On January 29, the Federal Trade Commission (FTC) published increased reporting thresholds under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (HSR Act). The new thresholds represent an approximate 4 percent increase over last year’s thresholds, and they will be effective for all transactions closing on or after February 28, 2018.
The HSR Act requires parties to mergers, acquisitions and certain other transactions to file premerger notification with the FTC and the Department of Justice Antitrust Division (Antitrust Division), and then observe a 30-day statutory waiting period before consummating the transaction. Typically, one of these two antitrust enforcement agencies will assume primary responsibility for reviewing the transaction. If necessary, parties also must cooperate with the agency’s investigation of their proposed transaction’s competitive effects. A small percentage of transactions for which HSR filings are submitted will be subjected to so-called “second requests” for additional information or a formal merger challenge by one the agencies.
Adjusted Threshold for Size of Transaction Test
The minimum size of transaction requiring an HSR filing has been increased from $80.8 million to $84.4 million. For most purposes, the size of the transaction is calculated as the greater of the purchase price or the fair market value of the assets being acquired. If the purchase price or value of the acquired assets is below $84.4 million, there is no requirement to make an HSR filing even if the parties meet the size of parties test described below.
Adjusted Threshold for Size of Parties Test
Where the size of transaction test is met, generally one party to a transaction also must have assets or annual revenues of at least $168.8 million (up from $161.5 million) and the other must have assets or annual revenues at least $16.9 million (up from $16.2 million) to trigger an HSR filing. The only exceptions are:
- If the size of the transaction is $337.6 million or more (up from $323.0 million), there is no size of parties test and the parties will need to file regardless of the assets or annual revenues of the parties involved.
- If the buyer meets the $168.8 million size of parties test and the target is a non-manufacturer, the target’s annual sales are disregarded so that the target will meet the test only if its assets exceed $16.9 million.
Adjusted Filing Fees
The HSR filing fees remain the same, but the thresholds used to determine the fees have been adjusted upwards.
- For transactions valued between $84.4 million and $168.8 million (up from between $80.8 million and $161.5 million), the filing fee is $45,000.
- For transactions valued between $168.8 million and $843.9 million (up from between $161.5 million and $807.5 million), the filing fee is $125,000.
- For transactions valued at greater than $843.9 million (up from $807.5 million), the filing fee is $280,000.
Adjusted Civil Penalties
The HSR Act provides penalties for businesses and persons who fail to comply with the Act. For example, consummating a reportable merger without filing the required HSR submissions and observing the statutory waiting period may subject a party to a civil penalty for each day during which the party is in violation of the Act. Effective February 28, 2018, the maximum penalty for an HSR violation will increase from $40,654 to $41,484 per day.
The revised thresholds will remain in effect until the FTC’s next annual adjustment, which likely will occur during the first quarter of 2019.
Non-Reportable and Cleared Transactions Not Immune From Antitrust Scrutiny
A significant number of challenges are brought to non-reportable and closed transactions. The fact that a transaction does not require an HSR filing does not mean that the antitrust enforcers cannot seek to challenge it if they determine through a pre-closing investigation that the transaction has the potential for anticompetitive effects.
Similarly, the agencies may investigate a transaction even after the HSR statutory waiting period has expired or the agencies have given the parties clearance to consummate the transaction. For instance, in 2017, the Antitrust Division reopened its investigation of the $4.3 billion acquisition of Clarcor by Parker-Hannifin — a merger that previously had received approval and was consummated after completion of the Division’s premerger notification processes. The Division subsequently challenged the acquisition, and the final judgment requires Parker-Hannifan to divest part of the business it acquired from Clarcor.
Merger review and enforcement is a complex and nuanced area of the law. Companies or individuals who have questions or concerns about their HSR filing obligations or the potential competitive effects of a proposed transaction should consult with knowledgeable legal counsel.