On January 28, 2020, the Federal Trade Commission (FTC) published adjusted reporting thresholds under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (HSR Act) in the Federal Register. Companies contemplating a merger should review the new thresholds and consult with counsel to determine whether they are required to report their transaction to the federal antitrust agencies prior to consummation.
The new thresholds represent an approximate 4.4% increase over last year’s thresholds, and they will become effective on February 27, 2020 (30 days after their publication). The HSR Act requires the FTC to revise these thresholds annually, based on changes in gross national product.
Under the HSR Act, parties to mergers, acquisitions and other transactions must file premerger notification with the FTC and the Department of Justice Antitrust Division (DOJ), and then observe a 30-day statutory waiting period before consummating the transaction, if their transaction meets or exceeds certain monetary thresholds. While both the FTC and the DOJ have jurisdiction to review any reportable transaction, one of the two agencies will typically take primary responsibility for each deal. 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 of the agencies.
Adjusted Threshold for Size of Transaction Test
The minimum size of transaction requiring an HSR filing has been increased from $90 million to $94 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 $94 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 $188 million (up from $180 million) and the other must have assets or annual revenues of at least $18.8 million (up from $18 million) to trigger an HSR filing. The only exceptions are:
- If the size of the transaction is $376 million or more (up from $359.9 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 $188 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 $18.8 million.
Adjusted Filing Fees
Unlike the filing thresholds, the filing fees are not indexed to gross national product, and they have not been revised in over a decade. However, the thresholds used to determine the fees have been adjusted upward.
- For transactions valued above $94 million and below $188 million (up from between $90 million and $180 million), the filing fee is $45,000.
- For transactions valued above $188 million and below $940.1 million (up from between $180 million and $899.8 million), the filing fee is $125,000.
- For transactions valued above $940.1 million (up from $899.8 million), the filing fee is $280,000.
Adjusted Civil Penalties
Businesses and persons who violate the HSR Act are subject to monetary penalties. 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 HSR Act. Gun jumping, in which parties share competitively sensitive information or otherwise engage in a “de facto” merger before formal consummation takes place, is also a violation of the HSR Act (as well as a violation of Section 1 of the Sherman Act, which carries its own criminal penalties). This year, the maximum penalty for an HSR Act violation will increase from $42,530 to $43,280 per day.
Adjusted Thresholds for Interlocking Directorates
Finally, the FTC published new thresholds for interlocking directorates under Section 8 of the Clayton Act. In general, the law prohibits an individual from simultaneously serving as an officer or director of two competing corporations if each corporation has capital, surplus and undivided profits of more than $38,204,000 (up from $36,564,000). Section 8 provides for several exceptions where competitive overlaps are “too small to have competitive significance.” For example, the parties will not violate Section 8 where the competing sales of either corporation are less than $3,820,400 (up from $3,656,400); the competitive sales of either corporation are less than two percent of the corporation’s total sales; or the competing sales of each corporation are less than 4% of the corporation’s total sales.
Failure to comply with the HSR Act and other competition laws may have serious consequences for businesses and individuals. Businesses should consult with HSR counsel before proceeding with a potentially reportable transaction.