HSR Size-of-Transaction Threshold Increased to $90.0 Million
The Federal Trade Commission announced new notification thresholds under the Hart-Scott-Rodino Act which will take effect on April 3, 2019. The current thresholds continue to apply to all transactions closed prior to the effective date. Of particular note, the initial threshold for notification under the HSR Act will increase from $84.4 million to $90.0 million.
1. The new notification thresholds will apply to all transactions that are consummated on or after April 3, 2019. The principal changes are as follows:
1. Transactions that are not subject to the HSR Act reporting requirements remain subject to the substantive antitrust laws (principally, Section 7 of the Clayton Act) and may still be investigated by the FTC, the Antitrust Division of the Department of Justice, or state attorneys general. The federal agencies, in particular, have been active in investigating and challenging non-reportable transactions raising competitive concerns, including consummated transactions.
2. Penalties for violations of the HSR Act were also adjusted for inflation, from $41,484 to $42,530. The antitrust agencies deem each day in which a party is not in compliance with the HSR Act to be a separate violation, resulting in potentially significant fines.
3. The HSR Act's reference to "size-of-transaction" is a misnomer. Because the HSR Act considers the aggregate holdings resulting from a transaction, the threshold may be crossed even if the incremental acquisition itself is less than the "size-of-transaction" threshold. In addition, even if an HSR notification is made for the acquisition of voting securities in excess of the $90.0 million minimum threshold, additional HSR notifications may be required before crossing the thresholds of (i) $180.0 million, (ii) $899.8 million, (iii) 25% of the voting securities of an issuer, if valued in excess of $1,799.5 million, or (iv) 50% of the voting securities of an issuer.
2. The filing fee thresholds will also increase, but the filing fees themselves remain unchanged.
3. The exemption thresholds for acquisitions of foreign issuers and assets will increase as well. Under the revised thresholds:
- Acquisitions of voting securities of a foreign issuer by a U.S. person are exempt unless the foreign issuer either: (i) holds assets in the United States valued in excess of $90.0 million (currently $84.4 million), or (ii) made sales in or into the United States in excess of $90.0 million (currently $84.4 million) in the last fiscal year.
- Acquisitions of voting securities of a foreign issuer by a foreign person are exempt unless the transaction confers control over the issuer and the thresholds above are met.
- Acquisitions of foreign assets are exempt if the assets did not generate sales in or into the United States in excess of $90.0 million (currently $84.4 million) in the last fiscal year.
- Acquisitions by a foreign person of either voting securities of a foreign issuer or foreign assets are also exempt if: (i) the aggregate total sales of the parties in or into the United States are less than $198.0 million (currently $185.7 million); (ii) the aggregate total assets of the parties in the United States are less than $198.0 million (currently $185.7 million); and (iii) the value of the transaction does not exceed $359.9 million (currently $337.6 million).
Revised Thresholds for Prohibition on Corporate Interlocks
Section 8 of the Clayton Act prohibits any person from serving as a director or officer of competing corporations unless the parties' sales of the competing products or services are below certain de minimis thresholds. Under the revised thresholds, which are effective immediately, simultaneous service as a director or officer of two corporations, each with capital, surplus, and undivided profits in excess of $36,564,000 and "competitive sales" of $3,656,400 or more, is prohibited, subject to several exceptions.
The FTC's announcement of the revised thresholds serves as a useful reminder that effective Section 8 compliance requires corporations annually to review the outside affiliations of their directors and officers to assess whether, for example, sales growth, entry into new markets, or a decline in sales or exit from a non-competing business, may trigger potential issues under the statute.