FTC Announces Increases to Hart-Scott-Rodino Premerger Notification Thresholds, Effective February 24, 2011
Under the Hart-Scott-Rodino Act (HSR Act), parties to transactions of a certain size must provide advance notice to the U.S. Department of Justice and the Federal Trade Commission (FTC) before the transaction can close. Failure to provide the required notification and comply with the statutory waiting periods can result in significant penalties.
According to amendments passed by Congress in 2000, the jurisdictional thresholds under the HSR Act are adjusted for inflation each year. On January 21, 2011, the FTC published in the Federal Register revised jurisdictional thresholds that will apply to all transactions that close on or after the effective date of the adjustment, February 24, 2011.
This year, the thresholds have increased modestly compared to last year's first ever threshold decrease. The base threshold for most transactions increased from $63.4 million to $66 million. The new thresholds are as follows:
- Transactions valued at $66 million or more are reportable if one party to the transaction has assets or revenues of at least $13.2 million and the other party has assets or revenues of at least $131.9 million.
- All transactions valued at $263.8 million or more are reportable.
HSR filing fee thresholds have also been revised (but the filing fees are unchanged). If the value of the assets or securities to be held as a result of the transaction:
- is greater than $66 million but less than $131.9 million, the filing fee is $45,000.
- is greater than $131.9 million but less than $659.5 million, the filing fee is $125,000.
- is $659.5 million or greater, the filing fee is $280,000.
New Interlocking Directorates Thresholds
The FTC also adjusted the thresholds applicable for Section 8 of the Clayton Act, which trigger prohibitions on interlocking directorates. Those changes were effective immediately upon publication in the Federal Register. The FTC also revises these thresholds annually based on inflation. Section 8 prohibits, with some exceptions, one person from serving as a director or officer of two competing corporations if two thresholds are met. The prohibition applies to competitor corporations if each one has capital, surplus and undivided profits of more than $26,867,000, with the exception that no corporation is covered if the competitive sales of either corporation are less than $2,686,700.
Proposed Changes to HSR Form
On August 13, 2010, the FTC issued a Notice of Proposed Rulemaking with respect to changes to the HSR Act Premerger Notification and Report Form (the Notification Form). The stated purpose of the proposed changes is to "eliminate the least helpful information requests in the Notification Form and add requests for information that will greatly enhance the agencies' review .…" The FTC further stated that it believes the proposed changes "will, on balance, reduce the burden of completing the Notification Form." The public comment period ended October 8, 2010.
The proposed changes to the Notification Form are generally seen as fairly neutral or helpful, but a number of them will require those filing the Notification Form to provide new or additional information that could prove to be burdensome and expensive, particularly for private equity and other types of investment funds. Three of the more significant proposed changes to the requirements of the Notification Form are:
- requiring certain information about a new type of entity, defined as "associate." Entities will be considered "associated" with the filer if they are under common management with the filer, they have the right to manage or direct the filer's affairs or investments, or the filer has the right to manage or direct the entity's affairs or investments. Current rules limit the filing person's reporting obligation to information about the ultimate parent entity of each party to the transaction and all entities "controlled" by each ultimate parent entity;
- expanding the types of studies, evaluations and analyses relating to markets and competition that must be submitted; and
- tracking revenues by detailed NAICS codes annually and reporting revenues from international manufacturing operations using NAICS manufacturing codes instead of NAICS wholesale codes.