FTC Raises Threshold for HSR Merger Reporting by a Record $10.4 Million
Required annual adjustment is a good reminder to executives to conduct timely Hart-Scott-Rodino reviews.
On January 23, 2023, the U.S. Federal Trade Commission (“FTC”) announced the Hart-Scott-Rodino (“HSR”) premerger notification thresholds would increase by 10.3%.
These changes will go into effect Feb. 27 and apply to transactions closing after that date.
The minimum threshold for HSR merger reporting is now $111.4 million, up from $101 million in 2022.
Just a few days prior, on Jan. 20, 2023, the FTC announced thresholds for Section 8 would increase as well and that this change was effective immediately. Section 8 generally prohibits officers and directors from rival companies from serving as each other’s directors,
Increased Pre-Merger Reporting Thresholds
Under the new thresholds, transactions resulting in the acquirer obtaining voting securities, assets, or non-corporate interest of the target company of more than $445.5 million are reportable regardless of the size of the companies. Transactions in which the acquirer obtains voting securities, assets, or non-corporate interest of the target company of more than $111.4 million but less than $445.5 million will be reportable if the companies meet the “size of person” test. Under this test, transactions will be reportable if either party has net sales or total assets of more than $222.7 and the other party has net sales or total assets of more than $22.3 million.
The FTC also increased potential civil penalties for HSR violations as part of its annual threshold adjustment. The per-day maximum penalty for violations increased from $46,517 to $50,120. This change went into effect Jan. 11, 2023.
Increase to Section 8 Thresholds
Section 8(a)(1) generally prohibits officers or directors from large competing corporations from sitting on each other’s boards. Essentially, the statute aims to proactively prevent interlocking directorates when agreement between the companies to eliminate competition would violate the antitrust laws. For example, Google and Apple could have shared directors when Google was just a search engine, but would have run afoul of Section 8(a)(1) if they did so after Google launched Andriod to compete with the iPhone. Under the new threshold, Section 8(a)(1) prevents interlocking directors where the capital, surplus, and undivided profits of each company exceeds $45,257,000.
Section 8(a)(2), on the other hand, exempts competing corporations from Section 8(a)(1) when the competitive sales are de minimis or represent only a small portion of the overall business. Under the new threshold, 8(a)(1) does not apply to corporations with competitive sales of less than $4,525,700. Competitive sales are “the gross revenues for all products and services sold by one corporation in competition with the other, determined on the basis of annual gross revenues for such products and services in that corporation’s last completed fiscal year.”
Early Review by Experts is Key to Ensuring Antitrust Compliance
Valuing companies and transactions for purposes of HSR applicability can be a highly complex and technical endeavor. As a result, companies often do not know they must make an HSR filing. This oversight, at best, can significantly delay a transaction or, at worst, cause significant civil penalties of more than $50,000 per day. It is, therefore, critical that companies engage antitrust experts early in the process to ensure compliance and avoid potential pitfalls.
This is also true for non-reportable deals between competitors. Companies often think their deal will escape antitrust review simply because it is not reportable under the HSR Act, but this is not true – Section 7 of the Clayton Act prohibits any merger that “may” substantially lessen competition in any line of commerce. In light of Section 7’s incipiency standard, federal agencies not only consider size of the deal but also factors such as the role of the acquired company in market (e.g., whether it is a “maverick” or “disruptor”) and whether the acquiring company has exhibited a pattern of purchasing small competitors.