The Federal Trade Commission (FTC) has revised the thresholds that govern pre-merger notification requirements under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (HSR Act), as well as the thresholds for interlocking directorates under Section 8 of the Clayton Act. The new HSR Act thresholds will become effective for all transactions closing on or after March 4, 2021. The new Interlocking Directorate thresholds became effective on January 21, 2021.
HSR Act Thresholds
The HSR Act requires parties to transactions that meet the statutory thresholds to file notification with the FTC and Department of Justice, and abide by a waiting period before completing the transaction. The statutory thresholds are revised each year based on a formula related to the size of the U.S. economy. On February 2, 2021, the FTC announced the revised thresholds for 2021. They will be effective for all transactions closing on or after March 4. The revised thresholds slightly decreased from 2020, which is unusual and likely due in large part to the economic effects of COVID-19.
Under the revised thresholds, parties to a transaction with a value of $92 million or less (decreased from the 2020 threshold of $94 million) need not submit a notification or observe a waiting period. Parties to a transaction valued in excess of $92 million, and up to $368 million, must file notification with the federal antitrust agencies and observe the HSR Act waiting period if the parties also meet a “size of persons” test: One party to the transaction has annual net sales or assets of at least $184 million and the other party to the transaction has annual net sales or assets of at least $18.4 million (decreased from 2020 thresholds of $188 million and $18.8 million, respectively).
The “size of persons” test does not apply for larger deals: parties, regardless of their size, must file notification if the value of the transaction is greater than $368 million (decreased from the 2020 threshold of $376 million).
HSR exemptions, filing fees, and waiting periods remain unchanged. Many filing exemptions apply; for example, asset acquisitions of certain types of real property are not subject to filing, and acquisitions of oil, gas, shale, and tar sand reserves and associated E&P assets are exempt if their value to be held as a result of the acquisition does not exceed $500 million. The typical waiting period is 30 days (unless extended), which may be shortened in the case of bankruptcy, tender offers, or discretionary “early termination.”
Clayton Act Section 8 Thresholds
Section 8 of the Clayton Act prohibits corporations that compete with each other from having common directors if the companies have revenue that exceeds the statutory threshold, which is revised annually. Under the new thresholds for 2021, companies will have to abide by the prohibitions of Section 8 if each has capital, surplus, and undivided profits aggregating more than $37,382,000.
The statute provides an exemption if either of the corporations’ “competitive sales,” which is defined as revenue from products/services sold in competition with the other corporation, are below an annually adjusted threshold. Under the 2021 thresholds, corporations will be exempt from the requirements of Section 8 of the Clayton Act if either corporation has competitive sales of less than $3,738,200.
Section 8 also does not apply if either corporation has competitive sales of less than 2% of its total revenue or each corporation has competitive sales of less than 4% of its total revenue. These percentage thresholds are not adjusted annually.