On January 24, 2022, the Federal Trade Commission (FTC) published its adjusted reporting thresholds under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (HSR Act) in the Federal Register. The FTC revises the HSR thresholds annually to track year-over-year changes in gross national product (GNP). While pandemic-related economic contractions resulted in the HSR thresholds decreasing between 2020 and 2021, this year the adjustments represent a significant increase of approximately 10% over last year’s thresholds. The new thresholds will take effect for all transactions closing on or after February 23, 2022 (30 days after their initial publication).
The HSR Act requires parties to certain transactions valued at more than $101 million to make premerger notification with the FTC and the Department of Justice Antitrust Division (DOJ), and observe a statutory waiting period (usually 30 days) before consummation. While both enforcement agencies have concurrent jurisdiction to review any reportable transaction, either the FTC or the DOJ complete a preliminary review of each transaction. If an agency opens an investigation into the proposed transaction’s competitive effects, or issues a request for additional information, the parties typically must cooperate if they want to close the transaction. In rare circumstances, the agencies have brought lawsuits against deal parties in federal court seeking to enjoin the closure of transactions that may have anticompetitive consequences.
Adjusted Threshold for Size-of-Transaction Test
The minimum size of transaction requiring an HSR filing has been increased from $92 million to $101 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, voting securities or noncorporate interests being acquired. If the purchase price or value of the acquired assets, voting securities or noncorporate interests is below $101 million, there is no requirement to make an HSR filing even if the parties meet the size-of-parties test described below.
Adjusted Thresholds 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 $202 million (up from $184 million) and the other must have assets or annual revenues of at least $20.2 million (up from $18.4 million) to trigger an HSR filing. The only exceptions are:
- If the size of the transaction is $403.9 million or more (up from $368 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 $202 million size-of-parties test and the target is a nonmanufacturer, the target’s annual sales are disregarded, so that the target will meet the test only if its assets exceed $20.2 million.
Adjusted Filing Fees
Unlike the filing thresholds, the filing fees are not indexed to GNP. However, the thresholds used to determine the fees have been adjusted upward.
- For transactions valued above $101 million and below $202 million (up from between $92 million and $184 million), the filing fee is $45,000.
- For transactions valued above $202 million and below $1.0098 billion (up from between $184 million and $919.9 million), the filing fee is $125,000.
- For transactions valued above $1.0098 billion (up from $919.9 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 engage in a “de facto” merger before formal consummation takes place — also is a violation of the HSR Act (as well as a violation of Section 1 of the Sherman Act, which carries its own potential criminal penalties). For 2022 the maximum penalty for an HSR Act violation has increased from $43,792 to $46,517 per day and applies to any new penalties assessed after January 10, 2022.
Adjusted Thresholds for Interlocking Directorates
And finally, the FTC also has published new thresholds for interlocking directorates under Section 8 of the Clayton Act. The statute 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 $41,034,000 (up from $37,382,000). 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 (1) the competing sales of either corporation are less than $4,103,400 (up from $3,738,200); (2) the competitive sales of either corporation are less than 2% of the corporation’s total sales; or (3) the competing sales of each corporation are less than 4% of the corporation’s total sales. The revised Section 8 thresholds are effective on January 24, 2022.
Failure to comply with the HSR Act and other antitrust laws may have serious consequences for businesses and individuals. Companies contemplating a merger, acquisition or other large transaction should review the new thresholds and consult with counsel to determine whether their transaction would require clearance from the federal antitrust authorities before consummation.