Pursuant to the Hart-Scott-Rodino Act (“HSR”), transactions involving certain dollar amounts and/ or party size are prohibited from being consummated during the relevant waiting period(s). This provides the federal government (specifically, the Department of Justice and the Federal Trade Commission) with the opportunity to review the antitrust implications of the proposed transaction prior to its consummation. Parties to the proposed transaction must complete an initial HSR form. If the government issues a so called “Second Request,” the parties are required to provide significant documentation and testimony.
All information and materials provided in connection with a HSR filing are treated as confidential and will not be disclosed by the government to third parties. The materials are even exempt from Freedom of Information Act (the “FOIA”) requests. However, there is a notable, and often overlooked, exception to this policy of confidentiality. If a party requests and is granted early termination of the waiting period, the government is required to publicly disclose certain information about the proposed transaction.
What Triggers the Hart-Scott-Rodino Act?
To determine whether the HSR notification requirement is triggered, the size of the proposed transaction and the size of each party to the proposed transaction must be considered. Under the current general rules, a HSR filing is necessary under the following circumstances:
- If the acquiring party will hold between $68.2 million and $278.2 million in securities and/or assets as a result of the proposed transaction, and the parties to the proposed transaction are a certain size.17
- If the acquiring party will hold more than $278.2 million in securities and/or assets as a result of the proposed transaction regardless of party size.
It should be noted that there are a number of exemptions and other nuances to these general rules that are beyond the scope of this article. In addition, the thresholds are updated annually.
What are the Steps to Making a HSR Filing?
Where HSR notification is required, each party to the proposed transaction must submit a HSR form along with various categories of required documents. The form requires disclosure of information and documents related to the parties, the proposed transaction and the parties’ assets, revenue, geographic markets, customers, and competitors. The HSR form is available on the FTC’s website at http://www.ftc.gov/bc/hsr/hsrform.shtm.
Once the HSR filing is made, the government has 30 days to review the proposed transaction.18 If this 30- day waiting period lapses without the government taking action or making additional requests, the transaction may be consummated. If the government requests additional information or documents, referred to as a “Second Request,” then the waiting period extends an additional 30 days after the parties comply with the Second Request.19
Alternatively, the parties have the option to check a box on the HSR form requesting early termination in order to expedite the sale process and close in advance of such 30-day period. If the box is checked and the government is satisfied that the proposed transaction does not violate antitrust laws, the government will terminate the waiting period early and allow the parties to immediately proceed with the proposed transaction.20
While there is no formal time frame for the granting of early termination, this decision is usually made by the government within 10 to 14 days.
Are the Information and Materials Submitted Pursuant to the Hart-Scott-Rodino Act Confidential?
The HSR Act makes clear that “[a]ny information or documentary material filed . . . pursuant to this section shall be exempt from disclosure . . . and no such information or documentary material may be made public.”21 Notably, documents and information submitted along with the HSR form are not even subject to a FOIA request. Further, the existence of the filing itself is confidential. Thus, in general, parties submitting information and documents along with a HSR form need not be concerned about disclosure of confidential or sensitive information.
“If a party requests and is granted early termination of the waiting period, the government is required to publicly disclose certain information about the proposed transaction.”
However, there is one important exception to this policy of confidentiality in the case of early termination. If either party checks the box on the HSR form requesting early termination, then upon the granting of termination, the government is required to publish notice of the early termination in the Federal Register.22 In addition, notice of the early termination is required to be posted on the Federal Trade Commission’s website. Although the notice discloses minimal information (i.e., a transaction number, the date of the early termination, and the names of the parties involved) and provides a means to shorten the timeframe to close a transaction, the disclosure may not be desirable in certain instances for both the target and the potential purchaser.
For instance, an unrelated third party could learn from an early termination notice that the target company is on the market and make a competing bid. Or a party’s customer or supplier could learn of the proposed transaction, which could impact future business with such customer or supplier. The disclosure of this information could also affect a party’s relationship with its employees. These problems are particularly acute when the HSR filing is made on the basis of a letter of intent and the early termination notice is published before a binding transaction agreement is signed.
It is important for parties involved in transactions that trigger the HSR notification requirement to be aware of the public disclosure that comes along with early termination. Prior to electing early termination, parties should consider the impact of the disclosure on the target’s business and the sale process, and consult with counsel in order to take any steps necessary to minimize a disturbance in the sale (i.e., control information flow to key customers and employees and seek exclusivity periods and break fees).