On January 17, 2014, the Federal Trade Commission announced the annual adjustment to the thresholds that trigger reporting obligations under the Hart-Scott-Rodino Act (HSR Act). Like eight of the past nine annual adjustments, this one is an increase. The new thresholds will take effect 30 days after formal notice published in the Federal Register, and until that time, the existing levels remain in effect.
The HSR Act requires parties to give advance notice to the Federal Trade Commission and Department of Justice of any acquisition of voting securities, assets, or non-corporate interests that exceed certain dollar-based size thresholds. The parties cannot close their transaction until a waiting period (typically thirty days) is completed. The waiting period allows the agencies to review the proposed transaction and determine whether it raises antitrust concerns that require further investigation; if there are, then the waiting period may be extended and the investigating agency may bring an enforcement action, and if there are not, the waiting period can be terminated early. The size thresholds that trigger the reporting obligation, and other dollar-based thresholds in the HSR Act, are adjusted (to reflect annual percentage increases in Gross National Product) each year.
Transactions below the reporting thresholds are not immune from challenge. The FTC and DOJ can—and do—investigate any transaction that raises antitrust concerns and will challenge any transaction that they conclude is anticompetitive. In fact, in January 2014, the Justice Department secured relief in two post-closing challenges to non-reportable transactions. In U.S. v. Heraeus Electro-Nite Co., LLC, the Justice Department obtained a settlement that (subject to final court approval) will unwind a closed transaction. In U.S. v. Bazaarvoice, Inc., the Justice Department won its case challenging another closed transaction (although the court has not yet determined the relief it will award).
Basic Size Tests
The most significant effect of the indexing is to increase the “size of transaction”1 and “size of persons”2 tests:
- Transactions resulting in holdings valued at or below $75.9 million are not reportable.
- Transactions resulting in holdings valued at $303.4 million or more are reportable without regard to the size of persons (unless an exemption applies).
- Transactions resulting in holdings valued between those two numbers are reportable if the “size of persons” test is met:
- A person with $151.7 million in total assets or annual net sales acquires (or acquires from) a manufacturing person with $15.2 million in total assets or annual net sales; or
- A person with $151.7 million in total assets or annual net sales acquires (or acquires from) a non-manufacturing person with $15.2 million in total assets; or
- A person with $15.2 million in total assets or annual net sales acquires (or acquires from) a person with $151.7 million in total assets or annual net sales.
In addition to these basic tests, the HSR Act provides five separate “notification thresholds,” with a new report required before completing an acquisition that would result in crossing the next threshold. With the indexing, the notification thresholds will now be:
- An aggregate total amount of voting securities of the acquired person valued at greater than $75.9 million but less than $151.7 million;
- An aggregate total amount of voting securities of the acquired person valued at $151.7 million or greater but less than $758.6 million;
- An aggregate total amount of voting securities of the acquired person valued at $758.6 million or greater;
- Twenty-five percent of the outstanding voting securities of an issuer if valued at greater than $1.5171 billion; or
- Fifty percent of the outstanding voting securities of an issuer if valued at greater than $75.9 million.
The increases also affect some of the exemptions from reporting requirements. For example, 16 C.F.R. 802.50 exempts the acquisition of assets located outside the United States “unless the foreign assets the acquiring person would hold as a result of the acquisition generated sales in or into the U.S. exceeding $50 million (as adjusted) during the acquired person's most recent fiscal year” (emphasis added). With the most recent adjustment, this exemption applies unless the assets generated sales in or into the U.S. of more than $75.9 million.
Filing fee amounts are unchanged, but the levels at which the next-higher fee kicks in are increased:
- Transactions resulting in holdings of less than $151.7 million: $45,000
- Transactions resulting in holdings of more than $151.7 million but less than $758.6 million: $125,000
- Transactions resulting in holdings of more than $758.6 million: $280,000
The FTC also updated the thresholds for the Clayton Act’s prohibition on interlocking directorates. The Act prohibits one person from serving as an officer or director of two competing companies when each company has capital, surplus and undivided profits of more than $29,945,000 (Section 8(a)(1)) and competitive sales of more than $2,994,500 (Section 8(a)(2)(A)).
1 This phrase is somewhat misleading. Under the aggregation rules, the test includes the value of the voting securities (and certain assets of the acquired person that the acquiring person will hold after the transaction is complete).
2 A “person” is the ultimate parent of the actual party to the transaction, together with all included entities.