What are the Requirements of an HSR Antitrust Filing for a Merger or Acquisition?
Under 15 U.S.C. § 18a, commonly known as the Hart-Scott-Rodino Antitrust Improvements Act, parties to certain mergers and acquisitions must submit premerger notification filings known as HSR filings and wait a prescribed amount of time before consummating the transaction.
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Below are some frequently asked questions with answers about HSR filings.
How is a Merger Defined for Antitrust Purposes?
For antitrust purposes, a “merger” includes any acquisition of assets, stock, or share capital of another person or entity, even if the acquisition does not result in control of the target company. An acquisition of less than a controlling interest does not obviate HSR filing requirements if the acquisition exceeds the operative thresholds.
What are the Relevant Thresholds That Trigger HSR Filing Requirements?
The HSR Act notification requirements apply to transactions that satisfy the specified “size of transaction” and “size of person” thresholds. These thresholds are adjusted annually to reflect changes in the U.S. gross national product.
Three thresholds determine the applicability of HSR filing requirements. First, one of the parties to the transaction must be in commerce in the United States or otherwise affect U.S. commerce.
Second, the acquiring party must be acquiring securities, non-corporate interest, or assets of the target in excess of $101 million––the “size of transaction” threshold. An HSR Act notification is thus not required when the value of the voting securities and assets is below this threshold.
Third, if the transaction exceeds $101 million but does not exceed $403.9 million--the "size of the parties" threshold––at least the “ultimate parents” of one party involved in the transaction must have annual net sales or total assets of at least $202 million, and the “ultimate parents” of the other party must have annual net sales or total assets of at least $20.2 million.
Transactions valued at more than $403.9 million are reportable regardless of the size of the parties, unless an HSR Act exemption applies.
The new thresholds will remain in effect until next annual adjustment, in the first quarter of 2023.
Parties who violate the HSR Act are subject to monetary penalties. The maximum civil penalty for HSR Act violations per day during which the party is in violation has now increased from $43,280 to $46,517.
Revised Thresholds for Interlocking Directorates
The FTC has also adjusted the thresholds in Section 8 of the Clayton Act that trigger the prohibition on “interlocking directorates.” These thresholds trigger prohibitions on certain interlocking memberships on corporate boards of directors. They are now $41,034,000 for Section 8(a)(l) and $4,103,400 for Section 8(a)(2)(A).
What are the HSR Filing Requirements?
HSR filings are premerger notifications that parties to a proposed merger transaction make with both the Federal Trade Commission and the Department of Justice. Subject to minor exceptions, both the seller and the buyer must each separately file with both agencies. Once the filing is made, a mandatory waiting period begins.
What Agencies Have Jurisdiction Over HSR Filings?
Both the U.S. Department of Justice and the Federal Trade Commission have jurisdiction over HSR filings. Because either agency may choose to review a merger, parties must submit HSR filings to both agencies.
When Does the Mandatory Waiting Period Begin?
The HSR waiting period begins the day after both the FTC and DOJ receive complete HSR filings from both the buyer and the seller of the transaction (for most filings). If one of the filings is not deemed complete, it may be “bounced,” where the waiting period is delayed, until the deficiencies identified by the agency are correct.
How Long is the Waiting Period?
For most filings, the mandatory initial waiting period is 30 days, beginning the day after the filings are received complete and ending at 11:59pm on the 30th day thereafter (unless a federal holiday is on either date).
If an agency makes a request for additional information (called a “Second Request”), the transaction cannot be consummated at the expiration of the initial waiting period. Typically Second Requests are issued on the last day before the expiration of the initial waiting period.
What Happens During the Waiting Period?
During the waiting period, an agency will review the filing. If the agency decides not to take further action, it will do nothing and, when the waiting period expires, the parties are free to consummate the transaction. The agency may also grant an "early termination," discussed more below.
If an agency decides to conduct further review, it will issue a request for additional information called a “Second Request.”
Can We Do Anything to Speed It up?
Either party may request “early termination” (ET) of the waiting period. Only one party to the transaction need request ET, but both agencies must grant the ET request for it to apply. ET may be requested in an HSR filing or made by separate request after filing. Because the agencies work on different timelines, one agency may grant long before the other. And because the agencies are independent, one agency may grant ET but not the other. For these reasons, parties should not rely on the possibility of ET. Of course, every terminations do occur.
Update: On February 4, 2021, the FTC and DOJ temporarily suspended the discretionary practice of early termination. You can listen to Steven Cernak discuss this decision on the M&A Review with CTFN Podcast.
What Happens After a Second Request?
If an agency makes a Second Request, the parties must make an attempt to “substantially comply” with the request. Once the parties comply with the request and submit valid certifications of substantial compliance, the waiting period will then end 30 days after the date of the certification.
If Consummation is Delayed, How Long is the HSR Filing Valid?
Once a transaction’s waiting period expires, the acquiring party has exactly one year from that date to consummate the transaction, regardless of whether that date falls on a weekend or holiday. After one year, the HSR filing is expired, and the parties must submit new HSR filings.
What Can We Do to Run Time?
Acquiring parties seeking to run time may “withdraw and refile” its HSR filing without paying a new filing fee, but it provides for a new waiting period. This can benefit both the filing parties and the agencies because it can allow agencies to timely review the transaction without issuing a Second Request. The withdraw and refile process is not available if a Second Request has already been issued.
Important 2021 Development
In 2021 in response to a surge in HSR filings, the FTC took steps to conserve resources. Those steps have slowed down merger reviews and increased uncertainty for the parties. Early in the year, the FTC suspended its early termination program under which transactions that posed no competition issues could be cleared to close before the end of the initial 30-day period. In August, the FTC announced that because it could not be confident that it could determine which transactions required a “second request,” the parties to some number of transactions would receive a letter at the end of the initial waiting period informing them that the FTC was still investigating and might try to unwind any mergers that closed.