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 increase last year’s thresholds by approximately 4%. The revised thresholds are effective for all transactions closing on or after February 28, 2018. The revised thresholds will remain in effect until the FTC’s next annual adjustment, which should be released during the first quarter of 2019.
The HSR Act requires parties to mergers, acquisitions, joint ventures, and certain other transactions of a certain size or scale to file premerger notification with the FTC and the Department of Justice Antitrust Division (Antitrust Division). The transaction review process requires the parties to observe a 30-day statutory waiting period before consummating their transaction, unless early termination of the waiting period is granted. The FTC Premerger Office or the Antitrust Division will usually assume primary responsibility for reviewing the transaction, often based on the agency’s business sector experience. If necessary, parties also must cooperate with the enforcement agency’s investigation of their proposed transaction’s competitive effects.
In FY 2016 well over 1,800 notifications were made; a 1.7% increase over the prior year. A small percentage of transactions for which HSR filings are submitted involve so-called “second requests” for additional information or a formal merger challenge. In FY 2016 the FTC brought 22 merger challenges, 16 of which were resolved by consent orders, 1 transaction abandoned and 5 administrative or federal court challenges. During the same period, the Antitrust Division challenged 25 merger transactions, 15 of which involved federal litigation and consent decrees, 4 abandoned transactions and 6 restructured deals.
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.
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.
Caution: Merger review and enforcement is a complex and specialized 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 antitrust counsel.