Major Changes to Hart-Scott-Rodino Premerger Notification Requirements
Significant amendments have recently been made to the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), a federal law which requires that parties to certain mergers and acquisitions file a notification and report form with the Federal Trade Commission and the United States Department of Justice prior to completing a proposed transaction. The HSR Act requires that after the required report is filed, the parties observe a waiting period prior to consummation of a proposed transaction, during which time these enforcement agencies review the filings to determine whether a proposed transaction may be anticompetitive.
Prior to the amendments, which became effective February 1, 2001, parties to a proposed transaction were generally required to file these federal notifications if (i) as a result of the transaction, the acquiring person held either (a) a total amount of voting securities or assets valued in excess of $15 million or (b) voting securities exceeding certain percentage thresholds, the lowest being 15 percent or more of the voting securities of the other party ("size of the transaction" test) and (ii) one party to the transaction had sales or assets of at least $100 million and the other of at least $10 million ("size of the parties" test).
The new changes affect each of these two tests. First, there was an increase from $15 million to $50 million in the "size of the transaction" value threshold, and the 15 percent size threshold has been eliminated. This means that a transaction will not be reportable under the HSR Act if it results in an acquiring person holding $50 million or less of voting securities or assets of an acquired person. In addition, the amendments now require that transactions valued in excess of $200 million be reported without considering the "size of the parties" test. This test will still be applicable in transactions valued between $50 million and $200 million. All dollar thresholds (including those applicable to the revised fee structure discussed below) will be adjusted each fiscal year, beginning with fiscal year 2005, to reflect changes in the gross national product during the previous year.
Another significant change to the HSR Act was the adoption of a tiered fee structure, which replaced the flat $45,000 filing fee previously required. As amended, the fee that will be required will be based on the value of the voting securities or assets held as a result of the proposed transaction, as follows: if valued at less than $100 million, there will be a filing fee of $45,000; if valued between $100 million and less than $500 million, there will be a fee of $125,000; and if a transaction is valued at $500 million or more, the fee will be $280,000.
Two additional amendments to the HSR Act changed the length of the waiting period that follows substantial compliance with requests for additional information from 20 days to 30 days, and altered the waiting period (whether initially or after a second request for additional information) that would end on a Saturday, Sunday or legal public holiday, to the next regular business day. Finally, there have been ministerial changes to the rules and the report form not directly related to the recent amendments.
As a result of all of the foregoing amendments, it will become necessary to value all transactions with greater precision. Since completing an acquisition without filing the required prior notification or without waiting until the expiration of the statutory waiting period may result in civil penalties of up to $11,000 per day and other equitable relief, we strongly suggest that legal advice be sought at an early stage for all potential transactions.