The Hart-Scott-Rodino Antitrust Improvements Act of 1976, 15 U.S.C. §18a ("Hart-Scott-Rodino" or "the Act"), required all persons intending to engage in certain mergers or acquisitions to file notifications with federal antitrust enforcement authorities. The reporting requirements were based on the size of the transaction or acquisition, the percentage of the acquired entity to be owned as a result of the transaction and the size of the acquiring party. These reporting thresholds remained unchanged since enactment of the Act, resulting in many relatively small transactions that would not likely raise antitrust concerns being subject to the cost and time of the Hart-Scott-Rodino filing requirements. The relatively modest $45,000 filing fee had remained unchanged since 1994.
In December 2000 Congress passed, and President Clinton signed, Public Law No. 106-533 ("2000 Amendments"), effective February 1, 2001, which substantively amended Hart-Scott-Rodino for the first time. The Federal Trade Commission, which together with the Antitrust Division of the Department of Justice jointly administers the Act, has issued new interim regulations, effective February 1, 2001 ("2001 Regulations"), implementing the 2000 Amendments. (Subject to a public comment period expiring in March, final revised regulations are expected to be effective later this year.)
The two most significant changes of the 2000 Amendments and the 2001 Regulations are the raising of the reporting threshold to a minimum of $50 million, with all transactions valued in excess of $200 million required to be reported, and the raising of the filing fee to a scaled $45,000 to $280,000 level, depending on the size of the transaction. All of these dollar levels are subject to annual automatic adjustment starting in 2005.1
The new reporting thresholds are simpler than the old ones. All transactions valued at under $50 million are exempt from pre-merger notification filing. All transactions valued at over $200 million are subject to pre-merger notification filing. Transactions between $50 million and $200 million are subject to pre-merger notification filing only if the old size-of-the-person test is met; that is, one party must have sales or assets of at least $100 million and the other party must have sales or assets of at least $10 million.
In addition to the three statutory thresholds in the 2000 Amendments, the 2001 Regulations add an additional number of notification levels: greater than $50 million but less than $100 million; greater than $100 million but less than $500 million; $500 million or greater; and, for securities acquisitions, 25% of the voting securities of the acquired party if greater than $1 billion and 50% of the voting securities of the acquired party if greater than $50 million. In essence, a party that is subject to any one of the statutory thresholds may give notice of an intention to acquire up to one of the higher regulatory thresholds, and then may make additional acquisitions up to that level for a period of five years without any additional pre-merger filing requirement; however, acquisitions in excess of a regulatory notification level that has not been subject to a pre-merger notification filing at the higher level are subject to another pre-merger notification. No notice is required of an acquisition by a party that already owns 50% or more of the acquired entity.
These thresholds apply to mergers, acquisitions of securities, asset acquisitions and formation of joint ventures. Transactions are valued at the purchase price paid by the acquiring entity, usually the price paid for any securities or the price paid for any assets less any debt assumed; however, if the fair market value of the securities or assets acquired is greater than the purchase price, the fair market value controls. The reporting thresholds include all securities and assets of the acquired person to be held by the acquiring person after consummation of the transaction, including any previously held assets or securities. Thus, a small additional acquisition could be reportable if it brings the purchasing party's total holding over one of the reporting thresholds. There are also transition rules for parties that filed notices under the old thresholds. However, failure to have reported a pre-February 2001 transaction is not protected, even if the transaction is less than the new reporting levels.
Unlike the old, one-size-fits-all filing fee, the new fees, paid by the acquiring party, are scaled to the size of the transaction. For transactions of less than $100 million, there is a $45,000 fee; for transactions of between $100 million and $500 million, there is a $125,000 fee; and for transactions of $500 million or greater, there is a rather significant $280,000 fee, although at five basis points (1/20th of 1%), it is unlikely to deter any transactions. As under the old rules, the filing is not complete, and the agency's time to review it does not start to run, until the notification form is filed and the fee is paid. Several other more minor changes are made by the new regulations, most notably shortening the waiting period for certain bankruptcy transactions and extending the waiting period following any second requests. Overall, once the new thresholds are accounted for, the reporting information remains generally the same, although a revised form has been introduced.
The 2000 Amendments and 2001 Regulations will permit the FTC and the Antitrust Division to concentrate their review efforts at larger transactions that are more likely to raise serious antitrust concerns. Larger transactions may expect to receive more frequent second requests from the agencies, especially where potentially troubling antitrust issues are not adequately addressed in the initial filing or incomplete information is submitted. In this budget-conscious era, the parties to those larger transactions, which are expected to take more regulatory time and effort, are asked to pay for that perhaps unwelcome attention.
Our antitrust attorneys offer a full range of antitrust and trade regulation services, including civil litigation and pre-merger advice. Last year Kutak Rock LLP successfully filed pre-merger notifications on transactions ranging from the old reporting thresholds to over $1 billion. If you have any questions concerning the new Hart-Scott-Rodino Amendments or Regulations, or concerning any potential merger or acquisition that may be subject to Hart-Scott-Rodino pre-merger notification filing, please contact Robert A. Jaffe at 202-828-2434 ( robert.jaffe@kutakrock.com ).
February 2001
Footnotes:
1. Although it may be unlikely that many
transactions for an amount less than the new thresholds would raise any antitrust concerns, parties to
such smaller transactions should remember that they are exempt from only the Hart-Scott-Rodino
pre-merger reporting requirements, and not from the antitrust laws; in appropriate circumstances, such
smaller mergers or acquisitions could be challenged by federal enforcement authorities or in a private
civil action.
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