Premerger Regulations: Ensuring Fair Competition
The Hart-Scott-Rodino Antitrust Improvements Act of 1976 mandates that large companies file notifications with the Federal Trade Commission (FTC) and the Antitrust Division of the Department of Justice before certain mergers, acquisitions, or tender offers occur.
This law requires companies planning to merge to submit an HSR Form, also referred to as a “Notification and Report Form for Certain Mergers and Acquisitions,” commonly known as a premerger notification report. This allows regulators to review the proposed merger under antitrust laws.
Signed into law by President Gerald Ford as amendments to existing antitrust laws, included the Clayton Antitrust Act, the Hart-Scott-Rodino Antitrust Improvements Act of 1976 is also called the HSR Act or Public Law 94-435.
Key Takeaways
- The HSR Act mandates that companies file premerger notifications with the FTC and the Department of Justice for particular acquisitions.
- The need for premerger notifications depends on three factors: commerce nature, the size of the involved parties, and transaction size.
- Regulators may request more detail, negotiate concessions, or seek to preliminarily enjoin the transaction if anti-competitive concerns arise.
How the Hart-Scott-Rodino Act Operates and Protects Competition
Once companies file the requisite forms, a mandated waiting period begins. Typically, this period is 30 days, or 15 days for cash tender offers or acquisitions involving bankruptcy.
The transaction can move forward once the waiting period ends, or if the government decides to terminate the period earlier. Should regulators identify anti-competitive issues, they may require additional details from the companies, negotiate measures to restore competitive balance, or seek to block the transaction by filing for a preliminary injunction in court.
Tests to Pass for Premerger Filing
The commerce test stipulates that any entity involved in the transaction must partake in commerce or activities affecting commerce—a broadly met requirement.
The size-of-person test (as of 2020) stipulates that either the acquiring or acquired entity must have total assets or annual net sales of at least $188 million, while the other party must have assets or net sales of at least $18.8 million.
The size-of-transaction test is fulfilled if the transaction involves acquiring assets or voting securities worth at least $94 million as of 2020, or acquiring 15% or more of voting securities leading to control of an entity with assets or net sales of at least $94 million.
For 2020, the base filing threshold is $94 million, with a size-of-person threshold between $18.8 million and $188 million, and a size-of-transaction threshold applying to transactions worth $376 million or more.
Special Considerations for Your Transactions
HSR forms accompany a filing fee, which varies based on transaction size:
- Transactions between $94 million and $188 million incur a $45,000 fee.
- Transactions between $188 million and $940.1 million incur a $125,000 fee.
- Transactions greater than $940.1 million require a $280,000 fee.
Embracing a clear understanding of the Hart-Scott-Rodino Act not only aids compliance but also paves the way for smooth, lawful mergers and acquisitions.
Related Terms: Federal Trade Commission, Mergers, Antitrust Laws, Clayton Antitrust Act, Tender Offers
References
- Federal Trade Commission. “Hart-Scott-Rodino Antitrust Improvements Act of 1976”.
- Federal Trade Commission. “Antitrust Improvements Acts Notification and Report Form for Certain Mergers and Acquisitions”, Pages 1-11.
- Ford Library Museum. “9/30/76 HR8532 Hart‑Scott‑Rodino Antitrust Amendments Act of 1976 (1)”, Page 27.
- U.S. Congress. “Public Law 94-435”, Pages 1-15.
- Federal Trade Commission. “Steps for Determining Whether an HSR Filing is Required”.
- Federal Trade Commission. “Premerger Notification and the Merger Review Process”.
- Federal Register. “Vol. 85, No. 18 - Tuesday, January 28, 2020”, Pages 4984 and 4985.
- Federal Trade Commission. “Filing Fee Information”.
