Greenberg Traurig Alert
Amendments to Hart-Scott-Rodino Pre-Merger Filing Law
By Shirley Z. Johnson,
National Chair, Antitrust & Trade Regulation Practice*
View or download the PDF version of this Alert
Congress has amended the Hart-Scott-Rodino ("HSR") Antitrust Improvements
Act ("Act") thresholds for the first time since the Act was adopted in 1976.
The amendments and interim rules interpreting the Act became effective on
February 1, 2001. The interim rules and additional proposed rules are subject
to public comment and may be changed after comments are received.
|"The HSR law and rules are intricate,
similar in difficulty to the tax laws."
The Act requires acquisitions of a certain size to be reported to the
Federal Trade Commission ("FTC") and the Antitrust Division, U.S. Department
of Justice prior to their consummation. Its purpose is to give the government
a chance to stop an anticompetitive acquisition before it is closed. The
government has found that it is more difficult to unwind a transaction after
the assets have been commingled than to enjoin it.
The parties are permitted to close an acquisition 30 days after they
make the HSR filing unless the period is shortened or extended by one of
the government agencies. About 70% of the time, the waiting period is shortened.
The principal changes in the Act are to modify the monetary thresholds
that require a filing and to create a sliding scale for filing fees based
on the size of the transaction.
Under prior law, a filing had to be made only if both of the parties
to the transaction and the transaction value satisfied certain thresholds.
Under the new law, a transaction valued at greater than $200 million has
no size-of-person test. Thus, an acquisition exceeding $200 million made
by a newly-formed company with multiple investors, which has no assets other
than cash to make the acquisition, would require an HSR filing under the
new law. Under the old law, no filing would have been needed because the
new company would not have met the size-of-person test.
For transactions valued at $200 million dollars or less, both a size-of-person
and transaction test must be met. The transaction value plus prior holdings
must exceed $50 million to require a filing. The size-of-person test remains
unchanged. That is, generally speaking, the ultimate parent entity (the
company or person at the top of the chain of ownership) of one of the parties
must have assets or revenues of at least $10 million, and the other party
must have assets or revenues of at least $100 million.
Acquisitions of assets made within 180 days involving the same ultimate
parent entities (or any of their subsidiaries) must be aggregated to determine
the value of the transaction.
Acquisitions of stock must be aggregated forever at the fair market value
of the stock held at the time an additional acquisition is contemplated.
In some situations, prior asset acquisitions must be aggregated with stock
A filing must be made before each of the following transaction thresholds
- in excess of $50 million
- $100 million
- $500 million
- 25% (if the amount of voting securities to-be-held exceeds $1 billion)
- 50% (if the amount of voting securities to-be-held exceeds $50 million)
Thus, there is a possibility of five filings for incremental stock acquisitions.
Because of the number of filing thresholds, valuation of a transaction
and of prior holdings is important.
Asset Purchase. An asset acquisition is valued at the fair market value
of the assets or the acquisition price, whichever is greater. The fair market
value is to be determined by the board of directors of the acquiring company
or someone selected by that board. For the first time, the HSR filing requires
that the person making the fair market valuation be identified.
Assumed liabilities must be added to the fair market value or purchase
price to determine the value of the assets for HSR purposes. Also, if the
acquisition price is paid over a period of time, the total expected payment
is included in the valuation. It cannot be discounted to current value.
Stock Purchase. Stock to-be-purchased is valued at the higher of the
purchase price or the lowest price at which the stock traded (if the company
is public) within 45 days before the closing.
Prior purchases are valued in the same way and not at their purchase
price. Consequently, if previously-purchased stock has grown in value, a
filing could be required for the purchase of as little as $1 of additional
stock. For example, if stock purchased for $40 million has grown in value
to $50 million or more, the purchase of $1 of stock would require a filing.
As is currently true, a filing must be made for secondary acquisitions.
A secondary acquisition occurs where stock is acquired in a company which
holds more than $50 million of stock in another company which it does not
control. A separate filing for the indirect acquisition of the stock of
that third-party company must also be made if the size thresholds are satisfied.
The filing fee is now graduated depending on the size of the transaction
||>$50 to $99.99 million
||$100 to $499.99 million
||$500 million or more
These levels and the filing thresholds will be adjusted annually for
changes in the gross national product during the previous year beginning
in fiscal year 2005.
The FTC, which administers the Act, has issued a new report form. In
addition to requiring the identity of the person calculating fair market
value, the form has other changes.
It requests that any countries where foreign filings are made be listed
because of the number of acquisitions (over half) which require one or more
foreign filings. The form now asks whether the party being sold is in bankruptcy.
This is because the standard 30-day waiting period between filing the HSR
and the permitted consummation is shortened to 15 days where the acquired
party is in bankruptcy.
The form eliminates the need to identify sales of manufactured products
sold by the parties to each other. This information was required in the
original form to identify the amount of vertical dealings. The FTC decided
that the vertical nature of the partiesí relationship can be identified
from other information in the form, so sales between the parties no longer
need to be separately disclosed.
As with the prior form, the parties to the acquisition must file certain
documents which relate to competition. To avoid the creation of documents
which may trigger an investigation, companies contemplating acquisitions
or sales should consult with antitrust counsel before they or their investment
bankers create documents.
Under the prior law, the waiting period between filing the HSR and closing
the transaction was 30 calendar days. Under the new rules, if the 30-day
period would end on a weekend or public holiday, the waiting period will
be extended to the next business day. Thus, the waiting period could be
increased by as much as three days, to 33 days.
If the government is concerned at the end of the 30-day waiting period
that the acquisition may adversely affect competition, it may request additional
information, which is known as a "second request." Under the old rules,
the government had 20 days after the parties had complied with the second
request to decide whether to seek an injunction to stop the acquisition.
The new law gives the government 30 days in which to make a decision.
The law also permits the parties to appeal the scope of a second request
within the government agencies. In the past, companies have often produced
hundreds of boxes of documents which the government did not have time to
read. It is hoped that the formal appeal process will reduce the size of
The penalty for failure to file an HSR will continue to be $12,000 a
day. The penalty begins to accrue on the day the HSR should have been filed
and ends on the day the HSR filing is made. The penalty is increased periodically.
The HSR law and rules are intricate, similar in difficulty to the tax
laws. The revisions to the law, for the most part, increase the complexity.
* The author would like to thank
Nancy Strick for her assistance
in writing this alert.
© 2000 Greenberg Traurig
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