On January 23, 2023, the US Federal Trade Commission (FTC) announced its annual updates to the Hart-Scott-Rodino (HSR) Act reportability thresholds and Clayton Act Section 8 enforcement thresholds as well as the new structure for the HSR Act filing fees. Both the updated HSR reportability thresholds and the new filing fees go into effect 30 days from publication in the Federal Register; the Section 8 enforcement thresholds are effective from January 20, 2023.
I. Updated HSR Reportability Thresholds
If a transaction crosses the HSR Act’s reportability thresholds, parties to the transaction must report it to the FTC and the US Department of Justice (DOJ) prior to consummation.
Pursuant to the updated thresholds, a transaction will be reportable if:
a) The transaction value is greater than $445.5 million (previously $403.9 million); OR
b) (i) The transaction value is greater than $111.4 million (previously $101 million); AND (ii) one party has net sales or total assets of $22.3 million or more (previously $20.2 million); AND (iii) a second party has net sales or total assets of $222.7 million or more (previously $202 million).
HSR Act reportability thresholds are adjusted annually to reflect changes in the US gross national product (GNP). This year’s threshold adjustments represent an increase of 9.06% over last year’s thresholds.
II. New HSR Filing Fee Structure
As previously reported, on December 29, 2023, President Biden signed into law the Merger Filing Fee Modernization Act, which, for the first time in over twenty years updates the structure and amount of filing fees due when submitting an HSR Filing.
Specifically, the structure of fees is expanded from three tiers to six tiers and amount of the fee has broadened from a range of $45,000-$280,000 to $30,000-$2,250,000, as detailed below:
Unlike the prior three-tier structure, the amounts of the six-tiered filing fees will be revised annually based on changes to the Consumer Price Index (CPI), rather than changes to GNP as for the reportability thresholds.
A stated goal of the expanded fee structure is to provide both the FTC and DOJ with more resources to investigate potentially anticompetitive transactions; the Congressional Budget Office has estimated that the increased filing fees could raise an additional $1.4 billion between 2023-2027.
III. Updated Threshold for Interlocking Directorate Enforcement
Section 8 of the Clayton Act prohibits interlocking directorates between companies that cross certain thresholds. Similar to the HSR reportability thresholds, the Section 8 enforcement thresholds are adjusted annually based on changes to GNP.
For this year, one person is prohibited from serving as a director or officer of two competing corporations if:
a) Each competitor corporation has capital, surplus, and undivided profits aggregating more than $45,257,000 (previously $41,034,000); AND
b) Both competitor corporations have competitive sales of more than $4,525,700 (previously $4,103,400).
Recently the DOJ has revived Section 8 enforcement particularly in cases involving private equity ownership, announcing in October 2022 that the directors of five companies had resigned in response to threatened Section 8 enforcement actions. Since then, further companies have announced director resignations in the face of DOJ pressure. This increase in Section 8 enforcement likely will continue for the foreseeable future as the current leadership of the US Antitrust Agencies remain focused on private equity and financial sponsors as targets of their enforcement agenda.