On February 24, 2011, the Federal Trade Commission put into effect the revised thresholds for the Hart-Scott-Rodino (HSR) Antitrust Improvements Act, which requires premerger notification for certain large transactions. Federal law requires that the Federal Trade Commission and Department of Justice be notified of mergers, acquisitions, and other transactions of a certain size prior to consummation pursuant to the Hart-Scott-Rodino Antitrust Improvements Act (HSR.)
The purpose of these HSR filings is to enable antitrust regulators to review transactions and investigate potential antitrust violations. The filing of premerger notification forms with the FTC and the DOJ, including the payment of the applicable fee, triggers certain waiting periods. Any party that fails to comply with the HSR Act's notification and waiting period requirements is liable for a civil penalty of up to $16,000 for each day the violation continues.
The HSR Act notification requirements apply to acquisitions of assets, voting securities and non-corporate interests (such as limited liability company membership interests), and also may apply to the formation of joint ventures, corporations and non-corporate entities. Specifically, the HSR Act governs notification requirements for transactions that satisfy the specified “size of transaction” and “size of person” thresholds. The thresholds, also known as the size-of-person and size-of-transaction tests, are important for those contemplating an acquisition. The thresholds are adjusted annually to reflect changes in the U.S. gross national product. The revised thresholds will apply to all transactions that close on or after the effective date of the notice and will remain in effect until the next annual adjustment, expected in the first quarter of 2012.
This year, the threshold for reporting proposed mergers and acquisitions increased from $63.4 million to $66 million. No HSR Act notification will be required if the value of voting securities and assets held as a result of the transaction is below this threshold.
The previous size of parties threshold of $12.7 million in annual sales will increase to 13.2 million, and $126.9 million in total assets size of parties threshold will increase to 131.9 million.
Size of transaction where size of party threshold is not satisfied increased from $253.7 million to $263.8 million.
These increases mean that under the new thresholds, the parties to an acquisition or merger will in most cases need to file pre-acquisition notifications with the FTC and the Department of Justice and observe the Act's waiting periods before closing if the transaction will result in either of the following: (1) the acquiring person will hold more than $66 million worth of voting securities when assets of the acquired person and the parties meet the “size-of-person” requirements, or (2) regardless of the parties' sizes, the acquiring person will hold more than $263.8 million worth of voting securities and assets of the acquired person. (3) If the ultimate parent entities of one or both parties to the transaction do not satisfy the applicable “size of parties” thresholds and their transaction is valued between $66 million and $263.8 million, no HSR Act notification will be required.
The changes also indicate that the size of the person threshold is met when: (1) a person with $131.9 million or more of total assets or annual net sales proposes to acquire voting securities or assets of a person engaged in manufacturing with $13.2 million or more of annual net sales or total assets; (2) a person with $131.9 million or more of total assets or annual net sales proposes to acquire voting securities or assets of a person not engaged in manufacturing with $13.2 million or more of total assets; or (3) a person with $13.2 million or more of total assets or annual net sales proposes to acquire voting securities or assets of a person with $131.9 million or more of annual net sales or total assets.
It is important to keep in mind that even if a transaction is reportable based on these thresholds, it may qualify for an HSR Act exemption depending on the nature and location of the assets and entities involved. For example, exemptions are available for certain acquisitions of non-U.S. assets and voting securities.
Filing fees based on the new thresholds are as follows: (1) $45,000 for transactions below $131.9 million, (2) $125,000 for transactions of $131.9 million or more but below $659.5 million, and (3) $280,000 for transactions of $659.5 million or more.
Certain related thresholds and limitations in the HSR rules were also adjusted. The FTC also announced the revised thresholds for Section 8 of the Clayton Act that prohibits interlocking directorates where one person serves as director or officer of two competing corporations if two thresholds are met. Under the revised thresholds, Section 8 may apply when each of the competing corporations has capital, surplus, and undivided profits aggregating more than $26,867,000 and each corporation's competitive sales are at least $2,686,700.