 4103-04.

3 Department of Justice, Two Pinterest Directors Resign from Nextdoor Board of Directors in Response to Justice Department’s Ongoing Enforcement Efforts Against Interlocking Directorates (Aug. 16, 2023); Department of Justice, Justice Department’s Ongoing Section 8 Enforcement Prevents More Potentially Illegal Interlocking Directorates (Mar. 9, 2023); Department of Justice, Directors Resign from the Boards of Five Companies in Response to Justice Department Concerns about Potentially Illegal Interlocking Directorates (Oct. 19, 2022).

Updated Merger Guidelines Finalized

On December 18, 2023, the Federal Trade Commission (FTC) and the U.S. Department of Justice (DOJ) jointly issued a significantly revised version of the Merger Guidelines that describes the frameworks the enforcement agencies use when evaluating potential mergers.

The newly finalized Merger Guidelines are the result of a nearly two-year effort that involved both agencies soliciting public input via listening sessions, written comments, and workshops.

The agencies describe the new Merger Guidelines as necessary to address the modern economy and how firms now do business. The Merger Guidelines are broken into multiple sections: Guidelines 1–6 describe the frameworks the agencies use when attempting to identify a merger that the agencies believe raises a prima facie concern, while Guidelines 7–11 explain how to apply those frameworks in specific settings. The guidelines also identify evidence the agencies will consider to potentially rebut an inference of competitive harm. Finally, these guidelines include a discussion of the tools the agencies use when evaluating the relevant facts, the potential harm to competition, and how to define the relevant markets.

The Merger Guidelines are notable for signaling the FTC’s and DOJ’s desire to pursue a more aggressive enforcement agenda, specifically, by lowering the threshold at which proposed mergers will be deemed presumptively anticompetitive by those enforcement agencies. The new guidelines also seek to address relatively new concerns the agencies have identified, such as cross-market transactions and sequences of smaller transactions.

FTC to Send Nearly $100 Million in Refunds in Vonage Settlement

On October 30, 2023, the Federal Trade Commission announced that it is sending nearly $100 million in refunds to consumers who were harmed as a result of internet phone service provider Vonage’s alleged use of dark patterns and other obstacles that made it difficult for users to cancel their service.

In its November 2022 complaint against Vonage, the FTC alleged that Vonage made its cancellation process more difficult to navigate than its enrollment process. In particular, Vonage allegedly restricted users to a single method of cancellation, charged unexpected early termination fees, continued to charge users after they canceled, and issued only partial refunds for overbilled amounts. Vonage and the FTC subsequently reached a settlement where Vonage agreed to pay $100 million in refunds to consumers harmed by the company’s actions, implement a simple and transparent cancellation process, and stop charging consumers without their consent.

The FTC is now in the process of sending payments to 389,106 consumers. Eligible consumers will receive refunds by check or PayPal.

 

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For more news on Federal Trade Commission Refunds, visit the NLR Antitrust & Trade Regulation section.

Major Changes Proposed to Non-Competes in the UK

Hot on the heels of the Federal Trade Commission (“FTC”) proposal for a complete ban on non-competes, the UK Government has announced its intention to limit the length of non-compete clauses to three months.

Impact of the reforms in the UK

Importantly, the three-month limit will apply only to non-compete clauses.  Thus, it will not affect or limit the use of non-solicitation clauses (which prevent former employees from contacting customers or clients in an attempt to win their business) or non-dealing clauses (which prevent former employees from dealing with customers, even when a customer has approached the employee).  The limit also will apply only in contracts of employment and what are classed as “worker” contracts.  Common law principles on restrictions being drafted no wider than reasonably necessary to protect legitimate business interests will continue to apply.

The limit will not interfere with an employer’s ability to rely on paid notice periods, garden leave, as well as confidentiality obligations.  The Government has ruled out introducing mandatory compensation for the period of non-compete clauses — a concept that is more commonplace in mainland Europe such as Germany, Italy and France.  When it comes to enforcing a three month non-compete, the proposal also will likely increase the time pressure on an employer seeking injunctive relief and the interim stage will likely become determinative of the issue given the difficulties of getting a full trial within three months.

USA influencing a global trend

Whilst the UK’s proposal stops short of a total ban, the FTC’s similar, albeit more extensive, proposal in the United States shares very similar reasoning to that put forward by the UK Government and signals a move in the same direction.  The FTC argues the freedom to change jobs is key to a competitive, thriving economy and that non-competes suppress wages and hinder innovation.  It even suggests that eliminating non-competes would generate jobs for as many as one in five workers currently subject to non-competes, raising wages by $250-$296 billion dollars.

The UK’s subsequent proposal (in addition to the FTC’s) also is likely to encourage debate in other jurisdictions, including the European Union.  The European Commissioner for Competition has indicated that the EU is not just looking to investigate traditional cartels but also anti-competitive conduct in labour markets such as wage-fixing or “no-poach” agreements.

What’s next?

The UK Government has stated that it intends to limit non-competes “when parliamentary time allows”.  Since this has been a debate that has run for a number of years within Government (coupled with the prospect of a general election in 2024), it could be some time before we see any definite change on this issue.

For now, and until the Government brings forward legislation, non-competes of over three months remain enforceable in the UK, provided they are no wider than reasonably necessary. Employers can therefore continue to include longer non-competes in their employment contracts as a means for protecting their business interests, although we anticipate greater pushback from employees asked to sign on to long non-competes.

There are questions left unanswered and in particular around what will happen to existing non-competes that are longer than three months, or to non-competes that come into force between now and when any legislation is enacted.  Will they automatically be treated as unenforceable, or amended to apply for three months only, or will there be a grandfathering provision such that existing provisions continue to apply for a specified period?

We will need to wait to see what the legislation looks like (and any guidance the Government publishes on non-compete clauses).  In the meantime, employers can start to prepare by having employment contracts reviewed to ensure that other restrictive covenants (e.g., non-solicitation/non-dealing, confidentiality obligations) are well-drafted and provide the best possible protection, as well as considering other alternatives like longer notice periods, more active use of garden leave, and tighter enforcement around confidentiality undertakings.

Navigating the Updated Federal Trade Commission Guidelines for Social Media Influencer Marketing

The Federal Trade Commission (FTC) recently updated its Guides Concerning Use of Endorsements and Testimonials in Advertising (Guidelines). There has not been an update to the Guidelines since 2009, before TikTok even existed and Facebook was still the hip new kid on the block.

Clearly, a lot has changed since then, and being aware of and understanding the updates to these Guidelines is crucial for companies, influencers, brand ambassadors, and marketing professionals who engage in influencer marketing campaigns. The Guidelines take into account the evolving nature of influencer marketing and provide more specific guidance on how influencers can make clear and conspicuous disclosures to their followers. This summary provides a basic overview of the key changes and important points to consider in the wake of the updated Guidelines.

Background:

Anyone who has access to the internet is aware that social media influencer marketing has been a rapidly growing industry over the past decade, and the FTC recognizes the need for adequate transparency concerning this area of marketing to protect consumers from deceptive advertising practices.

The general aim of the updated Guidelines is to ensure consumers can clearly identify when a social media post, blog post, video, or other similar media is sponsored or contains affiliate links. The updated Guidelines seek to develop or make clear guidance concerning specifically: (1) who is considered an endorser; (2) what is considered an “endorsement”; (3) who can be liable for a deceptive endorsement; (4) what is considered “clear and conspicuous” for purposes of disclosure; (5) practices of consumer reviews; and (6) when and how paid or material connections need to be disclosed.

Key Changes and Considerations:

  1. Clear and Conspicuous Disclosure: Influencers must make disclosures clear and conspicuous. This means disclosures should be easily noticed, not buried within a long caption or hidden among a sea of hashtags. The Guidelines require that disclosure be “unavoidable” when posts are made through electronic mediums. The FTC suggests placing disclosures at the beginning of a post, especially on platforms where the full content can be cut off (i.e., Instagram). In broad terms, a disclosure will be deemed “clear and conspicuous” when “it is difficult to miss (i.e. easily noticeable) and easily understandable by ordinary consumers.”
  • Updated Definition of “endorsements”: The FTC has broadened its definition of “endorsements” and what it deems to be deceptive endorsement practices to include fake positive or negative reviews, tags on social media platforms, and virtual (AI) influencers.
  • Use of Hashtags: The Guidelines still hold that commonly used disclosure hashtags such as #ad, #sponsored, and #paidpartnership are acceptable, but those must be displayed in a manner that is easily perceptible by consumers. Influencers should avoid using vague or ambiguous hashtags that may not clearly indicate a paid relationship. Keep in mind, however, whether a specific social media tag counts as an endorsement disclosure is subject to fact-specific review.
  • In-Platform Tools: Social media platforms increasingly provide built-in tools for influencers to mark their posts as sponsored. However, be aware, the Guidelines emphasize that these tools can be helpful in disclosing partnerships, but they are not always sufficient to ensure that disclosures are clear and conspicuous. Parties using these tools should carefully evaluate whether they are clearly and conspicuously disclosing material connections.
  • Affiliate Marketing: If an influencer includes affiliate links in their content, they must disclose this relationship. Simply using affiliate links is considered a material connection and requires disclosure. Phrases such as “affiliate link” or “commission earned” can be used to disclose affiliate relationships.
  • Endorsements and Testimonials: The FTC guidelines apply not only to sponsored content, but also to endorsements and testimonials. Influencers must disclose material connections with endorsing products, whether they received compensation or discounted/free products. Beyond financial relationships as described above, influencers will need to disclose non-financial relationships, such as being friends with a brand’s owners or employees.
  • Ongoing Relationships: Disclosures should be made in every post or video if a material connection for benefit exists, even in cases of ongoing or long-term partnerships.
  • Endorsements Directed at Children: The updated Guidelines added a new section specifically addressing advertising which is focused on reaching children. The FTC states that such advertising “may be of special concern because of the character of audience”. While the Guidelines do not offer specific guidance on how to address advertisements intended for children, those who intend to engage in targeting children as the intended audience should pay special attention to the “clear and conspicuous” requirements espoused by the FTC.

Enforcement and Penalties:

The FTC takes non-compliance with these guidelines seriously and can impose significant fines and penalties on brands, marketers, and influencers who fail to make proper disclosures. Significantly, the updated Guidelines make it clear that influencers who fail to make proper disclosures may be personally liable to consumers who are misled by their endorsements. Furthermore, brands and marketers may also be held responsible for ensuring that influencers with whom they have paid relationships adhere to these guidelines.

Conclusion:

Bear in mind, the Guidelines themselves are not the law, but they serve as a vital guide to avoid breaking it. Overall, the updated Guidelines on influencer disclosures emphasize transparency and consumer protection. To stay compliant and maintain consumer trust, it is imperative that all parties involved in influencer marketing familiarize themselves with these Guidelines and ensure that disclosures are clear, conspicuous, and consistently made in every relevant post or video. Furthermore, as this marketing industry continues to develop and evolve, it will be increasingly important to monitor ongoing developments and changes in the FTC guidelines to stay current with best practices.

FTC Junk Fee Ban Proposed Rule Released

The Federal Trade Commission (FTC) released a new proposed rule to ban junk fees, which are unexpected, hidden, and “bogus” charges that are often applied later in a transaction. The FTC announced the proposed rule on October 11, 2023 after receiving 12,000 comments from consumers about how these fees impact them. The FTC is currently “seeking a new round of comments on a proposed junk fee rule,” according to a press release issued by the agency.

Junk fees include charges added when purchasing concert tickets online, making hotel and resort reservations, changing airline booking and seat choice fees, paying utility bills and renting an apartment. Junk fees are sometimes called partitioned pricing, drip pricing or shrouded pricing, according to Ashish Pradhan of Cornerstone Research. Consumers told the FTC that sellers often don’t say what the fees are for, and if they’re getting anything in return for paying them.

“All too often, Americans are plagued with unexpected and unnecessary fees they can’t escape. These junk fees now cost Americans tens of billions of dollars per year—money that corporations are extracting from working families just because they can,”  FTC Chair Lina M. Khan stated today. “By hiding the total price, these junk fees make it harder for consumers to shop for the best product or service and punish businesses who are honest upfront. The FTC’s proposed rule to ban junk fees will save people money and time and make our markets fairer and more competitive.”

The FTC estimates that junk fees can result in “tens of billions of dollars per year in unexpected costs” for consumers, and more than 50 million hours of time spent searching for the total price of short-term lodging and tickets for live events per year.

What Is the FTC Junk Fee Proposed Rule?

The proposed rule requires businesses to include all mandatory fees to be disclosed in pricing and prohibits sellers from applying any hidden fees during the transaction. The FTC said that this would help consumers “know exactly how much they are paying and what they are getting and spur companies to compete on offering the lowest price.”

Specifically, the Junk Fee Proposed Rule bans:

  • Hidden fees. These fees drive up the price of purchases, often before the transaction is complete. The proposed rule also bars businesses from advertising prices that exclude or hide mandatory fees.
  • Bogus fees. The FTC said that companies often charge “bogus fees.” The agency characterizes these fees as charges that consumers are asked to pay without knowing what their purpose is. The proposed rule requires businesses to tell consumers what these fees are for, what the amount is up front and if the fees can be refunded.

The proposed rule allows the FTC to issue monetary penalties against noncompliant companies and provide refunds to affected consumers.

Junk Fee Regulatory Measures from Other Federal Agencies

The Federal Communications Commission (FCC)

The FTC isn’t the only federal agency targeting junk fees. Other federal agencies are also acting against a variety of add on fees. The Federal Communications Commission (FCC) started implementing its Broadband Consumer Labels tool aimed at increasing price transparency.

“No one likes surprise charges on their bill. Consumers deserve to know exactly what they are paying for when they sign up for communications services. But when it comes to these bills, what you see isn’t always what you get,” said FCC Chairwoman Jessica Rosenworcel on March 23, 2023. “Instead, consumers have often been saddled with additional junk fees that may exorbitantly raise the price of their previously agreed-to monthly charges. To combat this, we’re implementing Broadband Consumer Labels, a new tool that will increase price transparency and reduce cost confusion, help consumers compare services, and provide ‘all-in-pricing’ so that every American can understand upfront and without any surprises how much they can expect to be paying for these services.”

The Consumer Financial Protection Bureau (CFPB)

Additionally, in March, the Consumer Financial Protection Bureau (CFPB) released a report on the use of junk fees “in deposit accounts and in multiple loan servicing markets, including the auto, mortgage, student, and payday/small loan sectors,” according to Greenberg Traurig.

“Americans are fed up with the junk fees that are creeping across the economy,” said CFPB Director Rohit Chopra in the FTC press release. “The FTC’s proposed rule will protect families and honest businesses from race-to-the-bottom abuses that cost us billions of dollars each year. If finalized, the CFPB will enforce the rule against violators in the financial industry and ensure that these firms play fairly.”\

The Department of Housing and Urban Development (HUD)

The Biden Administration and the Department of Housing and Urban Development in a July 19, 2023, press release, specifically address add-on fees in rental housing. “Earlier this year, we called for reform in the housing industry to increase transparency for renters across the country, reflecting the Biden-Harris administration and the Department of Housing and Urban Development’s commitment,” said HUD Secretary Marcia L. Fudge in the FTC press release.

According to HUD rental application fees can be up to $100 or more per application, and, importantly, they often exceed the cost of conducting the background and credit checks. Given that prospective renters often apply for multiple units over the course of their housing search, these application fees can add up to hundreds of dollars.

The Department of Transportation (DOT)

The Department of Transportation in a March 2023 press release addressed aggravating airline fees: after DOT secured commitments from major U.S. airlines to provide free rebooking, meals, and hotels when they are responsible for stranding passengers. Dot stated that they were working to stop airlines from forcing parents to pay to sit next to their kids by requiring airlines to disclose hidden fees for things like extra bags. DOT stated that they helped secure billions of dollars in refunds for passengers whose flights are canceled.

In 2022, Secretary Buttigieg pressed U.S. airlines to do more for passengers who had a flight canceled or delayed because of the airline, by informing the CEOs of the 10 largest U.S. airlines that the DOT would publish a dashboard on amenities and services provided such as rebooking, meals, or hotels in the event of a controllable delay or cancellation. Prior to Buttigieg’s urging, none of the 10 largest U.S. airlines guaranteed meals or hotels when a delay or cancellation was within the airlines’ control, and only one offered free rebooking.   As of March 2023, all of the 10 largest U.S. airlines guarantee meals and rebooking, and nine guarantee hotels when an airline issue causes a cancellation or delay.

What’s Next?

Consumers can submit comments to the FTC electronically for 60 days once the notice of proposed rulemaking is published in the Federal Register. Consumers can also send written comments to the FTC—instructions on how to do this can be found in the Federal Register notice under the “Supplementary Information” section.

For more articles on the FTC, visit the NLR Antitrust and Trade section.

FTC and DOJ Propose Significant Changes to US Merger Review Process

On 27 June 2023, the Federal Trade Commission (FTC) and the Department of Justice–Antitrust Division (DOJ) (collectively, the Agencies) announced sweeping proposed changes to the US-premerger notification filing process. The proposed changes mark the first significant overhaul of the federal premerger notification form since its original release in 1978 and would require parties to report

On 27 June 2023, the Federal Trade Commission (FTC) and the Department of Justice–Antitrust Division (DOJ) (collectively, the Agencies) announced sweeping proposed changes to the US-premerger notification filing process. The proposed changes mark the first significant overhaul of the federal premerger notification form since its original release in 1978 and would require parties to reportable transactions to collect and submit significantly more information and documentation as part of the premerger review process. If finalized, the proposed rule changes would likely delay deal timelines by months, requiring significantly more time and effort by the parties and their counsel in advance of submitting the required notification form.

In this alert, we:

  • Provide an overview of the current merger review process in the United States;
  • Describe the proposed new rules announced by the Agencies;
  • Explain the Agencies’ rationale for the new proposed rules;
  • Predict how the proposed new rules could impact parties’ premerger filing obligations, including deal timelines; and
  • Explain what companies should expect over the next several months.

BACKGROUND ON THE HSR MERGER REVIEW PROCESS

The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the HSR Act or “HSR”) requires certain persons making acquisitions of assets, voting securities, and non-corporate interests (i.e., interests in partnerships and limited liability companies) to:

(a)    File premerger notifications with the FTC and DOJ; and

(b)    Wait until the expiration or termination of a waiting period (usually 30 days) before consummating the acquisition.

Most mergers and acquisitions valued in excess of USD$111.4 million fall under the HSR Act subject to size-of-party thresholds in certain cases. Additionally, there are several exemptions that may apply to an otherwise reportable transaction.

The FTC or the DOJ reviews the parties’ HSR filings during the waiting period to determine whether the transaction may substantially lessen competition in violation of the antitrust laws. If, at the end of the waiting period any concerns have not been placated, the reviewing agency may issue a Request for Additional Documents and Information (commonly referred to as a Second Request), a very broad subpoena-like document seeking documents, data, and interrogatory responses from the filers. This tolls the waiting period until both parties substantially comply with the Second Request. The reviewing agency then has an additional 30-day period to decide whether to challenge the transaction in court.

WHAT ARE THE PROPOSED CHANGES?

On 27 June 2023, the FTC and DOJ announced a number of significant changes to the HSR notification form and filing process, the first such overhaul in almost 45 years. The Agencies released the proposed changes and rationale for the same in a 133-page Notice of Proposed Rulemaking (Notice) that will be published in the Federal Register later this week. While antitrust practitioners are still digesting the full extent of all of the proposed changes, it is clear that they would require parties to submit significantly more information and documentation to the Agencies as part of their HSR notification form. The most notable additional information and documentation includes:

  • Submission of additional deal documents, including draft agreements or term sheets (as opposed to just the preliminary agreement), where a definitive transaction agreement has not yet been executed; draft versions of all deal documents (as opposed to just the final versions); documents created by or for the deal team lead(s) (as opposed to just officers and directors); and verbatim translations of all foreign language documents.
  • Details about acquisitions during the previous 10 years.
  • Identification of and information about all officers, directors, and board observers of all entities within the acquiring person, including the identification of other entities these individuals currently serve, or within the two years prior to filing had served, as an officer, director, or board observer.
  • Identification of and information about all creditors and entities that hold non-voting securities, options, or warrants totaling 10% or more.
  • Disclosure of subsidies (e.g., grants and loans), by certain foreign governments, including North Korea, China, Russia, and Iran.
  • Narrative description of the strategic rationale for the transaction (including projected revenue streams), a diagram of the deal structure, and a timeline and narrative of the conditions for closing.
  • Identification and narrative describing horizontal overlaps, both current and planned.
  • Identification and narrative describing supply agreements/relationships.
  • Identification and narrative describing labor markets, as well as submission of certain data on the firms’ workforce, including workforce categories, geographic information on employees, and details on labor and workplace safety violations.
  • Identification of certain defense or intelligence contracts.
  • Identification of foreign jurisdictions reviewing the deal.

WHY ARE THESE CHANGES BEING PROPOSED?

In its press release announcing the proposed new rules, the FTC stated that “[t]he proposed changes to the HSR Form and instructions would enable the Agencies to more effectively and efficiently screen transactions for potential competition issues within the initial waiting period, which is typically 30 days.”The FTC further explained:

Over the past several decades, transactions (subject to HSR filing requirements) have become increasingly complex, with the rise of new investment vehicles and changes in corporate acquisition strategies, along with increasing concerns that antitrust review has not sufficiently addressed concerns about transactions between firms that compete in non-horizontal ways, the impact of corporate consolidation on American workers, and growth in the technology and digital platform economies. When the Agencies experienced a surge in HSR filings that more than doubled filings from 2020 to 2021, it became impossible to ignore the changes to the transaction landscape and how much more complicated it has become for agency staff to conduct an initial review of a transaction’s competitive impact. The volume of filings at that time also highlighted the significant limitations of the current HSR Form in understanding a transaction’s competitive impact.2

Finally, the FTC also cited certain Congressional concerns and the Merger Fee Filing Modernization Act of 2022, stating that the “proposed changes also address Congressional concerns that subsidies from foreign entities of concern can distort the competitive process or otherwise change the business strategies of a subsidized firm in ways that undermine competition following an acquisition. Under the Merger Filing Fee Modernization Act of 2022, the agencies are required to collect information on subsidies received from certain foreign governments or entities that are strategic or economic threats to the United States.”

HOW WILL THESE CHANGES POTENTIALLY IMPACT PARTIES’ HSR FILINGS?

The proposed changes, as currently drafted, would require significantly more time and effort by the parties and their counsel to prepare the parties’ respective HSR notification forms. For example, the proposed new rules require the identification, collection, and submission of more deal documents and strategic documents; significantly more information about the parties, their officers, directors and board observers, minority investments, and financial interests; and narrative analyses and descriptions of horizontal and non-horizontal relationships, markets, and competition. Gathering, analyzing, and synthesizing this information into narrative form will require significantly more time and resources from both the parties and their counsel to comply.

Under the current filing rules, it typically takes the merging parties about seven to ten days to collect the information needed for and to complete the HSR notification form. Under the proposed new rules, the time to gather such information and complete an HSR notification form could be expanded by multiple months.

WHAT IS NEXT?

The Notice will be published in the Federal Register later this week. The public will then have 60 days from the date of publication to submit comments. Following the comment period, the Agencies will review and consider the comments and then publish a final version of the new rules. The new rules will not go into effect until after the Agencies publish the final version of the new rules. This process will likely take several months to complete, and the new rules–or some variation of them–will not come into effect until that time.

While the final form of the proposed rules are not likely to take effect for several months, the Agencies’ sweeping proposed changes to the notification form and filing process are in line with the type of information that the Agencies have been increasingly requesting from parties during the merger review process. Accordingly, parties required to submit HSR filings over the next several months should be prepared to receive similar requests from the Agencies, either on a voluntary basis (e.g., during the initial 30-day waiting period) or through issuance of a Second Request, and they should build into their deal timeline (either pre- or post-signing) sufficient time to comply with these requests.

 

“FTC and DOJ Propose Changes to HSR Form for More Effective, Efficient Merger Review,” FTC Press Release, June 27, 2023, available at FTC and DOJ Propose Changes to HSR Form for More Effective, Efficient Merger Review | Federal Trade Commission.  

“Q and A on the Notice of Proposed Rulemaking for the HSR Filing Process,” FTC Proposed Text of Federal Register Publication, available at 16 CFR Parts 801 and 803: Premerger Notification; Reporting and Waiting Period Requirements | Federal Trade Commission (ftc.gov).

Copyright 2023 K & L Gates

Tempur Sealy Acquisition of Mattress Firm: A Vertical Bridge Too Far for the FTC?

In a deal announced on May 9, Tempur Sealy International, Inc., the world’s largest mattress manufacturer, has agreed to acquire Houston-based Mattress Firm Group, Inc., the largest U.S. brick-and-mortar bedding retailer, with more than 2,300 locations and a robust e-commerce platform. The companies hope to finalize the $40 billion deal in the second half of 2024.

Following pre-merger notification of the deal last October, the FTC is reportedly taking a deep dive into the mattress industry to assess whether the transaction is likely to harm competition. The depth of the investigation itself signals a departure from the antitrust agencies’ traditional approach to “vertical” mergers in which firms in the same industry but in non-overlapping market segments (such as manufacturing and retailing the same product category) benefit from a soft presumption of legality. Customarily, vertical integration was perceived to be benign, if not somehow “efficiency enhancing.”

Whatever the merits of applying such leniency to traditional supply chains of widgets, it does not serve competition policy well in an economy dominated by technology-driven platforms that serve several enormous groups of customers at once. In today’s markets, non-overlapping vertical arrangements can severely affect whether rival firms can gain access to inputs, markets, or prospective customers.

Evidence of the FTC’s awareness of the potential for vertical mergers to cause competitive harm abounds. On September 15, 2021, the FTC withdrew the FTC/Department of Justice 2020 Vertical Merger Guidelines and Commentary. The Commission’s majority said that the 2020 Guidelines included a “flawed discussion of the purported procompetitive benefits (i.e., efficiencies) of vertical mergers, especially its treatment of the elimination of double marginalization” and by failing to address “increasing levels of consolidation across the economy.”

Mattresses and Widgets

A course correction is borne out by the Commission’s recent challenges to several proposed vertical mergers, including Nvidia Corp.’s attempted acquisition of Arm Ltd., Lockheed Martin Corporation’s attempted acquisition of Aerojet Rocketdyne Holdings, Inc., Microsoft Corp.’s acquisition of Activision Blizzard Inc., and Illumina, Inc.’s acquisition of GRAIL, Inc. After the parties abandoned the Nvidia/Arm acquisition, the FTC’s press release was effusive: “This result is particularly significant because it represents the first abandonment of a litigated vertical merger in many years,” the Commission said.

Enter the Tempur Sealy/Mattress Firm transaction, a vertical acquisition in a product category whose markets resemble widgets more than online merchandising or payment networks. Tempur Sealy became the world’s largest mattress manufacturer in 2012, when Tempur-Pedic acquired Sealey Corp. for $1.3 billion. The company currently earns revenues of $5 billion a year, almost a third of the $17 billion U.S. mattress market. Mattress Firm, the largest mattress retailer in the U.S. with annual revenues of $2.5 billion a year, has been owned since 2016 by German retail holding company Steinhoff International Holdings NV. The firm filed for Chapter 11 bankruptcy protection in October 2018, but quickly emerged the following month after closing 700 stores.

The merging parties are no strangers to one another, having engaged in a commercial relationship for the past 35 years. In 2017, Tempur Sealy sued Mattress Firm for selling mattresses that infringed on the Tempur-Pedic line-up, but in 2019, after its emergence from bankruptcy, Mattress Firm and Tempur Sealy struck a long-term partnership agreement. A merger of the two firms has been under discussion in one form or another for most of the past decade.

Public statements by the parties stress the complementarity of the deal, which they describe as combining “Tempur Sealy’s extensive product development and manufacturing capabilities with vertically integrated retail.” The merged entity will end up with about 3,000 retail stores, 30 e-commerce platforms, 71 manufacturing facilities, and 4 R&D facilities around the world. It is the kind of combination of complementary businesses that not long ago might not have even earned a Second Request from the antitrust agencies.

The FTC, which at least since last December has been investigating the potential effects on the mattress industry of a merger between the two market leaders, issued a Second Request earlier this month. By February, the Commission had already interviewed executives from the top 20 mattress manufacturers, according to a report in Furniture Today (February 2, 2023).

Disruptors and Goliaths

The FTC is likely to discover a large and growing global industry undergoing significant changes in how mattresses are designed, marketed, and sold in reaction to changing consumer preferences.

Several online mattress-in-a-box companies have disrupted the industry. Today, nearly half of all consumers purchases are online. They will also find fairly low barriers to entry into both brick-and-mortar and online retailing and mattress manufacturing. Their review of the Tempur Sealy/Mattress Firm transaction will also encounter two players in the market with a long history of cooperation.

With 20 manufacturers significant enough to interview, the Commission would appear to be faced with a fairly competitive market – one in which little or no foreclosure of rivals to the ability to obtain inputs or the availability of channels of distribution to reach consumers will result from the proposed transaction. Additional competitive pressure comes from Amazon, which began selling its own mattresses in 2018 as part of the Amazon Essentials line, and Walmart, which introduced its own mattress-in-box brand, Allswell, available online and in stores.

On balance, the acquisition of Mattress Firm by Tempur Sealy would not appear to raise significant antitrust issues. A challenge to this transaction by the FTC may be a vertical bridge too far. That is no doubt the assessment reached by Scott Thompson, chairman and CEO of Tempur Sealy, who expressed confidence in clearing the FTC’s antitrust review, “either in the traditional sense or through litigation.”

© MoginRubin LLP

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How to Succeed in Environmental Marketing Claims

Environmental marketing claims often present something of a Catch-22—companies that are doing actual good for the environment deserve to reap the benefits of their efforts, and consumers deserve to know, while at the same time, heightened scrutiny from the Federal Trade Commission (FTC), the National Advertising Division (NAD), state regulators and the plaintiffs’ bar have made such claims increasingly risky.

In 2012, the FTC issued the Green Guides for the use of environmental marketing claims to protect consumers and to help advertisers avoid deceptive environmental marketing. Compliance with the Green Guides may provide a safe harbor from FTC enforcement, and from liability under state laws, such as California’s Environmental Marketing Claims Act, that incorporate the Green Guides. The FTC has started a process to revise the Green Guides, including a request for comments about the meaning of “sustainable.” In the meantime, any business considering touting the environmental attributes of its products should consider the following essential takeaways from the Green Guides in their current form:

    • Substantiation: Substantiation is key! Advertisers should have a reasonable basis for their environmental claims. Substantiation is the support for a claim, which helps ensure that the claim is truthful and not misleading or deceptive. Among other things, substantiation requires documentation sufficient to verify environmental claims.
    • General benefit claims: Advertisers should avoid making unqualified claims of general benefit because substantiation is required for each reasonable interpretation of the claim. The more narrowly tailored the claim, the easier it is to substantiate.
    • Comparative claims: Advertisers should be careful and specific when making comparative claims. For example, a claim that states “20% more recycled content” begs the question: “compared to what?” A prior version of the same product? A competing product? Without further detail, the advertiser would be responsible for the reasonable interpretation that the product has 20% more recycled content than other brands, as well as the interpretation that the product has 20% more recycled content than the advertiser’s older products.
    • General greenwashing terms: Advertisers should be very cautious when using general environmental benefit terms such as “eco-friendly,” “sustainable,” “green,” and “planet-friendly.” Those kinds of claims feature prominently in many complaints alleging greenwashing, and they should only be used where the advertiser knows and explains what the term means, and can substantiate every reasonable interpretation of the claim.

Putting it into Practice: Given the scrutiny that environmental claims tend to attract, advertisers should exercise care when making environmental benefit claims about their products and services. They should narrowly tailor their claims to the specific environmental attributes they want to promote, and perhaps most important, they should ensure they have adequate backup to substantiate their claims. While the FTC Green Guides are due for a refresh (which we will surely report on), for the time being, they will continue to serve as important guidance for advertisers seeking to inform consumers without exposing their business to FTC scrutiny or class action litigation.