On January 10, 2013, the Federal Trade Commission (FTC) announced the 2013 revised jurisdictional thresholds under the HSR Act, which will become effective in February 2013.
The FTC revises the thresholds annually based on changes in the gross national product from the previous year. The 2013 thresholds increased from those in 2012 due to continued growth in the U.S. economy.
New 2013 Jurisdictional Thresholds
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New 2013 Filing Fee Thresholds
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Reminder for Companies - Narrow Interpretation of Passive Investment Exemption
The HSR Act contains an exemption for acquisitions of up to 10 percent of voting securities of an issuer if the acquisition is made solely for the purpose of investment. Such transactions are exempt from premerger filings if the company acquiring the voting securities does not intend to participate in the basic business decisions of the issuer. The exemption does not apply if the company acquiring the voting securities intends to participate in the management of the issuer. Companies are well advised to consult with counsel when relying on the passive investment exemption.
The FTC recently alleged that the incremental acquisitions of shares of Cracker Barrel Old Country Store, Inc. (Cracker Barrel) stock by Biglari Holdings, Inc. (Biglari) resulted in Biglari's aggregate holdings of Cracker Barrel exceeding the minimum dollar value reporting threshold (then $66 million) under the HSR Act. The complaint states that Biglari improperly failed to report the transaction to U.S. antitrust authorities. Biglari claimed the purchases were a "passive" investment. The complaint alleges that Biglari could not rely on the passive investment exemption, as it intended to actively participate in the management of Cracker Barrel, including seeking a seat on the company's board of directors and requesting in-person meetings with Cracker Barrel's management.
The FTC noted that the passive investment exemption is a narrow one, and it will not hesitate to seek civil penalties against companies that try to abuse it. The U.S. antitrust agencies may determine that a party has the intent to actively participate in the management of an issuer, even if the company making the acquisition does not take any such actions until after the acquisition is complete.
Biglari agreed to pay $850,000 to resolve FTC allegations that it violated the premerger reporting laws. If the HSR Act applies to an acquisition of voting securities, both the notification and waiting period requirements must be satisfied prior to the acquisition of beneficial ownership of the shares. Failure to comply may result in civil penalties of up to $16,000 for each day the company is in violation.