Hart-Scott-Rodino Reporting Thresholds to Increase Significantly
On January 24, 2022, the Federal Register published an FTC notice 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.
Once the new thresholds come into effect, the HSR size-of-transaction threshold will increase from $92 million to $101 million. The revised HSR thresholds will apply for transactions that close on or after February 23, 2022.
On January 24, 2022, the Federal Register also published an FTC notice 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 23, 2022: $101 Million)
The 2000 HSR amendments raised the size-of-transaction test to $50 million. This figure is currently $92 million, based upon the 2021 annual adjustment. On February 23, 2022, however, this threshold will increase to $101 million. Accordingly, for transactions that close on or after February 23, 2022, 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 $101 million.
Size-of-Person Test (Original: $10 Million/$100 Million; New as of February 23, 2022: $20.2 Million/$202 Million)
Under the new adjustments, acquisitions valued above $403.9 million will be reportable regardless of the size of the parties. Acquisitions valued at greater than $101 million, but less than or equal to $403.9 million, will be reportable only if the size-of-person test is 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 $202 million or more and (ii) the other person has total assets or, in certain situations, annual net sales of $20.2 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 $101 million but less than $202 million
An aggregate total amount of voting securities valued at $202 million or greater but less than $1.0098 billion
An aggregate total amount of voting securities valued at $1.0098 billion or greater
Twenty-five percent of an issuer’s outstanding voting securities, if valued at greater than $2.0196 billion
Fifty percent of an issuer’s outstanding voting securities, if valued at greater than $101 million
Filing Fee Thresholds
The filing fee amounts are not changing but, because the thresholds for the application of the fees are increasing, for transactions on the margin the filing fee for an HSR notification is effectively lower.
For transactions where the aggregate amount of assets, non-corporate interests, and voting securities to be held as a result of the acquisition will be more than $101 million, but less than $202 million, the filing fee will be $45,000.
For transactions where the aggregate amount of assets, non-corporate interests, and voting securities to be held as a result of the acquisition will be $202 million or more, but less than $1.0098 billion, the filing fee will be $125,000.
For transactions where the aggregate amount of assets, non-corporate interests, and voting securities to be held as a result of the acquisition will be $1.0098 billion or more, the filing fee will be $280,000.
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 very careful in determining if a threshold is met given that the process can be very 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 $46,517 for each day of noncompliance.
Interlocking Directorates Thresholds (Original: $10 Million; New as of January 24, 2022: $41,034,000)
Finally, in a separate Federal Register notice, the Federal Trade Commission 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 $41,034,000.
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 $4,103,400 based on the new thresholds.