Hart–Scott–Rodino Antitrust Improvements Act: A Guide to Filing and Compliance

The Hart-Scott-Rodino Antitrust Improvements Act is a crucial piece of legislation that helps prevent anticompetitive mergers and acquisitions. It requires companies to notify the government before making significant deals.

To comply with the law, companies must file a premerger notification form with the Federal Trade Commission (FTC) and the Antitrust Division of the Department of Justice (DOJ). This form must be filed at least 30 days before the deal is completed.

The filing fee for the premerger notification form is $45,000 for transactions valued at $94 million or more.

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The Hart-Scott-Rodino Antitrust Improvements Act requires companies to file a pre-merger notification before completing certain mergers or acquisitions. This notification is typically filed with the Federal Trade Commission and the Antitrust Division of the Department of Justice.

The notification must be filed before the transaction can be completed, and the parties must wait a certain period, usually 30 days, for the regulatory agencies to review the transaction and assess whether it violates antitrust laws. This waiting period can be as short as 15 days for all-cash tender offers or bankruptcy sales.

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The filing is not made public, but the agencies may disclose some information about the transaction, especially if it's a publicly announced transaction. Failure to file the form can result in a civil penalty of up to $41,484 per day against the parties, their officers, directors, or partners.

To determine if a filing is required, the parties must assess whether the transaction value and the size of the parties meet certain dollar thresholds. The general rule is that a filing is required if three tests are met: the size-of-transaction test, the size-of-person test, and the commerce test.

Here are the current threshold levels for the size-of-transaction and size-of-person tests:

The parties must also consider whether any exemptions apply to their transaction. For example, an airline purchasing planes and certain real estate purchases are exempt from the filing requirements.

The notification process under the Hart-Scott-Rodino Act is a crucial step in ensuring compliance with antitrust laws. The parties involved in a merger, acquisition, or tender offer must file the Notification and Report Form for Certain Mergers and Acquisitions, also known as the HSR Form or Premerger Notification Report, with the FTC and the Antitrust Division of the Department of Justice.

The filing requirement is triggered if the value of the transaction and, in some cases, the size of the parties, exceeds certain dollar thresholds, which are adjusted periodically under the Act. These thresholds include a general rule that a filing is required if three tests are met.

A 30-day waiting period is then triggered, during which time the regulators may request additional information to assess the transaction. This waiting period can be extended if the regulators need more time to review the information. In some cases, the waiting period can be as short as 15 days for all-cash tender offers or bankruptcy sales.

If the regulators find that the transaction may be likely to cause an anti-competitive effect in the specified markets, they may request additional information to help them assess the transaction. This can extend the waiting period or lead to an injunction to stop the transaction.

The parties must allow the waiting period to lapse before completing the transaction, and failure to do so can result in civil penalties of up to $41,484 per day. The law also allows the FTC and DOJ to obtain an order to divest the assets of the acquiring entity to raise the penalty fee.

First-time violators may apply for a waiver of the penalties if they can demonstrate that the failure to comply with the act was due to simple negligence and that they are willing to make the necessary filings as soon as possible.

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The Hart-Scott-Rodino Act requires companies making proposed acquisitions to pay a filing fee, which is tied to the size of the transaction. The filing fee covers additional transactions for up to five years after the original transaction.

The amount of the filing fee varies based on the size of the transaction. As of 25 February 2016, the fee was $45,000 for transactions of at least $78.2 million but less than $156.3 million, $125,000 for transactions of $156.3 million to $781.5 million, and $280,000 for transactions over $781.5 million.

Here's a breakdown of the filing fee structure as of March 2024:

It's essential to note that filing fees are paid to the FTC, and they are managed by the Federal Trade Commission and the Antitrust Division of the Department of Justice.

The fee for filing an HSR form is a significant expense that companies must consider when making a proposed acquisition. The amount of the filing fee is tied to the size of the transaction.

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As of February 2016, the fee was $45,000 for transactions of at least $78.2 million but less than $156.3 million. For larger transactions, the fee increases to $125,000 for deals worth between $156.3 million and $781.5 million, and $280,000 for transactions over $781.5 million.

The filing fee covers additional transactions during a period of up to five years after the original transaction, as long as they don't exceed the next threshold. However, once 50% or more of the target has been acquired, or the amount of acquisitions reported exceeded $682.1 million, no further reports are required to be filed.

Here's a summary of the filing fee structure as of March 2024:

The filing fee thresholds change annually, so it's essential to check for updates.

An effective compliance program is crucial for companies subject to the HSR Act, helping you avoid potential violations and pitfalls.

A comprehensive antitrust compliance program is critical for these companies, establishing a sound foundation for future success.

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Implementing such a program can also help you avoid potential violations, and a step-by-step guide on how to do so is available through a free trial of Practical Law.

Starting an antitrust compliance program requires a significant investment of time and resources, but it's a necessary step for companies that want to succeed in a competitive market.

Companies that fail to comply with the HSR Act often do so unintentionally, unaware of the specific requirements and thresholds. This can lead to costly penalties and enforcement actions.

One common reason for non-compliance is that company executives, officers, and directors may not realize that acquisitions of company stock through the vesting of restricted stock units or the reinvestment of dividends in a 401(k) can trigger an HSR reporting obligation. This can result in significant consequences.

Another reason is that shareholders may not aggregate their shares to determine if they have crossed one of the thresholds, such as the 10% ownership mark. For example, if stock values rise, acquiring just one additional share may trigger an HSR filing.

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Shareholders who are no longer eligible for the investment-only exemption – which requires them to be passive and hold no more than 10% of the outstanding voting securities of an issuer – may also make subsequent acquisitions that require HSR filing.

Here are some common scenarios that can lead to non-compliance:

The size-of-transaction test is satisfied if the acquiring person would hold voting securities, assets, or non-corporate interests valued at $119.5 million or more.

An HSR filing is required when mergers, acquisitions of assets or equity, and joint ventures exceed a minimum value and, in some cases, an additional threshold based on the size of each party.

To meet the size-of-transaction test, the value of the equity or assets to be acquired must exceed $90 million. The test is also met if the acquiring party will hold voting securities, assets, or non-corporate interests valued at $119.5 million or more.

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Even if the HSR thresholds are met, there are many exemptions to HSR reportability to consider. The tests and the current fee thresholds for each are as follows:

The commerce test is satisfied if either of the parties to a transaction is engaged in commerce or in any activity affecting commerce. This test is typically met, as it would be extraordinary for an otherwise reportable transaction not to satisfy this test.

One party, including any subsidiary or division, must also be engaged in commerce in the U.S. or activity affecting U.S. commerce. A foreign party can meet this test if it engages in business or makes sales in or into the U.S.

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Gun jumping is a serious offense under the Hart-Scott-Rodino Antitrust Improvements Act, and it can result in significant penalties. The government can impose penalties of $51,744 per day on each party if they seek to close a transaction or improperly coordinate the businesses of the parties before receiving HSR Act approval.

The largest settlement for gun-jumping violations to date was $5.6 million, paid by a defendant who had begun managing the seller's business prior to expiration of the waiting period. This included halting certain production activities, managing the target's contracts, and coordinating pricing.

The government can also sue companies for filing incomplete and inaccurate HSR forms, as seen in a recent case against a private equity firm. The firm allegedly filed deficient forms in at least 16 instances, with many of the alleged deficiencies related to missing documents that "assessed competition".

To avoid gun-jumping and enforcement actions, it's essential to carefully approach issues related to closing a transaction or coordinating businesses before receiving HSR Act approval. The government takes these offenses seriously, and the penalties can be substantial.

Preparing for an HSR filing requires coordination with in-house officials and the other party's attorneys to assemble the necessary documents and information.

Akerman can work with you to determine if a filing is needed and help prepare the required documents, which often involves communication with in-house officials.

The FTC and DOJ must receive the filing forms and exhibits, so it's essential to allow sufficient time for this process.

Contacting Akerman as soon as possible is crucial if there's a chance a filing may be needed to ensure all information is gathered and processed in time.

Once a transaction receives early termination or the waiting period expires, the acquiring party has exactly one year to cross the filed-for HSR threshold.

The one-year period ends on the same date, regardless of whether it's a weekday, weekend, or holiday.

If the acquiring party crosses the threshold within the one-year period, they can acquire additional assets or voting securities from the same acquired party without making another HSR filing.

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The contents of the HSR Act filing and its attachments are generally not public information. Unless early termination is granted, none of the information included in the HSR form or any of the documentary attachments is publicly disclosed by the Federal agencies.

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Early termination is a possible exception, where the date of the early termination and the parties involved do become public information, published in the Federal Register and on the FTC website.

In rare cases, information and documents that were previously confidential could become public as part of a litigation or administrative proceeding if one of the Federal antitrust enforcement agencies moves to block the transaction.

No other information from the HSR form or any of the documentary attachments is ever publicly disclosed by the Federal agencies.