On January 26, 2018, the U.S. Federal Trade Commission (FTC) announced the annual changes to the thresholds for the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”). The new size of transaction threshold is $84.4 million. This change and the other related increases are expected to go into effect in late February/early March 2018, 30 days after publication in the Federal Register, and will apply to all transactions closing on or after the effective date.
The HSR Act requires parties to transactions exceeding certain thresholds to file premerger notification reports to the FTC and the Antitrust Division of the U.S. Department of Justice and then observe statutorily prescribed waiting periods (usually 30 days) prior to closing the transaction, unless an exemption applies.
Revised HSR Act Thresholds
Generally, HSR notifications are required for an acquisition of voting securities, non-corporate interests or assets when the transaction reaches a certain threshold (the “size of transaction” test) and the parties are of sufficient size (the “size of parties” test). The new size of transaction threshold is $84.4 million, a 4.5 percent increase from the previous threshold of $80.8 million.
Under the new thresholds:
- Transactions valued at less than $84.4 million will not be reportable;
- Transactions valued at more than $84.4 million but not more than $337.6 million are reportable only if one party has assets or annual net sales of at least $16.9 million and the other party has assets or annual net sales of at least $168.8 million (unless an exemption applies); and
- Transactions valued at more than $337.6 million are reportable, regardless of the parties’ size (unless an exemption applies).
The revisions also increase notification thresholds for acquisitions of additional voting securities from the same party. As a result, notifications may be required at each of the following thresholds: $84.4 million; $168.8 million; $843.9 million; 25% of the voting securities if their value exceeds $1,687.8 million; and 50% of the voting securities if their value exceeds $84.4 million.
The new thresholds are also used to determine the applicability of certain exemptions under the HSR Act and Rules.
The HSR filing fees remain the same, but the thresholds that determine the fees have been revised. The filing fees, to be paid by the acquiring person in the transaction, will be as follows:
- $45,000 for transactions valued above $84.4 million but less than $168.8 million
- $125,000 for transactions valued at $168.8 million but less than $843.9 million
- $280,000 for transactions valued at or above $843.9 million
Revised Thresholds for Interlocking Directorates
The FTC also revised the dollar thresholds for evaluating interlocking directorates under Section 8 of the Clayton Act. Under certain circumstances, Section 8 prohibits one person from serving as a director or officer of two competing corporations if each corporation has capital, surplus and undivided profits aggregating more than $34,395,000, with an exception that an interlock is not covered if the competitive sales of either corporation are less than a de minimis threshold of $3,439,500. The aggregate capital, surplus and undivided profits of each corporation at the end of its last full fiscal year controls for Section 8 purposes. These new thresholds go into effect immediately.
Revised Fines for HSR Act Violations
The HSR Act provides that any person (including any officer, director or partner thereof) who fails to comply with any provision of the Act, such as by consummating a reportable transaction without observing the notification and waiting period requirements of the Act, may be subject to a civil penalty for each day during which such person is in violation of the Act. After many years of no adjustments to the penalty amount, the maximum penalty more than doubled in 2016 from $16,000 to $40,000. Under recent legislation, the maximum must be adjusted annually. Effective 30 days after publication in the Federal Register, the maximum civil penalty for violations of the HSR Act will be $41,484 per day.