The Federal Trade Commission (FTC) has announced the annual revisions to the monetary thresholds that determine whether companies are required to notify federal antitrust authorities about a transaction under Section 7A of the Clayton Act (the Hart-Scott-Rodino Antitrust Improvements Act [HSR]) and the monetary thresholds that trigger prohibitions on certain interlocking directorates under Section 8 of the Clayton Act. The values are adjusted annually based on changes in the GNP. The FTC announced the revisions on January 21, 2016, and they will be published shortly in the Federal Register. The new thresholds become effective 30 days after publication in the Federal Register, most likely in late February 2016.
The FTC’s announcement impacts the notification thresholds for filings under the HSR Act, as well as certain other values under the HSR rules. The HSR Act requires that acquisitions of voting securities or assets that exceed certain thresholds be disclosed to U.S. antitrust authorities for review before they can be consummated. The “size-of-transaction threshold” requires that the transaction exceeds a certain value. Under certain circumstances, the parties involved also have to exceed “size-of-person thresholds.”
The most important change is that the minimum size-of-transaction threshold will increase from the current $76.3 million to $78.2 million. The size-of-person thresholds will also increase as follows:
- For transactions valued between $78.2 million and $312.6 million, one party to the transaction must have $15.6 million in sales or assets and the other party must have $156.3 million in sales or assets, as reported on the last regularly prepared balance sheet or income statement.
- For transactions valued at greater than $312.6 million, no size-of-person threshold must be met to require an HSR filing.
The filing fees have not changed, but the monetary thresholds that dictate the required filing fee have similarly increased as follows:
Click here to view table.
Underscoring the importance of compliance with the HSR Act, this past September Leucadia National Corporation agreed to pay $240,000 in civil penalties to resolve FTC allegations that it violated HSR reporting requirements by failing to report a conversion of its ownership interest in Knight Capital Group. In July 2013, Knight Capital consolidated with another financial services company, GETCO Holding Company, to become KCG Holdings, Inc. That transaction converted Leucadia’s ownership interest in Knight Capital into nearly 16.5 million voting shares of the new entity, KCG Holdings, worth approximately $173 million. Leucadia did not report the transaction, according to the complaint, in reliance on the “for investment purposes only” exemption often applicable to institutional investors. Upon realizing the error, Leucadia made a corrective filing in September 2014 in which it acknowledged the error. Despite Leucadia’s reliance on the advice of experienced HSR counsel in relying on the exemption and not making a filing, the FTC sought civil penalties, in part because Leucadia had previously violated the HSR Act in 2007, which led to a corrective filing in 2008. Violations of the HSR Act are subject to a $16,000-per-day civil penalty.
Section 8 of the Clayton Act generally prohibits one person from serving as a director or officer of two competing corporations if two thresholds are met. One threshold relates to the companies’ profitability and one relates to the amount of competitive sales between the companies. The statute requires the FTC to revise these thresholds annually, also based on changes to the GNP. Effective immediately, only companies with capital, surplus, and undivided profits aggregating more than $31,841,000 are covered by Section 8(a)(1), and a violation can be found only if the competitive sales of each company are $3,184,1000 or greater under Section 8(a)(2)(A).