Notification and clearance timetableFiling formalities
What are the deadlines for filing? Are there sanctions for not filing and are they applied in practice?
There is no specific deadline for filing under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the HSR Act). The parties can submit their filings at any time after the execution of a letter of intent (which can be non-binding) or a definitive agreement.
However, if a transaction is covered by the HSR Act, it cannot be consummated until all required filings have been made, and the applicable waiting periods have been observed. Additionally, even after filings are submitted, it is a violation of the HSR Act for an acquiring party to take steps that have the effect of transferring beneficial ownership of the target business to the acquirer prior to the expiry of the waiting period. Failure to comply with the HSR Act can result in a fine of up to US$46,517 per day (as adjusted), and the agencies may seek to unwind a transaction that has been consummated in violation of the HSR Act.
In general, the level of compliance with the HSR Act has been extremely high. In instances in which a required filing has not been made, or the waiting period has not been observed, the agencies have not hesitated to seek significant penalties. The agencies have brought at least 22 failure to file cases in the past 14 fiscal years and have obtained fines ranging from US$180,000 to US$11 million.
In 2016, the Department of Justice (DOJ) filed suit against ValueAct Capital for failure to make an HSR filing when purchasing over US$2.5 billion of Baker Hughes and Halliburton voting securities. In not making a filing, ValueAct relied on the investment-only exemption, but the DOJ argued that exemption was not applicable when ValueAct tried to influence the companies’ business decisions during the course of their proposed merger. In June 2016, ValueAct agreed to pay an US$11 million fine.
In 2019, Canon Inc and Toshiba Corporation were fined US$2.5 million each in connection with the acquisition by Canon of Toshiba Medical Systems Corporation (TMSC) from Toshiba. The complaint filed by the DOJ on behalf of the Federal Trade Commission (FTC) alleged that Canon and Toshiba devised a scheme that ‘had no purpose’ other than to quickly complete the sale of TMSC and avoid the HSR Act’s waiting period requirements.
Also in 2019, the DOJ filed suit against Third Point LLC and three funds it manages for failure to file under the HSR Act when the shares of Dow Inc held by the three Third Point funds converted to shares of the newly formed DowDuPont Inc following the merger of Dow Inc and EI du Pont de Nemours & Company. The three Third Point funds were required to collectively pay US$609,810 in civil penalties, and they and Third Point LLC are barred from committing future violations of the HSR Act in connection with corporate consolidations. The three Third Point funds and Third Point LLC were at the time already under federal court order stemming from allegations that they violated the HSR Act in connection with their 2015 acquisitions of voting securities of Yahoo! Inc.
In 2022, investment fund operator Biglari Holdings Inc agreed to a $1.4 million civil penalty to settle claims that acquiring additional shares of Cracker Barrel Old Country Store Inc violated the HSR Act. According to the complaint, the FTC’s Premerger Notification Office contacted the firm and asked why no filing had been made with respect to certain March 2020 share acquisitions. The purchases, together with the firm’s prior holdings in the company, met the size-of-transaction and size-of-person tests in transactions that were not covered by the five-year period allowable under the firm's earlier filing. Biglari was a repeat offender, having previously been required to pay US$850,000 for HSR violations related to purchases of Cracker Barrel in 2012.
Individual investors are also at risk when not complying with the HSR Act. In December 2021, Werner Enterprises Inc founder Clarence L Werner agreed to a US$486,900 civil penalty to settle claims that he violated the HSR Act multiple times between 2007 and 2019 by acquiring Werner Enterprises stock by exercising his stock options and engaging in a series of open market purchases without filing for HSR clearance. Each acquisition, together with his prior holdings of Werner Inc, caused him to cross the US$100-million HSR filing threshold, as adjusted. Notably, the agency alleged that several of the purchases were made after Mr Werner became aware that prior purchases violated the Act.
In the same month, Richard Fairbank, CEO of Capital One Financial Corporation, agreed pay a US$637,950 civil penalty to settle FTC charges that his 2018 acquisition of Capital One Financial stock violated the HSR Act. The complaint alleged that Fairbank failed to file for HSR clearance before acquiring Capital One Financial voting securities in excess of the US$100-million filing threshold, as adjusted.
In December 2018, the FTC fined James Dolan, the executive chair and a director of Madison Square Garden Company (MSG) US$609,810 for failing to report his receipt in September 2017 of MSG restricted stock units in connection with his compensation. Dolan had filed HSR in August 2016 for the US$50-million HSR threshold (as adjusted) and was thus permitted under the HSR Act to acquire additional MSG voting securities valued up to the US$100-million threshold (as adjusted). The MSG shares received by Dolan in September 2017 resulted in Dolan holding MSG shares valued in excess of the US$100-million threshold. This was Dolan’s second HSR violation.
Which parties are responsible for filing and are filing fees required?
If a transaction is subject to the filing requirements of the HSR Act, buy-side and sell-side parties to the transaction must make separate filings with the antitrust agencies. All acquiring persons that are required to file must pay a filing fee that is calculated in accordance with the total value of the securities or assets to be held as a result of the transaction. The parties may agree to split the fee or have the acquired person pay the fee.
Transactions valued at less than US$202 million are subject to a filing fee of US$45,000. Transactions valued at US$202 million or more but less than US$1.0098 billion are subject to a filing fee of US$125,000. Transactions valued at US$1.0098 billion or more are subject to a filing fee of US$280,000.
This fee must be submitted at the time the notification form is filed; otherwise, the waiting period will not begin.
What are the waiting periods and does implementation of the transaction have to be suspended prior to clearance?
If a transaction is subject to the HSR Act, and a filing is thus required, the acquisition must be delayed for a 30-day period (or, in the case of a cash tender offer or a transfer in bankruptcy covered by 11 USC section 363(b), a 15-day period) while the agencies review it. If the agencies take no action, the transaction may be consummated when the waiting period has expired. The agencies do not issue a formal decision clearing a transaction.
To the extent that a merger is subject to the HSR Act, the initial waiting period generally begins as soon as both parties to the transaction have made the requisite filing with the antitrust agencies. In cases involving tender offers and other acquisitions of voting securities from third parties, the waiting period begins as soon as the acquiring person has made the requisite filing, although the acquired party must file within a prescribed time.
If any deadline for government action falls on a weekend or a legal public holiday, the deadline is automatically extended to 11:59pm Eastern Time the next business day.
Early termination of the waiting period
The parties may request that the antitrust agencies terminate the waiting period before it has run its full course, and the agencies may, at their discretion, grant such requests.
When early termination is granted, the agencies must publish notice of their action in the Federal Register. This notification only identifies the acquiring person, the acquired person and the acquired entity. None of the confidential business information filed by the parties is disclosed.
On 4 February 2021, the FTC announced that the agencies would temporarily suspend grants of early termination of the waiting period. As of May 2022, the suspension is still in place.
Extension of the waiting period
The agency responsible for reviewing a particular transaction may, before the end of the initial 30-day waiting period, issue what is generally referred to as a ‘second request’, seeking additional information from the parties to a transaction. The issuance of a second request extends the waiting period to the 30th day (or, in the case of a cash tender offer or a transfer in bankruptcy covered by 11 USC section 363(b), the 10th day) after the date of substantial compliance with the request for additional information. In some cases, the parties may also withdraw and ‘refile’ under the HSR Act, which starts a new initial 30-day (or 15-day) waiting period. This voluntary process gives the agency additional time to review the deal and may avoid the need for a second request.Pre-clearance closing
What are the possible sanctions involved in closing or integrating the activities of the merging businesses before clearance and are they applied in practice?
A transaction subject to the HSR Act may not close prior to the expiry or early termination of the applicable waiting period. Failure to comply can result in a fine of up to US$46,517 per day (as adjusted), and the agencies may seek to unwind a transaction that has been consummated in violation of the Act. The agencies have imposed fines for failure to file and observe the waiting period.
In 2019, Canon Inc and Toshiba Corporation paid a combined US$5 million to settle claims that they had devised a complex scheme to avoid observing the waiting period required by the HSR Act for Canon’s acquisition of Toshiba’s subsidiary, TMSC. The DOJ’s complaint alleged that Toshiba sold its subsidiary prior to notifying the antitrust agencies because it was facing financial difficulties and needed to recognise the proceeds of the sale of its subsidiary by the end of its 2015 fiscal year.
In October 2015, Len Blavatnik, an investor, agreed to pay civil penalties of US$656,000, settling a complaint brought by the FTC for his failure to make an HSR filing relating to his August 2014 acquisition of TangoMe shares worth approximately US$228 million. Blavatnik had previously violated the HSR Act in 2010 and did not consult HSR counsel prior to acquiring TangoMe’s shares.
Merging parties may also be fined for gun jumping (ie, taking steps that have the effect of transferring beneficial ownership of the target business prior to the expiry or early termination of the applicable waiting periods). In November 2014, a federal court ordered Flakeboard America Limited and SierraPine, both makers of MDF particle boards, to pay the DOJ fines of almost US$5 million for pre-closing actions that allegedly violated HSR gun-jumping and Sherman Act laws under a settlement agreement.
Additionally, the Antitrust Division, in January 2010, fined Smithfield Foods and Premium Standard Farms for an alleged gun-jumping violation in which Smithfield entered into a merger agreement with Premium Standard and reserved for itself the right to review certain contracts of Premium Standard. The Antitrust Division claimed that the parties violated the HSR Act when Premium Standard submitted three large, multi-year contracts to Smithfield for approval, alleging that this action was sufficient to show that the acquirer had taken ‘operational control’ of the target prior to the expiry of the HSR Act waiting period. The parties agreed to pay a US$900,000 fine.
Are sanctions applied in cases involving closing before clearance in foreign-to-foreign mergers?
Unless an exemption applies, sanctions are applied in cases involving closing before clearance in foreign-to-foreign mergers in the same manner as the sanctions are applied to domestic transactions. For example, in 1997, Mahle GmbH, a German piston manufacturer, and Metal Leve SA, a Brazilian competitor, were each fined US$2.8 million for failure to file and observe the HSR waiting period prior to closing an acquisition by Mahle of 50.1 per cent of Metal Leve. Both companies manufactured diesel engine parts through US subsidiaries.
In 2019, two companies headquartered in Japan, Canon Inc and Toshiba Corporation, were fined US$2.5 million each in connection with the acquisition by Canon of a Toshiba subsidiary, TMSC, a company with operations in the United States. The complaint filed by the DOJ on behalf of the FTC alleged that Canon and Toshiba devised a scheme that ‘had no purpose’ other than to quickly complete the sale of TMSC and avoid the HSR Act’s waiting period requirements.
What solutions might be acceptable to permit closing before clearance in a foreign-to-foreign merger?
There are no special remedy rules or practices applicable to foreign-to-foreign mergers. If the transaction gives rise to competitive issues in the United States, those issues must be resolved before the transaction can proceed.Public takeovers
Are there any special merger control rules applicable to public takeover bids?
The Rules (which were promulgated by the FTC and govern pre-merger notification under the HSR Act) contain provisions that are applicable only to tender offers. If the transaction in question is a cash tender offer (or a transfer in bankruptcy covered by 11 USC section 363(b)), the statutory initial waiting period is 15 days (instead of the usual 30 days). If a second request is issued in the transaction, the waiting period is extended for 10 days (instead of the usual 30 days) after the date on which the acquiring person substantially complies with the request.
For any tender offer, failure to substantially comply with a second request by the acquired person does not extend the waiting period. Further, in cases involving tender offers or other acquisitions of voting securities from third parties, the waiting period begins when the acquiring person files. All other aspects of the HSR Act are equally applicable to public and non-public transactions.Documentation
What is the level of detail required in the preparation of a filing, and are there sanctions for supplying wrong or missing information?
The Notification and Report Form (the Form) that must be submitted to comply with the HSR Act requires the filing party to provide basic information about its US revenues, corporate organisation and certain minority shareholdings of entities engaged in an industry similar to the target’s operations on a worldwide basis, and the structure of the transaction (including the executed purchase agreement or letter of intent), as well as a variety of business documents.
In particular, the parties must submit all studies, surveys, analyses and reports prepared by or for any officers or directors (of any entity within the filing party) for the purpose of evaluating or analysing the acquisition with respect to market shares, competition, competitors, markets, potential for sales growth or expansion into product or geographical markets. Documents routinely found to be responsive, and filed by parties, include board and management presentations, confidential information memoranda, synergy and efficiency analyses. Documents need not be formal presentations, and emails may need to be filed if they meet the criteria set forth above.
The antitrust agencies consider these documents highly relevant to their initial evaluation of the antitrust implications of a transaction. The agencies also require the submission of certain documents analysing synergies or efficiencies to be achieved in the transaction. Private equity and other investment funds making acquisitions must also include certain activities of ‘associates’ and portfolio investments that are not ‘controlled’ by the acquirer but are engaged in an industry similar to the target’s operations.
Unlike, for example, the European Union’s Form CO, completion of the Form does not require any discussion or description of the relevant markets or the competitive conditions in those markets. Preparation of the Form can take a few days to a number of weeks, depending principally on whether the company has submitted a filing in the recent past and on how the company organises its data.
An officer or director must certify under penalty of perjury that the information in the HSR form is true, correct and complete.Investigation phases and timetable
What are the typical steps and different phases of the investigation?
Once the parties to a transaction file their Forms, the FTC will initially review the Forms to ensure that they are complete and comport with the transmittal rules. The two antitrust agencies then decide between themselves which one of them will review the transaction beyond the filings themselves and publicly available information. If either the FTC or the Antitrust Division wants to conduct further review of the transaction, it notifies the other agency and obtains clearance. If both agencies want to investigate the merger, the matter is assigned through an internal liaison process. Often, one of the agencies will have greater expertise than the other with respect to a particular industry or company.
Once a transaction has been assigned to a particular agency, a staff attorney will normally contact the parties’ lawyers to ask for additional information. Responding to the request is not mandatory during the initial waiting period, but a failure to respond may leave the agency with important issues unresolved that may result in the issuance of a formal second request. The FTC and the DOJ have published guidelines listing the types of information and documents that may be useful to provide during the initial waiting period (available on the FTC’s website and on the DOJ’s website).
Often, the information provided to the agency during the initial waiting period will be sufficient to allow the agency to terminate its investigation. It is not uncommon for the parties to submit some form of letter or ‘position paper’ to the agency during the initial waiting period, addressing the questions of the agency and explaining in detail why the transaction will not substantially lessen competition or create a monopoly. It is also very common for the agency to contact the parties’ customers and competitors to obtain additional information regarding the industry, and to interview executives from the merging firms.
For mergers that continue to raise significant antitrust issues at the end of the initial waiting period, the procedure available to the agencies is to issue a ‘request for additional information and documentary material’ or, as it is more commonly referred to, a ‘second request’. In some cases, the parties may also withdraw and ‘refile’ under the HSR Act, which starts a new initial 30-day (or 15-day) waiting period. This voluntary process gives the agency additional time to review the deal and may avoid the need for a second request.
A second request is a detailed set of interrogatories and document demands designed to provide the agency responsible for reviewing the transaction with information on issues such as market structure, entry conditions, competition, marketing strategies and the rationale of the acquisition under review. In September 2021, the FTC announced that its second requests also include requests related to a transaction’s effect on labour markets, the cross-market effects of a transaction and how the involvement of investment firms could be detrimental to a post-transaction firm’s incentives to compete.
Compliance with a second request may be a burdensome and time-consuming task, requiring the parties to a transaction to produce substantial volumes of documents and to answer detailed questions. The burden may be particularly great in cases involving parties located outside the United States because the Rules require all documents submitted in response to a second request to be translated into English.
The agencies have implemented a number of reforms to the second request process that are designed to reduce the burdens associated with compliance by, among other things, limiting the scope of initial document requests and the number of company personnel whose files must initially be searched. Parties often negotiate with the reviewing agency to attempt to further limit the scope of material requested; however, the FTC announced in September 2021 that its staff will only consider requests for modifications after the companies under investigation have:
- identified and described the business responsibilities of the employees and agents responsible for relevant lines of business;
- identified the employees responsible for negotiating, analysing or recommending the transaction; and
- provided information about how they maintain responsive data.
Either during the period of compliance or following the submission of the complete response, it is not uncommon for the agency reviewing the transaction to take the sworn testimony of senior executives of the parties to the transaction. These oral examinations, or depositions, can cover a wide range of issues and are usually designed to explore the rationale for the transaction, entry issues, competitive conditions and other strategic issues. The depositions can be useful vehicles for the parties to put forward their views on the likely competitive impact of the transaction.
Following the parties’ compliance with the second request (which can take a number of months), the agency responsible for reviewing the particular transaction must decide whether to let the transaction proceed, seek a court order enjoining the transaction or take other enforcement action for alleged violation of the antitrust laws. Alternatively, the parties and the responsible agency may enter into a ‘consent agreement’, which is a form of settlement that is designed to address the anticompetitive effect that the agency believes may result if the transaction proceeds as planned.
If the agency in question takes no action, the parties are free to consummate the transaction at the end of the second 30-day waiting period.
What is the statutory timetable for clearance? Can it be speeded up?
If a transaction is subject to the HSR Act, the closing of the transaction must be delayed for an initial 30-day waiting period (or, in the case of a cash tender offer or a transfer in bankruptcy covered by 11 USC section 363(b), a 15-day period) following the filing of the Form. The parties may request that the antitrust agencies terminate the waiting period before it has run its full course, and the agencies are statutorily permitted to, at their discretion, grant such requests.
On 4 February 2021, the FTC announced that the agencies would temporarily suspend grants of early termination of the waiting period. As of May 2022, the suspension is still in place.
If the agency decides to issue a request for additional information and documentary material (second request), the applicable waiting period will be extended until the 30th day (or the 10th day in the case of a cash tender offer or a transfer in bankruptcy covered by 11 USC section 363(b)) following substantial compliance with the second request.
Although they have not taken a public position on expediting requests for early termination as a result of economic circumstances, the antitrust agencies have been sensitive to the need to complete investigations of mergers involving distressed firms promptly. Before the February 2021 suspension of early termination grants, the agencies generally granted requests for early termination swiftly for transactions that clearly raise no competitive concerns.