On January 28, 2020, the Federal Trade Commission (FTC) announced that in 2020 the minimum size of transaction threshold for reporting proposed mergers and acquisitions under the Hart-Scott-Rodino (HSR) Act will increase from $90 million to $94 million, depending on the size of the parties to the transaction. Generally, transactions with a value greater than $376 million will be reportable under the HSR Act in 2020, regardless of the sales or assets of the acquiring and acquired entities. The HSR Act imposes notification and waiting period requirements for transactions exceeding these thresholds so that the FTC and US Department of Justice (DOJ) can conduct a premerger antitrust review.
HSR compliance continues to be a trap for the unwary. In August 2019, Third Point LLC agreed to pay $609,810 in civil penalties to settle FTC charges that the company and funds it managed had violated the HSR Act. In that case, three funds managed by Third Point were existing shareholders of two major chemical companies prior to the 2017 merger of those two companies. As a result of the merger, the three Third Point funds in August 2017 received shares of the merged entity with a value in excess of the then-existing HSR threshold of $80.8 million, but Third Point did not file the required notification and observe the thirty day waiting period imposed by the HSR Act prior to the funds acquiring those shares.
The FTC and DOJ will look to the substance of a transaction in determining whether and when parties to a transaction must make the required notification. In June 2019, Canon Inc. and Toshiba Corporation agreed to pay $2.5 million each and adopt HSR compliance programs to settle FTC charges that the companies had violated the HSR Act. The complaint in that case alleged that Toshiba decided to sell a subsidiary in 2015, but needed to recognize the proceeds of that sale prior to March 31, 2016. According to the complaint, Toshiba and Canon concluded that it would be impossible to complete the acquisition before that date because of the review periods imposed by the HSR Act, and so the parties structured the transaction in a way that “had no purpose” other than to avoid that waiting period.
These recent enforcement actions serve as cautionary tales: when in doubt as to whether a transaction is reportable under the provisions of the HSR Act, consult with antitrust counsel to be sure one way or the other.