On January 17, 2014, the Federal Trade Commission (FTC) announced increased jurisdictional thresholds for premerger notification filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act). The FTC adjusts the thresholds annually to reflect changes in the gross national product. The revised thresholds will apply to any transaction closing on or after the effective date, which is 30 days after formal notice is published in the Federal Register. We expect publication in the Federal Register to occur shortly. The revised thresholds will remain in effect until the next annual adjustment, expected in the first quarter of 2015.
The HSR Act may apply to any transaction involving the acquisition of voting securities, assets, or non-corporate interests if the relevant thresholds are met and no exemption is available. Examples of transactions that may be subject to the HSR Act include, without limitation, mergers, divestitures, asset sales, including asset sales while in bankruptcy, the formation of joint ventures, the grant of an exclusive license, and acquisitions of voting securities, including open market purchases and option exercises.
If the HSR Act applies to a transaction, prior to the closing or transfer of beneficial ownership, the parties must file a notification form with the FTC and the Department of Justice and observe a waiting period, which is 30 calendar days subject to (1) early termination if requested and granted or (2) extension if a second request is issued.
The thresholds include a “size of transaction” threshold and a “size of person” threshold. In addition, an acquisition of non-corporate interests (e.g., partnership or LLC interests) is not subject to the HSR Act unless the acquiring person will “control” the entity as a result of the acquisition.
“Size of Transaction” Threshold
Under the new thresholds, the minimum “size of transaction” threshold has increased from $70.9 million to $75.9 million. The HSR Act often requires aggregation of transactions involving the same acquiring and acquired person when determining whether the “size of transaction” threshold has been met.
“Size of Person” Threshold
For transactions between $75.9 million and $303.4 million, the “size of person” test determines whether premerger notification is required. With the new thresholds, a transaction will meet the “size of person” test (and necessitate an HSR Act filing) if one person (either acquiring or acquired) has annual net sales or total assets equal to or exceeding $15.2 million, and the other person has annual net sales or total assets equal to or exceeding $151.7 million. For purposes of the “size of person” test, annual net sales and total assets are based on the person’s most recent regularly prepared financial statements.
If the transaction is valued above $303.4 million, then the “size of person” test need not be met.
Interlocking Directorates Threshold
The FTC also revised the thresholds that trigger the Clayton Act’s prohibition on interlocking directorates (service as a director or officer of two competing corporations). The new thresholds are $29,945,000 for Section 8(a)(1) and $2,994,500 for Section 8(a)(2)(A).
The filing fees remain unchanged, but the FTC adjusted the fee structure to reflect the new thresholds. For transactions valued:
- Above $75.9 million and below $151.7 million, the fee will be $45,000.
- At or above $151.7 million and below $758.6 million, the fee will be $125,000.
- At or above $758.6 million, the fee will be $280,000.
Before closing a transaction in which the acquiring person will hold voting securities, assets, or non-corporate interest with values near the reporting threshold, it is important to determine whether a premerger notification filing is required. The rules governing computation of thresholds, transaction valuation, aggregation of transactions and exemption applicability are complex and the penalties for failing to comply are serious: parties can face fines of up to $16,000 per day.