Mergers and Acquisitions Affected by Amended Thresholds and Increased Penalties Under Hart-Scott-Rodino Act as of February 12, 2009

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March 18, 2009

A recent rulemaking announced by the Federal Trade Commission has amended the various filing thresholds for parties engaged in merger and acquisition activity subject to the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (“HSR”), effective as of February 12, 2009. Also, monetary penalties for failure to comply with HSR have increased to $16,000 per day.
Background: What Is HSR?
HSR is a federal law which generally requires parties involved in mergers, acquisitions, and similar transactions which meet certain minimum size requirements to submit a Premerger Notification and Report Form to both the United States Department of Justice Antitrust Division and the Federal Trade Commission for antitrust review.
Three tests are applied to determine if a transaction is subject to HSR’s requirements: (1) an “in commerce” test; (2) a “size of person” test; and (3) a “size of transaction” test. The “in commerce” test looks to whether the parties involved in the proposed transaction conduct business in interstate commerce. This test is generally met in most cases as nearly all businesses are deemed to have some connections with businesses, customers, suppliers or others from a state other than their own home state. The “size of person” test looks to the annual net sales or total assets of the parties involved in the transaction. Finally, the “size of transaction” test looks to the value of the assets or voting securities held as a result of the given transaction. Generally speaking, if a party meets all three tests and no exemption applies, then the party must submit a Premerger Notification and Report Form to the Department of Justice and Federal Trade Commission for antitrust review before consummating the proposed transaction.
Changes to HSR: New Filing Thresholds and Notification Thresholds
The new filing thresholds will increase the “size of transaction” test limits affecting reporting parties. Under the new rules, the “size of transaction” test will be deemed to have been met if, as a result of the transaction, the acquiring party will hold voting securities or assets valued in excess of $65.2 million.
The “size of person” test limits have also been increased. The “size of person” test will be deemed to have been met if at least one of the parties involved has annual net sales or total assets of $106.2 million or greater, and the other party has annual net sales or total assets of at least $13.0 million or greater. However, if the size of the transaction is greater than $260.7 million, then the size of the parties is not relevant and is eliminated from the determination of whether or not a party must file a Premerger Notification and Report Form.
Annually, these thresholds are adjusted based upon inflationary indexes.
Filing fees remain unchanged but do apply to the revised filing thresholds, with a $45,000 filing fee for transactions of greater than $65.2 million; a $125,000 filing fee for transactions of greater than $130.3 million; and a $280,000 filing fee for transactions greater than $651.7 million. Generally, these filing fees are the responsibility of the acquiring party in a transaction, though the parties may negotiate a different arrangement.
Changes to HSR: Increased Penalties for Noncompliance
The penalties associated with a failure to comply with HSR have increased from $11,000 per day up to $16,000 per day. Other penalties and remedies are available as well, including disgorgement of all profits gained as a result of a violation and even criminal sanctions in some instances. Clearly, failures to adequately assess and comply with the requirements of HSR can lead to significant consequences.
Dealing With HSR: How Ruder Ware Can Be of Assistance
While compliance with HSR’s regulatory requirements can be difficult, Ruder Ware can help you navigate this process. From determining whether or not a particular transaction is subject to HSR’s requirements, to providing assistance in the completion of the Premerger Notification and Report Form in a timely and efficient manner, Ruder Ware offers the expertise necessary to address these important regulatory requirements.
If you have questions regarding the above, please contact Steve Lipowski, the author of this article, or any of the attorneys in the Business Transactions Practice Group of Ruder Ware.

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