On January 26, 2018, the Federal Trade Commission (FTC) announced the annual adjustment of the thresholds that trigger premerger reporting obligations (and the mandatory waiting period) under the Hart-Scott Rodino (HSR) Act. Both notices were published in the Federal Register on January 29. The new premerger reporting thresholds will become effective thirty calendar days after publication of notice in the Federal Register (that is, on February 28) and will remain in effect until the 2019 adjustment. The FTC also announced adjusted thresholds that trigger prohibitions on certain interlocking memberships on corporate boards of directors.
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).
Basic Size Tests
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. The most significant effect of the annual indexing is to increase the “size of transaction”1 and “size of persons”2 tests:
- Transactions resulting in holdings valued at or below $84.4 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 $337.6 million are reportable (unless exempted) regardless of the size of persons.
- Transactions resulting in holdings valued at more than $84.4 million but less than $337.6 million are reportable (unless exempted) if the “size of persons” test is satisfied.
- A person with $168.8 million in total assets or annual net sales acquires (or acquires from) a manufacturing person with $16.9 million in total assets or annual net sales; or
- A person with $168.8 million in total assets or annual net sales acquires (or acquires from) a non-manufacturing person with $16.9 million in total assets; or
- A person with $16.9 million in total assets or annual net sales acquires (or acquires from) a person with $168.8 million in total assets or annual net sales.