Is this Deal Reportable?: HSR Reportability Thresholds Increase

by Dorsey & Whitney LLP
Contact

Dorsey & Whitney LLP

On January 19, 2017, the Federal Trade Commission announced the annual adjustment of the thresholds that trigger premerger reporting obligations (and the mandatory waiting period) under the Hart-Scott Rodino (HSR) Act. The FTC also announced adjusted thresholds that trigger prohibitions on certain interlocking memberships on corporate boards of directors. The new premerger reporting thresholds will become effective thirty calendar days after publication of notice in the Federal Register and will remain in effect until the 2018 adjustment. In a separate Federal Register notice on January 24, the FTC also announced an inflation-based increase to the maximum civil penalties for noncompliance with the HSR Act (which take immediate effect).

Background

The HSR Act requires parties to give advance notice to the Federal Trade Commission and Department of Justice of any acquisition of voting securities, assets, or non-corporate interests where the value exceeds certain dollar-based size thresholds. If the transaction is reportable, the parties cannot close until after a mandatory waiting period (typically thirty days, subject to early termination if the transaction does not present any antitrust issues). The waiting period allows the agencies to review the proposed transaction and determine whether it raises antitrust issues that require further investigation. Either agency can investigate (although only one agency will do so), and if the investigation is not completed during the initial waiting period, then the waiting period may be extended. Ultimately, the investigating agency must decide whether to challenge the transaction (or, potentially, reach a compromise with the parties that addresses the agency’s antitrust concerns but permits the transaction to go forward).

The size thresholds that trigger the reporting obligation, and other dollar-based thresholds in the HSR Act, are adjusted (to reflect annual percentage increases in Gross National Product) each year. Transactions that do not exceed the thresholds are not reportable, but the FTC and DOJ can—and do—investigate nonreportable transactions that raise antitrust concerns and will challenge any transaction that they conclude is anticompetitive, even if the transaction has already closed.1

Basic Size Tests

The most significant effect of the annual indexing is to increase the “size of transaction”2 and “size of persons”3 tests:

  • Transactions resulting in holdings valued at or below $80.8 million in voting securities and/or assets of the seller are not reportable (subject to the rules on aggregation).
  • Transactions resulting in holdings valued at more than $323 million are reportable (unless exempted) regardless of the size of persons.
  • Transactions resulting in holdings valued at more than $80.8 million but less than $323 million are reportable (unless exempted) if the “size of persons” test is satisfied.
    • A person with $161.5 million in total assets or annual net sales acquires (or acquires from) a manufacturing person with $16.2 million in total assets or annual net sales; or
    • A person with $161.5 million in total assets or annual net sales acquires (or acquires from) a non-manufacturing person with $16.2 million in total assets; or
    • A person with $16.2 million in total assets or annual net sales acquires (or acquires from) a person with $161.5 million in total assets or annual net sales.

Notification Thresholds

In addition to these basic tests, the HSR Act provides five separate “notification thresholds,” with a new report required before completing an acquisition that would result in crossing the next threshold. With the indexing, the notification thresholds will be:

  • An aggregate total amount of voting securities of the acquired person valued at greater than $80.8 million but less than $161.5 million;
  • An aggregate total amount of voting securities of the acquired person valued at $161.5 million or greater but less than $807.5 million;
  • An aggregate total amount of voting securities of the acquired person valued at $807.5 million or greater;
  • Twenty-five percent of the outstanding voting securities of an issuer if valued at greater than $1.615 billion; or
  • Fifty percent of the outstanding voting securities of an issuer if valued at greater than $80.8 million.

Exemptions

The increases also affect some of the exemptions from reporting requirements. For example, 16 C.F.R. 802.50 exempts the acquisition of assets located outside the United States “unless the foreign assets the acquiring person would hold as a result of the acquisition generated sales in or into the U.S. exceeding $50 million (as adjusted) during the acquired person's most recent fiscal year” (emphasis added). With the most recent adjustment, this exemption applies unless the assets generated sales in or into the U.S. of more than $80.8 million.

Filing Fees

The HSR filing fees have not increased, but the levels that trigger larger filing fees have increased.

  • The basic filing fee remains $45,000 and is payable on transactions valued at more than $80.8 million but less than $161.5 million.
  • For transactions valued at more than $161.5 million but less than $807.5 million, the filing fee is $125,000.
  • For transactions valued at more than $807.5 million, the filing fee is $280,000.

Civil Penalties for HSR Violations

The maximum daily penalty for HSR violations has increased from $40,000 to $40,654.

Interlocking Directorates

The FTC also updated the thresholds for the Clayton Act Section 8's prohibition on interlocking directorates. The Act prohibits one person from serving as an officer or director of two competing companies when each company has capital, surplus and undivided profits of more than $32,914,000 for Section 8(a)(1) and competitive sales of more than $3,291,100 for Section 8(a)(2)(A). These updated thresholds are effective immediately upon publication.

On January 23, the Director of the FTC’s Bureau of Competition posted a blog on compliance with Section 8. The FTC generally relies on self-policing but occasionally opens investigations (for example, the Apple-Google interlock). Director Feinstein offers some practical pointers on identifying new products or market developments that might warrant considering whether a company with which a director is affiliated has become a “competitor” for Section 8 purposes. Her blog post is available here.


1. For example, the Justice Department challenged Bazaarvoice’s acquisition of a competing firm shortly after the transaction closed, even though the parties had not been required to report the transaction. DOJ prevailed at trial, and Bazaarvoice had to divest—at a significant loss—the assets it had acquired. United States v. Bazaarvoice, Inc., Case No. 13-cv-00133, 2014 U.S. Dist. LEXIS 180347 (N.D. Cal. Dec. 2, 2014); see also James K. Nichols, United States v. Bazaarvoice, Inc.: What In-House Counsel Need to Know, THE ANTITRUST COUNSELOR, June 2014, at 4.
2. The test includes the value of all of the voting securities (and certain assets of the acquired person) of the acquired person that the acquiring person will hold after the transaction is complete, including voting securities of the acquired person that the acquiring person already owns.
3. “Person” means the ultimate parent of the legal party to a transaction (including all entities controlled by the ultimate parent).

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.

© Dorsey & Whitney LLP | Attorney Advertising

Written by:

Dorsey & Whitney LLP
Contact
more
less

Dorsey & Whitney LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.