Increase in HSR Thresholds. The jurisdictional thresholds for premerger notification filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act) will increase February 20, 2015 and will apply to any transaction closing on or after that date. The revised thresholds will remain in effect until the next annual adjustment, expected in the first quarter of 2016.
- “Size of Transaction” Threshold. Under the new thresholds, the minimum “size of transaction” threshold has increased from $75.9 million to $76.3 million. This test is generally met if, as a result of the acquisition, the buyer will hold voting securities or assets (or noncorporate interests if the buyer will also “control” the acquired entity) of the seller with a value above $76.3 million.
- “Size of Person” Threshold. For transactions valued between $76.3 million and $305.1 million, the “size of person” test determines whether premerger notification is required. With the new thresholds, a transaction will generally meet the “size of person” test if one person (either acquiring or acquired) has annual net sales or total assets equal to or exceeding $15.3 million, and the other person has annual net sales or total assets equal to or exceeding $152.5 million. However, if a person is not engaged in manufacturing, the acquired person must have total assets of more than $15.3 million. If the transaction is valued above $305.1 million, the “size of person” test does not need to be met for premerger notification to be required.
- Increase in Interlocking Directorates Thresholds. 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 $31,084,000 for Section 8(a)(1) and $3,108,400 for Section 8(a)(2)(A), and the revised thresholds are effective as of January 16, 2015.
- Filing Fees. The filing fees remain unchanged, but the FTC adjusted the fee structure to reflect the new thresholds. For transactions valued:
- Above $76.3 million and below $152.5 million, the fee will be $45,000.
- At or above $152.5 million and below $762.7 million, the fee will be $125,000.
- At or above $762.7 million, the fee will be $280,000.
Tips for Avoiding HSR Violations. Last year, significant fines were imposed on several parties for HSR violations, and many were not based on the typical “failure to file.” Below are a few tips to help avoid these violations:
- Cross the Threshold Within One Year. If a person makes an HSR filing, make sure the threshold indicated in the notification form is crossed before the first anniversary of the expiration of the waiting period. For example, if an investment fund that is acquiring open market shares indicates that it will cross the second threshold ($152.5 million when effective), the investment fund must hold stock with a value of more than $152.5 million at some point during the year.
- HSR Filings “Expire” in Five Years. Once a waiting period expires, a person may acquire or sell securities without filing again as long as (1) it does not cross a threshold above the one indicated in the filing and (2) the acquisition occurs within five years of the expiration of the waiting period.
- Be Cautious of Gun Jumping. Parties to an acquisition must take care that “beneficial ownership” does not pass to the buyer until the expiration of the waiting period. During this time, the buyer must not direct the day-to-day operating activities of the acquired entity. Additional restrictions may continue to apply until closing under the Sherman Act. During the pre-closing period, many issues related to gun jumping may arise. Because these restrictions may not be intuitive to business persons handling the transaction, it is important to maintain an open line of communication with antitrust counsel.
- Aggregation. In most cases, prior acquisitions must be aggregated with proposed acquisitions. As a result, the acquisition of one share may trigger a filing.
- Valuation. The HSR rules dictate how a transaction is valued for HSR purposes and may be inconsistent with the parties’ valuation.
- UPE Analysis. When analyzing whether a filing is required, the correct identification of the ultimate parent entities is critical to the analysis.
The rules governing whether an HSR filing is required are complex and the penalties for failing to comply are serious: parties can face fines of up to $16,000 per day. We would be pleased to assist with your analysis and any required filing.