On January 26, the Federal Trade Commission formally published the annual adjustment of the thresholds that trigger premerger reporting obligations (and the mandatory waiting period) under the Hart-Scott Rodino (HSR) Act. The new thresholds become effective February 25, 2016, and will remain in effect until next year’s adjustment.
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, subject to early termination if the transaction does not present any antitrust issues) is completed. The waiting period allows the agencies to review the proposed transaction and determine whether it raises antitrust issues that require further investigation. Either agency can investigate (although only one agency will do so), and if the investigation is not completed during the initial waiting period, then the waiting period may be extended. Ultimately, the investigating agency must decide whether to challenge the transaction (or, potentially, reach a compromise with the parties that addresses the agency’s antitrust concerns but permits the transaction to go forward).
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 transactions that raise antitrust concerns and will challenge any transaction that they conclude is anticompetitive, even if the transaction has already closed.1
Basic Size Tests
The most significant effect of the annual indexing is to increase the “size of transaction”2 and “size of persons”3 tests:
- Transactions resulting in holdings valued at or below $78.2 million in voting securities and/or assets of the seller will not be reportable (subject to the rules on aggregation).
- Transactions resulting in holdings valued at more than $312.6 million are reportable (unless exempted) regardless of the size of persons.
- Transactions resulting in holdings valued at more than $78.2 million but less than $312.6 million are reportable (unless exempted) if the “size of persons” test is satisfied.
- A person with $156.3 million in total assets or annual net sales acquires (or acquires from) a manufacturing person with $15.6 million in total assets or annual net sales; or
- A person with $156.3 million in total assets or annual net sales acquires (or acquires from) a non-manufacturing person with $15.6 million in total assets; or
- A person with $15.6 million in total assets or annual net sales acquires (or acquires from) a person with $156.3 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 be:
- An aggregate total amount of voting securities of the acquired person valued at greater than $78.2 million but less than $156.3 million;
- An aggregate total amount of voting securities of the acquired person valued at $156.3 million or greater but less than $781.5 million;
- An aggregate total amount of voting securities of the acquired person valued at $781.5 million or greater;
- Twenty-five percent of the outstanding voting securities of an issuer if valued at greater than $1.563 billion; or
- Fifty percent of the outstanding voting securities of an issuer if valued at greater than $78.2 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 $78.2 million.
The HSR filing fees have not increased, but the levels that trigger larger filing fees have increased.
- The basic filing fee remains $45,000 and is payable on transactions valued at more than $78.2 million but less than $156.3 million.
- For transactions valued at more than $156.3 million but less than $781.5 million, the filing fee is $125,000.
- For transactions valued at more than $781.5 million, the filing fee is $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 $31,841,000 for Section 8(a)(1) and competitive sales of more than $3,184,100 for Section 8(a)(2)(A).
1. For example, the Justice Department challenged Bazaarvoice’s acquisition of a competing firm shortly after the transaction closed, even though the parties had not been required to report the transaction. DOJ prevailed at trial, and Bazaarvoice had to divest—at a significant loss—the assets it had acquired. United States v. Bazaarvoice, Inc., Case No. 13-cv-00133, 2014 U.S. Dist. LEXIS 180347 (N.D. Cal. Dec. 2, 2014); see also James K. Nichols, United States v. Bazaarvoice, Inc.: What In-House Counsel Need to Know, THE ANTITRUST COUNSELOR, June 2014, at 4.
2. The test includes the value of all of the voting securities (and certain assets of the acquired person) of the acquired person that the acquiring person will hold after the transaction is complete, including voting securities of the acquired person that the acquiring person already owns.
3. “Person” means the ultimate parent of the legal party to a transaction (including all entities controlled by the ultimate parent).