Section 7A of the Clayton Act, which was added by the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “HSR Act”), provides that certain mergers and acquisitions of voting securities or assets may not take place unless prior notification has been filed with the Department of Justice (DOJ) and the Federal Trade Commission (FTC) and the specified waiting period has expired. The waiting period ordinarily is 30 days (15 days for cash tender offers or bankruptcy sales) but may be either extended or shortened under certain circumstances by the agencies, which also have the right to request additional information or documents regarding the proposed transaction. If such a request is made, the waiting period is extended until 20 days following delivery of all of the supplemental information or documents to the appropriate agency. The HSR Act also applies to formation of certain joint ventures; acquisitions of intellectual property assets, including exclusive licenses; and formation and acquisitions of ownership interests in non-corporate entities (i.e., partnerships and limited liability companies). Cooperation between the participants in a prospective merger during the mandatory premerger waiting period may itself be a violation of the antitrust laws and it is important for the participants to continue operating as separate and independent businesses and competitors in order to avoid “gun jumping” liability.
Under the HSR Act, notification must be provided (unless there is an applicable exemption) if: (1) at least one of the parties (i.e., either the acquiring or the acquired person) is engaged in commerce or in any activity affecting interstate commerce (the “commerce” test”); (2) one party to the transaction has annual sales or assets of at least $100 million and the other party $10 million (the “size-of-person” test) (the $100 million and $10 million thresholds will increase as provided in the indexing procedures described below); and (3) as a result of such acquisition, the acquiring person will hold voting securities or assets worth in the aggregate more than $50 million (increased as provided in the indexing procedures described below) (the “size-of-transaction” test).
Regardless of whether the transaction falls within any of the above-listed requirements, notification is also mandated if the transaction meets the commerce test and, as a result of the acquisition, the acquiring person would hold voting securities or assets worth in the aggregate more than $200 million (increased as provided in the indexing procedures described below). On the other hand, $50 million (increased as provided in the indexing procedures described below) is an absolute floor on reporting — if an acquiring person would not hold voting securities or assets valued at greater than the than applicable threshold in the size-of-transaction test, the acquisition is not reportable.
All of the dollar-amount thresholds described above are subject to indexing commencing in 2005 based on annual changes in the gross national product. Accordingly, by 2015 the thresholds referred to above had increased as follows: $10 million to $15.3 million; $50 million to $76.3 million; $100 million to $152.5 million; and $200 million to $305.1 million. As general rule of thumb, unless a specific exemption applies, notification must be made for all acquisitions valued at more than $76.3 million if either party has at least $152.5 million in annual net sales or total assets and the other has at least $15.3 million in annual net sales or total assets. The size-of-person test is not applicable in cases where the value of the securities or assets being acquired equals or exceeds $305.1 million. A filing fee, ranging from $45,000 to $280,000, depending on the size of the transaction, must be paid in connection with filings under the HSR Act. The thresholds described above are effective for transactions on or after February 20, 2015.
For further discussion of Hart-Scott-Rodino Act filing requirements, including various exception that might apply to remove a transaction from those requirements, see Corporate Mergers Gutterman, Business Transactions Solutions §§ 297:47 et seq.).