HSR 2015 Annual Report: Filings Up, Second Requests Down and ESO/RSU Implications

by Perkins Coie

Perkins Coie

The Hart-Scott-Rodino Annual Report Fiscal Year 2015, 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 (HSR Act) in fiscal year 2015, which ended September 30, 2015.  Noteworthy findings of the report, published August 1, 2016, include the following:

  • The number of HSR filings increased 8.3% in fiscal 2015, compared to fiscal year 2014.  The percentage of transactions investigated decreased 13.1%.  The percentage of investigated transactions leading to second requests dropped 2.1%, but the percentage of challenges to reported deals increased 17.4%.
  • The agencies continue to enforce the HSR Act's notification and waiting period requirements in "failure to file" situations, as reflected in the $480,000 civil penalty to be paid by Caledonia Investments plc (Caledonia) for its failure to make the required HSR filing prior to a 2014 acquisition of voting securities of Bristow Group Inc. (Bristow). 

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

Decrease in Second Requests but Increase in Challenged Deals During 2015

In fiscal 2015, 1,801 transactions were reported under the HSR Act, which is an 8.3% increase over the 1,663 transactions reported in fiscal 2014.  In 2015, the FTC and the DOJ investigated about 15% of reported transactions, a 13.1% decrease from those investigated in fiscal 2014.  Of the transactions investigated, 18% resulted in the issuance of second requests, a slight decrease from the 19% reported in fiscal 2014 and the lowest percentage in the last five years.  But where second requests were issued, about 89% of the transactions, compared to 65% in 2014, resulted in an abandoned or restructured deal, a consent decree requiring the parties to divest assets or litigation in federal district court.







Transactions Reported












Investigated – 2nd Request Issued






2nd Requests Resulting in Altered Deal or Challenge






Practice Tip:  Address Antitrust Concerns Early in the Process

A company considering an acquisition should confer with antitrust counsel and other advisors early in the negotiation process about the possibility of agency concerns.  To avoid a second request, a company should address potential anti‑competitive concerns upfront during the preparation and filing of reports under the HSR Act and engage with antitrust authorities as soon as possible in the waiting period, rather than wait to react to the antitrust authorities’ issues.

Corrective Filings.  The statistics cited above do not include agency actions taken in connection with post-consummation "corrective filings.”  During fiscal year 2015, 39 corrective filings for violations were received, and the agencies brought three enforcement actions resulting in $4.04 million in civil penalties.  This is an increase from 2014, when 23 such filings were made and one resulted in penalties.

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.

The antitrust agencies examine the circumstances of each violation to determine whether penalties should be sought.  Where the agencies are convinced that 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. 

Failures to File Often Involve Corporate Executives or Directors Who Exercised Stock Options or Whose Restricted Stock Units Vested.  Although there are many different circumstances under which a failure to file may occur, one of the most common scenarios involves corporate executives or members of the company’s board of directors acquiring a very small number of their company’s stock by exercising options or warrants to purchase their company's stock or by the vesting of restricted stock units (RSUs).

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 $78.2 million), or in the case of RSUs, the units simply vest, the executives or directors fail to aggregate the value of those shares with their existing holdings when determining whether an HSR filing is necessary.

An example of how this situation occurs can be seen in the agencies’ recent enforcement action against Caledonia in which Caledonia agreed to pay $480,000 in civil penalties for its failure to make the required HSR filing prior to a 2014 acquisition of voting securities of Bristow.  Caledonia first acquired voting shares in Bristow in June 2008 and reported its purchase to the FTC and the DOJ, as required under the HSR Act.  Caledonia continued to invest in Bristow in the following years, making additional purchases that were exempt from reporting under the HSR rules.

During this period, two Caledonia employees were designated to serve on Bristow’s board of directors.  Bristow awards RSUs to its board members, and by agreement, it set aside the securities for the two Caledonia board members for purchase by Caledonia.  On February 3, 2014, Caledonia acquired 3,650 shares of Bristow voting securities as a result of the vesting of the RSUs awarded to the two Caledonia employees serving on the Bristow board.  Although the aggregate value of these 3,650 shares, plus the value of the Bristow voting securities Caledonia already held, was approximately $111 million, exceeding the HSR size-of-transaction threshold ($70.9 million at the time of the acquisition), Caledonia did not make the required pre-acquisition HSR filing and wait for the HSR waiting period to expire before acquiring the additional 3,650 shares.  Caledonia incorrectly believed that the 2008 HSR filing for its initial acquisition of Bristow voting securities allowed it to acquire additional Bristow shares without making a new HSR filing.

Under the HSR Act, a company that has made an HSR filing for an acquisition of voting securities is allowed to acquire additional voting securities of the same issuer during the five-year period following the expiration of the HSR waiting period for the initial transaction as long as the subsequent purchases of voting securities do not raise the aggregate value of the issuer’s voting securities held by the acquiring company above a higher notification threshold.  The five-year period following Caledonia’s 2008 acquisition of Bristow stock expired June 13, 2013, nearly eight months before the February 2014 vesting of the Bristow voting securities acquired by Caledonia.  On February 4, 2015, Caledonia made a corrective HSR filing, shortly after learning of its obligation to file.  Caledonia indicated its failure to make a timely HSR filing was inadvertent based on its belief the February 2014 acquisition was exempt from the HSR reporting and waiting period requirements. 

However, since this was not Caledonia’s first violation of the HSR Act for failing to make the required filing and observing the waiting period, the agencies sought to have penalties imposed.  The proposed final judgement imposes a $480,000 civil penalty, which reflects a downward adjustment from the maximum permitted because the violation was inadvertent, and Caledonia promptly self-reported the violation after discovering it and was willing to resolve the matter by consent decree.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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