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GT Alert

New Hart-Scott-Rodino Thresholds

February 2005

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The dollar thresholds at which acquisitions must be reported to the Federal Trade Commission and the Department of Justice pursuant to the Hart-Scott-Rodino Act (HSR) will increase on March 1, 20051. Legislation passed in 2001 requires that the thresholds be adjusted annually beginning in 2005 based on changes in the gross national product.

"The dollar thresholds at which acquisitions must be reported to the Federal Trade Commission and the Department of Justice pursuant to the Hart-Scott-Rodino Act (HSR) will increase on March 1, 2005."

Some transactions that would have been reportable before March 1, 2005, will not have to be reported if the filing takes place after that date. The new, higher dollar thresholds affect (1) the “size-of-transaction” and “size-of-person” tests for determining whether a transaction requires HSR notification; (2) filing fees; and (3) certain specific rules relating to the thresholds for reporting formations of joint ventures and other corporations, and acquisitions of foreign assets and voting securities.

Size-of-Transaction Test

Under the new thresholds, an HSR filing may be required for any transaction valued at more than $53.1 million; the prior threshold was $50 million.

As before, acquisitions of assets made within 180 days prior to signing a purchase agreement, and involving the same ultimate parent entities (or any of their subsidiaries) must be aggregated to determine the transaction size. In stock deals, the current value of all prior acquisitions of stock must be aggregated.

Size-of-Person Test

Transactions valued at more than $53.1 million, but not greater than $212.3 million (formerly $200 million), also must satisfy a size-of-person test to determine whether an HSR filing is required. All transactions valued at greater than $212.3 million must be reported regardless of the size of the parties to the transaction.

The size-of-person test is based on the revenues and assets of the ultimate parent entities, including all subsidiaries, of the parties to a transaction. Where a manufacturer is acquired, one ultimate parent entity must have assets or revenues of $10.7 million (formerly $10 million); the other must have assets or revenues of $106.2 million (formerly $100 million).

If the acquired party is not engaged in manufacturing, the test is different. One party must meet the $10.7 million test; the other party must meet the $106.2 million test. In addition, the acquired company must have $10.7 million of assets or $106.2 million of revenues. The reason for the different treatment of manufacturing and non-manufacturing companies is that the government only wants to review transactions that are likely to affect competition. It is believed that acquisitions involving service companies with less than $106.2 million in revenue or $10.9 million in assets are less likely to impede competition. However, the government has authority to investigate and seek injunctions against all acquisitions regardless of size – whether or not they make an HSR filing. Also, in some instances the government has challenged acquisitions several years after consummation.

Filing Fees

The HSR filing fees continue to be graduated depending on the size of the transaction:

Old Transaction Value New Transaction Value Filing Fee
>$50 million to $99.99 million > $53.1 million to $106.19 million $45,000
$100 million to $499.99 million $106.2 million to $ 530.69 million $125,000
$500 million or more $530.7 million or more $280,000

Joint Ventures and Foreign Acquisitions

The thresholds for the formation of joint ventures and certain other new corporations, and for certain exemptions from HSR notification for acquisitions of foreign assets or of voting securities of a foreign issuer, also have been increased. The applicable $10 million, $50 million, $100 million, $110 million and $200 million thresholds have been adjusted upward to $10.7 million, $53.1 million, $106.2 million, $116.8 million and $212.3 million, respectively.

Background

The purpose of an HSR premerger filing is to give the Federal Trade Commission and the Antitrust Division of the Department of Justice 30 days’ notice of substantial mergers. This permits either agency to seek an injunction before consummation of a transaction. The agencies coordinate their investigations so that both of them do not investigate the same transaction. Prior to the HSR law, the agencies had found it was difficult to unscramble companies after a transaction was closed.

The notification thresholds will continue to be adjusted annually by the percentage change in the gross national product during the previous year. The new thresholds will be published each January in the Federal Register and on the FTC’s website, to be effective 30 days after publication in the Federal Register. All adjustments will be rounded up to the next highest $100,000.

Conclusion

The application of the HSR rules, including the valuation of the parties’ size and a transaction’s value, are complex. The penalties for failing to file can be as much as $11,000 per day for each day a filing should have been made.

Should a transaction fall close to the thresholds, it will need to be carefully evaluated to determine whether a filing should be made.

 

This Alert was written by Shirley Z. Johnson, National Chair of Greenberg Traurig's Antitrust and Trade Regulation Practice. Please contact Ms. Johnson at (202) 331-3100 or your Greenberg Traurig liaison if you have any questions regarding the subject matter of this Alert.


Footnotes

1 The 2000 amendments to the Hart-Scott-Rodino Antitrust Improvements Act (“HSR Act”), which became effective on February 1, 2001, require the FTC to revise the HSR Act’s jurisdictional and filing fee thresholds each fiscal year beginning after September 30, 2004. This is the first such adjustment. A GT Alert discussing the changes implemented in the 2000 amendments to the HSR Act is available here.

 

© 2005 Greenberg Traurig


Additional Information:

For more information, please review our Antitrust Practice description, or feel free to contact one of our attorneys.


This GT ALERT is issued for informational purposes only and is not intended to be construed or used as general legal advice. Greenberg Traurig attorneys provide practical, result-oriented strategies and solutions tailored to meet our clients’ individual legal needs.