Hart-Scott-Rodino 2014 Annual Report: Increase in Filings, Decrease in Second Requests and Implications for Executive Stock Options

by Perkins Coie

The Hart-Scott-Rodino Annual Report Fiscal Year 2014, published by the Federal Trade Commission (FTC) and the U.S. Department of Justice (DOJ), summarizes FTC and DOJ actions conducted under the Hart-Scott-Rodino Antitrust Improvements Act, or HSR Act, in fiscal year 2014, the period from October 1, 2013 through September 30, 2014.  Noteworthy findings of the report published in August 2015 include:

  • The number of HSR filings increased 25.4% in fiscal 2014, compared to fiscal year 2013.  The percentage of transactions investigated remained essentially unchanged.  The percentage of investigated transactions leading to second requests dropped 14.1% and the percentage of challenges to reported deals dropped 20.0%.
  • The agencies continue to enforce the HSR Act's notification and waiting period requirements in "failure to file" situations.

This update provides key highlights of the annual report and offers practical advice.

Annual Report Shows Decrease in Second Requests and Challenged Deals During 2014

In fiscal 2014, 1,663 transactions were reported under the HSR Act, which is a 25.4% increase over the 1,326 transactions reported in fiscal 2013.  In 2014, the FTC and the DOJ investigated about 17% of reported transactions, just a 0.4% increase over those investigated in fiscal 2013.  Of the transactions investigated, about 19% resulted in the issuance of second requests, a decrease from the nearly 22% reported in fiscal 2013 and the lowest percentage in the last five years.  And where second requests were issued, about 65% of the transactions, compared to 81% in 2013, resulted in an abandoned or restructured deal, a consent decree requiring the parties to divest assets, or litigation in federal district court.  Again, this is the lowest percentage in the last five years.  The drop in the percentage of abandoned, restructured or litigated deals suggests companies and their counsel did a better job in 2014 persuading the agencies not to challenge deals that superficially presented serous competitive concerns.







 Transactions Reported












 Investigated – 2nd Request Issued






 2nd Requests Resulting in Challenge






Practice Tip: Address Antitrust Concerns Early in the Process

A company considering an acquisition that is likely to raise agency concerns should confer with its antitrust counsel early in the negotiation process.  To avoid a second request, a company should address potential anti‑competitive concerns with counsel during the preparation and filing of reports under the HSR Act and engage with antitrust authorities as soon as possible in the waiting period.

Corrective Filings.  The statistics cited above do not include agency actions taken in connection with post-consummation "corrective filings."  During fiscal year 2014, 23 corrective filings for violations were received, and the agencies brought one enforcement action resulting in $896,000 in civil penalties.  This is a decrease from 2013, when 39 such filings were made and two resulted in penalties.  

The antitrust agencies examine the circumstances of each violation to determine whether penalties should be sought.  Where the agencies are convinced the failure to file was inadvertent and the parties file corrective filings shortly after discovering the missed filing obligation, the agencies have been less likely to seek civil penalties for the violation— this is generally known as the “one free bite of the apple” approach.  However, once a party has received its “one free bite,” a subsequent failure to file will result in civil penalties being assessed.

Prompt Corrective Filings May Help Companies Avoid Penalties.  When the parties inadvertently fail to file, the enforcement agencies generally do not seek penalties if the parties

  1. promptly make corrective filings after discovering the failure to file;
  2. submit an acceptable explanation for their failure to file; and
  3. have not previously violated the HSR Act.

Failures to File Often Involve Executives Who Exercised Stock Options.  Although there are many different circumstances under which a failure to file may occur, one of the most common scenarios involves corporate executives exercising a very small number of options or warrants to purchase their company's stock.  The failure to file often results in such a situation because, although the purchase price of the stock acquired through the exercise of the option or warrant typically falls well below the size-of-transaction threshold (currently $76.3 million), the executives fail to aggregate the value of those shares with their existing holdings when determining whether a filing is necessary.

Practice Tip: When Executives Exercise Stock Options, Consider the Effect on HSR Thresholds.  

Companies whose executives receive part of their compensation in the form of options or warrants to purchase company stock are advised to first determine whether the aggregate value of the company stock to be held by the executive as a result of an option exercise exceeds the HSR size-of-transaction threshold.  If this is the case, companies should undertake a complete HSR threshold analysis to determine whether an HSR filing is required prior to issuing any shares.

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Written by:

Perkins Coie

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