The Federal Trade Commission (FTC) announced on January 23, 2023, the implementation of increased thresholds for merger notifications under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act) as well as increased filing fees for reportable transactions.
Notification Threshold Increases
Pursuant to the HSR Act, all transactions which meet or exceed the jurisdictional thresholds, and which do not satisfy an exemption, must be notified to the FTC and US Department of Justice (DOJ) through an HSR filing. The newly announced thresholds will apply to all transactions that close on or after the effective date. The effective date is 30 days after the notice is published in the Federal Register; the notice is currently scheduled to be published on January 26, 2023, making the effective date February 27, 2023.
The threshold changes are tied to changes in the gross national product (GNP).
The base statutory size-of-transaction threshold, the lowest threshold requiring notification, will increase to $111.4 million.
The upper statutory size-of-transaction test, encompassing all transactions valued above a certain size (regardless of the size-of-person test being met), will increase to $445.5 million.
The statutory size-of-person lower and upper thresholds (which apply to deals valued above $111.4 million but not above $445.5) will increase to $22.3 million and $222.7 million, respectively.
Merger Filing Fee Increases
The passage of the Merger Filing Fee Modernization Act on December 29, 2022, altered the filing fee thresholds as well as significantly increased the fees imposed on transacting parties when making an HSR filing in excess of $1 billion. Like the notification threshold increase, these filing fee adjustments will also take effect 30 days after publication in the Federal Register, meaning the increased fees will also go into effect on February 27, 2023.
The new transaction thresholds and accompanying fees are provided in the table below:
As with the notification thresholds, the filing fee thresholds and fee amounts will now be subject to annual adjustment at the start of each year based on GNP for thresholds and consumer price index (CPI) for fee amounts.
• DOJ Sees First Merger Win After String of Losses • FTC Brings Suit Against Microsoft/Activision • Updated Merger Guidelines Expected Soon • Merger Fees Changing • The EC Launches a Consultation on Its Draft Revised Market Definition Notice • UK Orders a Chinese Firm to Divest Its 83% Controlling Stake in a Welsh Semiconductor Wafer Factory Based on National Security Concerns
The Federal Trade Commission (FTC) and the US Department of Justice (DOJ) pursued aggressive antitrust and competition enforcement agendas this past year and show no signs of slowing down in 2023. Prepare for the year ahead by reviewing our 2023 Regulatory Forecast for the antitrust and competition space.
Click the links below to download a one-pager of takeaways for each area.
Antitrust & Competition | Merger Control: The Biden administration prioritized aggressive antitrust merger enforcement in 2022, especially in the healthcare, labor, consumer and technology sectors. Learn how this trend will continue in 2023 as the FTC and DOJ expand their toolbox to challenge transactions.
Antitrust Litigation: In 2022, the DOJ and FTC took boundary-shifting antitrust enforcement positions and proved they are not afraid to pursue novel legal theories. The DOJ alone has more open grand jury investigations and charged more cases in 2022 than it has in decades. The DOJ and the FTC also requested historic budget increases to support their aggressive agendas. Additional resources mean more regulators are available to investigate and litigate alleged anticompetitive conduct. Find out more about the aggressive enforcement by the antitrust agencies and private plaintiffs that is expected to continue in 2023.
Consumer Protection: Enforcement by the FTC, among other consumer protection regulators, was particularly vigorous in 2022 and the trend is expected to continue in 2023. In light of the increased regulatory focus on social media, marketing and advertising, businesses should be aware of the ever-evolving guidance in this realm. Read about the proposed rulemaking and revisions on the horizon this year.
On December 23, 2022, Regulation (EU) 2022/2560 of December 14, 2022 on foreign subsidies distorting the internal market (FSR) was published in the Official Journal of the European Union. The FSR introduces a new regulatory hurdle for M&A transactions in the European Union (EU), in addition to merger control and foreign direct investment screening. The FSR’s impact cannot be overstated as it introduces two mandatory pre-closing filing regimes and it gives the Commission wide-reaching ex officio investigative and intervention powers. Soon, the Commission will also launch a public consultation on a draft implementing regulation that should further detail and clarify a number of concepts and requirements of the FSR.
The bulk of the FSR will apply as of July 12, 2023. Importantly, the notification requirements for M&A transactions and public procurement procedures will apply as of October 12, 2023.
Congress has passed—and President Biden is expected to sign into law today—the Merger Filing Fee Modernization Act, which will significantly change antitrust merger notification regulations under the Hart-Scott-Rodino Act (HSR Act), 15 U.S.C. § 18a.
Included in the changes is language substantially altering the framework for the filing fee amounts and the deal value thresholds triggering those HSR filing fees.
Per a press release from Senator Amy Klobuchar (D-MN), the changes will go into effect in 2023. We will update when we have more clarity on timing.
In addition to the filing fee changes, the legislation imposes a new obligation to report with an HSR filing information on foreign subsidies from certain foreign governments, noted as “adversaries.” We will have to see how the Federal Trade Commission (FTC) and the US Department of Justice implement this requirement in a revision to the HSR form and instructions.
Notably and perhaps more significantly, while not part of this legislation, FTC Chair Lina Khan has indicated that the agencies also are working on revisions to the HSR rules that will require more substantive disclosures of information to assist in the agency review process. Overall, the legislation and expected proposed changes to the HSR form, as well as the anticipated new Merger Guidelines, likely will significantly change HSR practice moving forward.
DETAILS REGARDING FILING FEES AND THRESHOLDS
The new deal value thresholds and filing fee amounts are as follows:
The new thresholds and fees will be adjusted annually at the beginning of each year.
For an understanding of how this legislation changes the prior threshold and fee framework, the following table shows the impact of the legislation on prior HSR filing fees:
US District Judge Florence Pan’s decision to block Penguin Random House LLC’s planned $2.2 billion acquisition of Simon & Schuster represented the US Department of Justice (DOJ) Antitrust Division’s first major merger win following a string of losses this fall. Judge Pan’s decision is significant because she accepted the DOJ’s theory that the merger would lead to lower compensation for best-selling authors. This decision may embolden the DOJ and Federal Trade Commission (FTC) to challenge more transactions based on the impact on labor and salaries rather than the impact on consumer prices.
In the United States, the US Department of Justice (DOJ) and the Federal Trade Commission (FTC) lost four merger challenges (Illumina/GRAIL, UnitedHealth/Change Healthcare, U.S. Sugar/Imperial Sugar and Booz Allen/EverWatch) in September. The losses demonstrate that parties willing to litigate can have success in court. The absence of “smoking gun” documents and lack of a presumption of anticompetitive effects (based on market shares and concentration) made these cases very difficult for the government. The judges in these cases tended to credit structural and behavioral remedies that the government felt were insufficient and were persuaded by real-world testimony from executives and third parties contradicting the government’s theories of changed economic incentives from the transactions.
In July 2022, the European Parliament published the final text of the European Union’s upcoming instrument to address distortive foreign subsidies, following a provisional political agreement reached between the EU lawmakers in June (Foreign Subsidies Regulation). The Foreign Subsidies Regulation introduces a new mandatory screening mechanism including notification obligations and the European Commission’s right of ex officio investigations, which will have a considerable impact on M&A transactions and procurement procedures.
The Foreign Subsidies Regulation will enter into force once it is formally adopted by EU lawmakers and published in the Official Journal. It will become directly applicable across the European Union six months after entry into force. The notification obligations will start to apply nine months after entry into force. The Commission also is currently drafting procedural rules on how to notify transactions, how to calculate time limits, and the process for preliminary reviews and in-depth probes when there is a suspicion of distortive foreign subsidies.
The US Department of Justice’s and the Federal Trade Commission’s losses in three merger challenges in September and a fourth in October demonstrate that merging parties can close difficult transactions if willing to fight the agencies in court. In this Law360 article, McDermott’s Jon B. Dubrow, Joel R. Grosberg and Matt Evola discuss these four cases and what they mean for merging parties.
In the United States, parties continue to be cautious in litigating challenged transactions. Since January 2021, the US Federal Trade Commission (FTC) and Department of Justice (DOJ) filed lawsuits (or threatened to sue) to block 16 transactions. Of those transactions, 12 were abandoned and six are in various stages of litigation. The data suggest that the FTC’s and DOJ’s aggressive merger enforcement policy is raising the stakes for parties to potential mergers and acquisitions, including an increased willingness by the agencies to litigate potentially problematic transactions.
Between May 6 and June 3, 2022, the European Commission (Commission) held a public consultation to seek views on the draft revised Merger Implementing Regulation (Implementing Regulation) and the Notice on Simplified Procedure. This consultation was launched in the context of the Commission’s review process of the procedural and jurisdictional aspects of EU merger control.
On April 20, 2022, the UK government proposed new measures to boost consumer protection rights and competition rules. In particular, the UK government’s reforms aim to strengthen the Competition & Markets Authority’s (CMA) powers and alleviate burdens on smaller companies.