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The Hart-Scott-Rodino (HSR) Act applies to deals that meet both a size-of transaction and a size-of-parties threshold. For HSR-reportable deals, the buyer must not obtain beneficial ownership over the stock, assets or non-corporate interests at issue until the applicable HSR waiting period expires or is terminated early.
In a statement issued on April 29, 2011, the Premerger Notification Office (PNO) cautioned against the use of escrow arrangements in HSR-reportable transactions before the end of the waiting period. The PNO stated that the use of escrow arrangements is likely to transfer beneficial ownership to the buyer, violating the HSR Act, which could result in civil penalties of up to $16,000 a day for each day the parties are in violation of the Act.
In "exceptional circumstances," the parties to a transaction may approach the PNO for approval before using an escrow. While the PNO does not offer examples of when the use of escrows may be appropriate, it does clearly state that exigent timing is not sufficient to obtain advanced approval. Additionally, structuring the escrow to prevent the transfer of beneficial ownership to the acquiring party will be necessary, but not sufficient, to obtain approval from the PNO.
Thus, in all reportable transactions, and particularly those in which timing of consummation is of the essence, attention to the HSR filing process and the associated waiting periods should be considered early on in the deal negotiations.
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