Mergers and Acquisitions Affected By Amended Thresholds Under Hart-Scott-Rodino Act Effective March 2, 2005
By Steven P. Lipowski
February 28, 2005
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 March 2, 2005. These filing thresholds are being amended as required by statute based upon increases in the United States gross national product. Additional adjustments to these filing thresholds based upon the United States gross national product will be made annually going forward.
Background: What Is HSR? HSR is a federal law which generally requires parties involved in merger and acquisition 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 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 as nearly all businesses are deemed to have some connections with businesses, customers, suppliers or others from more than one 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.
For those required to complete and file a Premerger Notification and Report Form, the process can be time-consuming and difficult. Reporting parties must provide regulators with extensive and detailed information and documentation related to the proposed transaction, the ownership structure and management of the parties involved as well as their respective affiliated companies, the analysis utilized by the parties in considering the proposed transaction, and the competitive characteristics of the filing parties relative to their industry. After filing a Premerger Notification and Report Form, the transaction may be consummated only if no challenge to the proposed transaction is filed by the Department of Justice or Federal Trade Commission within a statutorily defined period of time, generally 30 days from the date of the HSR filing. These agencies may request additional information from the parties as well, in which case the period of time for regulatory review of the transaction will be extended. Any party which fails to comply with applicable HSR requirements may be assessed serious penalties, including fines of up to $11,000 per day during the period of non-compliance.
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 $53.1 million (increased from $50 million under prior law).
The “size of person” test limits have also been increased. The “size of person” test will be deemed to have been met if least one of the parties involved has annual net sales or total assets of $106.2 million or greater (increased from $100 million under prior law), and the other party has annual net sales or total assets of at least $10.7 million or greater (increased from $10 million under prior law). However, if the size of the transaction is greater than $212.3 million (increased from $200 million under prior law), 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.
Filing fees remain unchanged but do apply to the revised filing thresholds, with a $45,000 filing fee for transactions of greater than $53.1 million; a $125,000 filing fee for transactions of greater than $106.2 million; and a $280,000 filing fee for transactions greater than $530.7 million. Generally, these filing fees are the responsibility of the acquiring party in a transaction, though the parties may negotiate a different arrangement.
Additionally, the amended rules address modifications to the notification thresholds found in the Premerger Notification and Report Form. Generally, if a shareholder increases its ownership in a company within 5 years of the filing of a Premerger Notification and Report Form, then the acquiring shareholder may still be required to file another Premerger Notification and Report Form if the subsequent acquisition crosses one of the notification thresholds. The revised notification thresholds are $53.1 million (increased from $50 million under prior law), $106.2 million (increased from $100 million under prior law), $530.7 million (increased from $500 million under prior law), 25% of voting securities if the value of the voting securities exceeds $1.061 billion (increased from $1 billion under prior law), and 50% of voting securities if the value of the voting securities exceeds $53.1 million (increased from $50 million under prior law).
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.
This document provides information of a general nature regarding legislative or other legal developments, and is based on the state of the law at the time of the original publication of this article. None of the information contained herein is intended as legal advice or opinion relative to specific matters, facts, situations, or issues, and additional facts and information or future developments may affect the subjects addressed. You should not act upon the information in this document without discussing your specific situation with legal counsel.
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