Hart-Scott-Rodino Reporting Thresholds and Filing Fee Structure to Change Significantly
On January 26, 2023, the FTC published a Notice in the Federal Register announcing the latest annual adjustments to the statutory thresholds under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (15 U.S.C. § 18a) (HSR). These annual adjustments are pegged to changes in gross national product. This year’s adjustment is the largest ever since the thresholds first became annually adjusted, breaking last year’s record increase.
Once the new thresholds come into effect, the HSR size-of-transaction threshold will increase from $101 million to $111.4 million. The revised HSR thresholds will apply for transactions that close on or after February 27, 2023.
On January 20, 2023, the FTC also published a Notice in the Federal Register with the latest annual adjustments to the statutory thresholds under Section 8 of the Clayton Act (15 U.S.C. § 19). The revised Section 8 thresholds are effective immediately.
Size-of-Transaction Test (Original: $50 Million; New as of February 27, 2023: $111.4 Million)
The 2000 HSR amendments raised the size-of-transaction test to $50 million. This figure is currently $101 million, based upon the 2022 annual adjustment. On February 27, 2023, however, this threshold will increase to $111.4 million. Accordingly, for transactions that close on or after February 27, 2023, no HSR filing will be required unless the acquisition will result in the acquiring person holding an aggregate total amount of voting securities, non-corporate interests, and/or assets of the acquired person in excess of $111.4 million.
Size-of-Person Test (Original: $10 Million/$100 Million; New as of February 27, 2023: $22.3 Million/$222.7 Million)
Under the new adjustments, acquisitions valued above $445.5 million will be reportable regardless of the size of the parties. Acquisitions valued at greater than $111.4 million, but less than or equal to $445.5 million, will be reportable only if the size-of-person test is separately met. The revised thresholds adjust the size-of-person test so that it will be met if (i) either the acquiring or acquired person has total assets or annual net sales of $222.7 million or more and (ii) the other person has total assets or, in certain situations, annual net sales of $22.3 million or more.
Notification Thresholds for Acquisitions of Voting Securities
For acquisitions of voting securities, an acquiring person files for the highest applicable notification threshold among five choices. Acquiring 50 percent or greater of an issuer’s voting securities is the highest threshold, but below that level there are four different tiers for reporting acquisitions of minority interests in voting securities. The notification threshold may determine, for example, whether a subsequent acquisition of additional voting securities in the same issuer will require another HSR filing. The new notification thresholds will be, in ascending order:
An aggregate total amount of voting securities valued at greater than $111.4 million but less than $222.7 million
An aggregate total amount of voting securities valued at $222.7 million or greater but less than $1.1137 billion
An aggregate total amount of voting securities valued at $1.1137 billion or greater
Twenty-five percent of an issuer’s outstanding voting securities, if valued at greater than $2.2274 billion
Fifty percent of an issuer’s outstanding voting securities, if valued at greater than $111.4 million
Filing Fee Thresholds
On December 29, 2022, President Biden signed into law the 2023 Consolidated Appropriations Act, which includes the Merger Filing Fee Modernization Act of 2022. The new law significantly changes the filing fees for notifications under the HSR Act. The FTC’s January 26, 2023 Federal Register Notice announcing the latest annual adjustments to the HSR statutory thresholds also announces the new HSR filing fees required by the Merger Filing Fee Modernization Act of 2022. The new filing fees take effect on February 27, 2023.
Under the new filing fee structure, some fees will be lower and some will be higher than under the prior filing fee structure. As with the prior filing fee structure, the new structure has filing fees associated with acquisition valuation ranges, with higher filing fees associated with higher acquisition valuation ranges. Both the filing fees and the valuation ranges have changed under the new structure: The lowest filing fee has gone down, from $45,000 to $30,000, and the highest filing fee has substantially increased, from $280,000 to $2.25 million.
The new filing fees as of February 27, 2023, based on the Size of Transaction, are:
The new filing fees are subject to an annual increase each fiscal year — beginning after September 30, 2023 — based on the percentage increase, if any, in the consumer price index if the percentage increase is one percent or more. Further, the new thresholds are subject to annual adjustment each fiscal year — beginning after September 30, 2023 — based on changes in gross national product.
The filing fee changes may impact parties’ decisions in some transactions on whether to seek a split of the filing fee or on when to make an HSR filing based on a letter of intent as opposed to a definitive agreement.
Most, although not all, of the dollar amounts in the HSR rules will be adjusted upward based upon the threshold indexing discussed above. For purposes of disclosing past asset acquisitions for Item 8 of the HSR form, and for analyzing a potential past failure to file under HSR, it still is necessary to look at the thresholds that were in place at the time of the prior acquisition. It remains important for parties to be careful in determining if a threshold is met given that the process can be complex, the rules are highly technical, and failure to comply with HSR can result in significant civil penalties. Incidentally, the maximum civil penalty was recently increased to up to $50,120 for each day of noncompliance.
Another HSR filing change under the Merger Filing Fee Modernization Act of 2022 is a requirement that persons filing under the HSR Act that receive a subsidy from a “foreign entity of concern” must include in their HSR filing information regarding that subsidy. The new law calls for rulemaking to implement this requirement. Accordingly, this provision will not immediately impact the information required for HSR filings. Foley plans to monitor the rulemaking process.
Interlocking Directorates Thresholds (Original: $10 Million; New as of January 20, 2023: $45,257,000)
Finally, in a separate Federal Register notice, the FTC updated the jurisdictional threshold for interlocking directorates under Section 8 of the Clayton Act. Section 8 prohibits, subject to certain exceptions, persons from serving as an officer or director of two competing corporations (a practice known as “interlocking”), provided that each corporation has “capital, surplus, and undivided profits” above the statutory threshold. The 1990 amendments to Section 8 set this threshold at $10 million, but based on the latest annual adjustment, the threshold has changed to $45,257,000.
Section 8 also has three safe harbor exceptions. One exception states that Section 8 does not apply if the competitive sales of either interlocked corporation are less than $1 million in 1989 dollars, as adjusted annually. This safe harbor has adjusted to $4,525,700 based on the new thresholds.
Alan D. Rutenberg also contributed to this article.