Annually, the Federal Trade Commission (FTC) is required to revise the basic thresholds used to determine reportability of transactions under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (HSR Act), based on the change in our gross national product. Once again the thresholds have increased. The changes were effective February 27, 2017.
Most importantly, the minimum “size of transaction” threshold is increased to $80.8 million from $78.2 million last year. Accordingly, an acquisition, merger, or joint venture where at least $80.8 million of assets or voting securities will be held as a result of a transaction that closes on or after February 27, 2017, should be evaluated for potential U.S. pre-merger reporting requirements under the HSR Act.
BASIC FILING THRESHOLDS
The HSR Act requires parties that meet the HSR Act’s “size-of-person” thresholds to submit premerger notification filings with the FTC and the Antitrust Division of the Department of Justice before completing certain proposed stock or asset acquisitions or joint venture formations exceeding the HSR Act’s “size-of-transaction” threshold. The thresholds have been revised as follows:
- Size of Person. Either the acquiring or acquired person must have total assets or annual net sales of $161.5 million or more, and the other party must have total assets or annual net sales of $16.2 million or more. If the acquired person is the $16.2 million entity and is not engaged in manufacturing, the test looks only to the total assets of the acquired person, not annual net sales. Annual net sales are determined by looking at the last regularly prepared annual statement of income and expense, and total assets are determined by looking at the last regularly prepared balance sheet. If the value of the assets or voting securities being acquired exceeds $323 million, this test is deemed to be automatically met, regardless of the actual size of the parties. Note that care must be taken to identify the “ultimate parent entity” of each relevant party to determine who must file.
- Size of Transaction. The minimum size of transaction threshold is often referred to as the “$50 million (as adjusted)” threshold because it started at $50 million and is now adjusted annually. Again, that threshold will now be $80.8 million. To determine reportability for a deal that will close around the time that the new threshold is effective, determine what the $50 million (as adjusted) threshold will be at the time of closing. For example, a deal valued at $79 million which will close on or after February 27, 2017, is not reportable because it is below the new minimum size of transaction threshold, even though it exceeds the current threshold of $78.2 million.
- This test is met if more than $80.8 million of assets or voting securities of the acquired person will be held as a result of the transaction.
Various other thresholds under the HSR Act have been adjusted, as well. Certain exemptions may apply and certain other aspects of the rules should be considered if it appears filings are required or the parties are close to meeting the above thresholds. For example, the revised 2017 thresholds under Section 8 of the Act that trigger prohibitions on certain interlocking memberships on corporate boards of directors are $32,914,000 for Section 8(a)(l ) and $3,291,400 for Section 8(a)(2)(A). Any reference to these thresholds and related thresholds and limitation values in the HSR rules (16 CFR parts 801–803) and the Antitrust Improvements Act Notification and Report Form (‘‘the HSR Form’’) and its Instructions will also be adjusted, as reported in the Federal Register as follows:
|Original Threshold||Adjusted Threshold (m)|
A filing fee, determined based on the size of the transaction, must be submitted along with filings under the HSR Act. While the level of filing fees is unchanged, the filing fee thresholds are revised as follows:
|$45,000||valued in excess of $80.8 million but less than $161.5 million|
|$125,000||valued at $161.5 million or greater but less than $807.5 million|
|$280,000||valued at $807.5 million or greater|
The evaluation of premerger notification requirements is complex, often involving state laws and those of foreign countries. The consequences of failing to report or reporting inaccurately are severe. If you have questions on your particular transaction, please contact HeplerBroom’s antitrust practice (email@example.com).