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Hart-Scott-Rodino

Federal Trade Commission Announces Revised, Higher Pre-merger Filing Thresholds

by Emily Townsend | Jan 21, 2014 | FTC Developments, Mergers & Acquisitions

On January 17, 2014, the Federal Trade Commission (FTC) announced revised, higher Hart-Scott-Rodino (HSR) pre-merger notification filing thresholds. The FTC adjusts the HSR thresholds annually to represent the increase or decrease in GNP. These revised thresholds will become effective 30 days from the date on which notice is published in the Federal Register, which should occur within the next week. As such, we expect that these new thresholds will become effective by late February. Once we know the precise effective date for these adjusted thresholds, we will publish an On The Subject that can be distributed to clients. Clients with transactions pending may benefit from the higher threshold if the transaction closes on or after the effective date and ultimately falls below the revised threshold.

Most notably, the size-of-transaction threshold, which frequently determines whether a transaction requires an HSR notification, will increase from $70.9 million to $75.9 million. Other thresholds will increase as well, including thresholds for the size-of-person test, filing fees and certain exemptions. The revised thresholds are as follows:

Original Threshold

2014 Adjusted Threshold

$10 million $15.2 million $50 million $75.9 million $100 million $151.7 million $110 million $166.9 million $200 million $303.4 million $500 million $758.6 million

Generally, a transaction requires an HSR notification if it meets the applicable size-of-transaction and/or the size-of-person tests, described briefly below, and does not fall within any exemptions.

A transaction meets the size-of-transaction test if, as a result of the transaction, the acquiring party holds assets, voting securities or a controlling interest in a non-corporate entity valued in excess of

$50 million, as adjusted ($75.9 million upon the effective date of these revised thresholds), assuming the size-of-person test is met, or
$200 million, as adjusted ($303.4 million upon the effective date of these revised thresholds) — this threshold applies to transactions even if the size-of-person test below is not met.

For the size-of-person test, upon the effective date of these revised thresholds, a transaction resulting in the acquiring party holding assets, voting securities or a controlling interest in a non-corporate entity valued at $75.9 million or more, but less than $303.4 million, is generally reportable if one party has net sales or total assets of at least $10 million, as adjusted ($15.2 million upon the effective date of these revised thresholds), and the other party has net sales or total assets of at least $100 million, as adjusted ($151.7 million upon the effective date of these revised thresholds).

Although the filing fees for HSR notifications will not change at this time (although this is something currently under review), the thresholds (based upon the size-of-transaction) that determine the correct filing fee will also adjust:

Filing Fee

Size-of-Transaction

$45,000 $75.9 million, but less than $151.7 million $125,000 $151.7 million, but less than $758.6 million $280,000 $758.6 million or more

Again, these revised thresholds will become effective 30 days after publication of notice in the Federal Register.

FTC and DOJ Accepting HSR Filings During Shutdown

by Emily Townsend | Oct 1, 2013 | DOJ Developments, FTC Developments, Mergers & Acquisitions

by Gregory Heltzer

The Federal Trade Commission (FTC) and Department of Justice (DOJ) both announced that they will have limited staff on hand to accept Hart-Scott-Rodino (HSR) premerger notification filings during the U.S. federal government shutdown. The HSR Act requires that parties subject to the Act must wait 30 days before closing their transaction. This waiting period provides the agencies with time to determine whether to challenge a transaction prior to closing. During the shutdown, the FTC will continue HSR investigations to the extent that “a failure by the government to challenge the transaction before it is consummated will result in a substantial impairment of the government’s ability to secure effective relief at a later time.” (See, FTC Shutdown Plan.) Likewise, the DOJ will also prepare cases that must be filed due to expiration of the HSR waiting period. (See, DOJ Shutdown Plan.) We will provide updates if and when we learn more regarding the protocols for merger review during the shutdown.

Barry Diller to Pay $480,000 Fine for Failure to File HSR

by Emily Townsend | Jul 2, 2013 | FTC Developments

by Carla A. R. Hine

The Federal Trade Commission (FTC) announced a settlement today with Barry Diller for failing to file a Hart-Scott-Rodino (HSR) notification in connection with his acquisition of shares of Coca-Cola over the course of 2010-2012. Diller will pay $480,000 in civil penalties.

Diller acquired Coca-Cola voting securities, and as a result of those acquisitions, held Coca-Cola shares valued in excess of the HSR thresholds, but did not file or observe the HSR waiting period. Diller made corrective filings over a year ago, which alerted the FTC to HSR Act violations. Diller had previously made a corrective filing in a separate transaction, and the FTC did not impose a penalty at that time but did note that “Mr. Diller is accountable for instituting an effective program to ensure full compliance with the [HSR] Act’s requirements.” Here, Diller only made the corrective filings after in-house counsel for Coca-Cola inquired as to whether an HSR filing was required for his most recent acquisition.

The FTC noted specifically that Diller’s acquisition did not fall within the “investment only” exemption – which generally exempts acquisitions of voting securities where the acquirer will hold less than 10 percent of the voting securities of the issuer and will remain a passive investor – because Diller intended to “participate in the formulation, determination, or direction of the basic business decisions of Coke” as a Coca-Cola board member.

This announcement follows the FTC’s June 20 announcement that MacAndrews & Forbes agreed to pay $720,000 in connection with its failure to file HSR. Like Diller’s situation, MacAndrews & Forbes also had a prior violation of the HSR Act in connection with a separate transaction. While not an official enforcement policy, the FTC appears to give first-time offenders one free pass, but will impose civil penalties where subsequent violations occur.

Institutional investors, executives and directors should take note of this case. Some institutional investors may be able to take advantage of the “investment only” exemption where their holdings remain below 10 percent and they do not take an active role in the business decisions of the company. However, the “investment only” exemption does not apply to executives or directors (like Diller) who may acquire shares on the open market or in connection with compensation packages.

HSR Rules on Automatic Withdrawal of Filings

by Emily Townsend | Jul 1, 2013 | FTC Developments

by Carla A. R. Hine

Following the publication of proposed rules back in February, the Federal Trade Commission (FTC) has issued final rules to establish procedures for the withdrawal of Hart-Scott-Rodino (HSR) filings. The rules, which do not differ from those originally proposed in February, codify the informal “pull and refile” practice parties sometime use to allow an agency an additional 30 days to review a transaction (in the hopes of staving off a Second Request).

The rules also establish a procedure for automatically withdrawing HSR filings when parties make certain filings with the Securities and Exchange Commission (SEC) announcing that a transaction has been abandoned. In the interest of not spending resources on "hypothetical" transactions, HSR filings will be automatically withdrawn when, in the case of a tender offer (TO), the tender offer has expired, terminated or has otherwise been withdrawn, resulting in a filing of an amended Schedule TO with the SEC. In the case of a non-tender offer, an HSR will be automatically withdrawn whenever an agreement between parties is terminated and results in the filing of a Form 8-K with the SEC. Any subsequent transaction between the parties, if reportable, would be subject to a new filing and new filing fee. This rule will not let parties continue the HSR process with deals that may or may not revive themselves. The automatic withdrawal mechanism will not apply to transactions involving non-publicly traded companies and certain foreign companies.

$720,000 Civil Penalty for Failure to File HSR

by Emily Townsend | Jun 21, 2013 | DOJ Developments, FTC Developments, Mergers & Acquisitions

by Carla A. R. Hine

Today the Department of Justice (DOJ), on behalf of the Federal Trade Commission (FTC), announced a settlement with MacAndrews & Forbes for failing to file Hart-Scott-Rodino (HSR) in connection with the acquisition of voting securities of Scientific Games (SG). MacAndrews & Forbes, which is a wholly-owned holding company of Ronald Perelman, will pay $720,000 for failing to file HSR.

MacAndrews & Forbes had filed HSR and observed the waiting period for a prior acquisition of SG voting securities. Under the HSR Rules, a buyer that has filed HSR and observed the waiting period can continue to acquire voting securities of an issuer valued up to the next notification threshold for a period of five years following expiration of the HSR waiting period. (The relevant notification thresholds in acquisitions of less than 50 percent of the voting securities are $50 million, $100 million and $500 million, each of which are adjusted annually.) However, if the buyer will pass the next notification threshold, or acquire additional stock after the five year period expires, a new HSR filing is required. The HSR size-of-transaction is determined by valuing what a buyer will hold as a result of the transaction. In other words, the buyer needs to look at the value of the voting securities of an issuer it currently holds aggregated with the value of the stock it will acquire. The value of publicly traded stock, such as SG’s, is determined by looking at the lowest closing quotation price in the preceding 45 calendar days. As such, if a stock goes up in value over time, even acquisitions of small tranches of shares can put an acquiring person above a notification threshold.

That is what happened in MacAndrews & Forbes’s case. It had filed HSR in February 2007 and the five year period in which it could make additional acquisitions expired when it acquired an additional 800,000 shares, valued at $6.5 million, in June 2012. This acquisition, when aggregated with the value of SG stock MacAndrews & Forbes already held, exceeded the filing threshold. MacAndrews & Forbes realized the inadvertent failure to file, and submitted a corrective filing in September 2012. The takeaways here are to remember that HSR thresholds consider both what a buyer already holds in addition to what else it will acquire, and that subsequent potential HSR obligations need to be monitored over time.

To view the press release, click here.

To view the complaint, click here.

FTC Issues Fiscal Year 2012 HSR Report

by McDermott Will & Emery | May 6, 2013 | DOJ Developments, FTC Developments, Mergers & Acquisitions

by Carla A. R. Hine

Earlier this week, the Federal Trade Commission (FTC) issued its Hart-Scott-Rodino (HSR) report for fiscal year 2012 (FY2012), which summarizes enforcement actions and key statistics regarding number of filings, second requests and challenges. The press release and a link to the report can be found here.

Filings were relatively flat from 2011 to 2012. There were fewer second requests and there wasn’t a remarkable difference in the overall percentage of filings resulting in second requests (3.9 percent in 2011; 3.5 percent in 2012). In 2012, the FTC issued more second requests than the U.S. Department of Justice (DOJ). However, when looking at the number of second requests each agency issued as a percentage of the filings each agency was "cleared" to investigate, the FTC only issued second requests in 14.8 percent of the filings it was cleared to investigate, whereas the DOJ issued second requests in 40.8 percent of filings the agency was cleared to investigate. Overall, it is hard to read too much into these statistics other than reportable transactions remain steady and there do not seem to be any wild swings in enforcement trends.

The report also notes that of 60 corrective filings (i.e., filings where the parties closed the transaction and later realized they should have filed), two resulted in enforcement actions with civil penalties ($500,000 and $850,000).

Notification Threshold Under the Hart-Scott-Rodino Act Increased to $70.9 million

by Emily Townsend | Jan 14, 2013 | FTC Developments, Mergers & Acquisitions

by Jon B. Dubrow, Carla A. R. Hine and Joseph F. Winterscheid

The Federal Trade Commission recently announced higher reporting thresholds for pre-merger notifications filed on or after February 11, 2013.

To read the full article, click here.

Proposed Changes to HSR Rules for Pharmaceutical Companies

by Emily Townsend | Aug 14, 2012 | DOJ Developments, FTC Developments, IP Antitrust

by Jon B. Dubrow and Carla A. R. Hine

Today the Federal Trade Commission (FTC) announced proposed changes to the Hart-Scott-Rodino (HSR) premerger notification rules that will impact the types of transactions for which pharmaceutical companies will be required to file HSR notifications with the Department of Justice and FTC. The proposed rulemaking is meant to clarify when a transfer of exclusive rights to a patent in the pharmaceutical industry results in a potentially reportable acquisition of assets under the HSR Act.

Previously — although never actually codified — the FTC would determine whether the transfer of rights to a patent (usually in the form of a license) was a reportable event under the HSR Act by focusing on whether the licensor transferred the exclusive rights to "make, use and sell" under a patent. The emphasis on the transfer of the exclusive right to manufacture would result in scenarios where parties would not be required to report the transfer of patent rights because although the licensor transferred the rights to commercialize the product, it retained the right to manufacture the product.

In an effort to place substance over form, the proposed rulemaking instead suggests an "all commercially significant rights" test, where a transfer of "the exclusive rights to a patent that allow only the recipient of the exclusive patent rights to use the patent in a particular therapeutic area (or specific indication within a therapeutic area)" would constitute a potentially reportable acquisition of assets if the size-of-transaction and size-of-person (if applicable) thresholds are met, and no exemption is applicable. The proposed rules further explain that all commercially significant rights are transferred even if the patent holder retains limited manufacturing rights to provide the licensee with product(s) covered by the patent, or co-rights to assist the licensee in developing and commercializing the product(s) covered by the patent. Please note that this rule would only apply to patents within the pharmaceutical industry (as this is the industry in which these scenarios most often occur).

The text of the proposed rulemaking can be found here. The FTC is accepting comments until October 25, 2012.

UPDATE: The U.S. Federal Trade Commission’s new proposed Hart-Scott-Rodino Act rules will apply only to transfers of pharmaceutical patent rights and are expected to increase the number of filings. Click here to read the full article, "FTC’s Proposed Rules Would Generate More HSR Filings for Transfers of Pharmaceutical Patent Rights."

Recent DOJ Obstruction of Justice Case Highlights Importance of HSR Item 4 Compliance

by McDermott Will & Emery | May 21, 2012 | DOJ Developments, Mergers & Acquisitions

by Jon Dubrow, Cerissa Cafasso and Carla Hine.

Failing to comply with premerger document disclosure rules can lead to civil and criminal penalties for companies and their executives.

To read the full article, click here.

Notification Threshold Under the Hart-Scott-Rodino Act Increased to $68.2 million

by Jackie Sinn | Jan 27, 2012 | Mergers & Acquisitions

by Jon B. Dubrow, Joseph F. Winterscheid and Carla A. R. Hine

The U.S. Federal Trade Commission (FTC) recently announced revised thresholds for the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR) and 2012 thresholds for determining whether parties trigger the prohibition against interlocking directors under Section 8 of the Clayton Act.

Notification Threshold Adjustments

Pursuant to the amendments passed by the U.S. Congress in 2000, the FTC published revised thresholds for HSR pre-merger notifications in the Federal Register on January 27, 2012. These revised thresholds will become effective on February 27, 2012. Any transaction completed and any HSR pre-merger notifications filed on or after February 27, 2012, must comply with these new thresholds.

As required, the FTC adjusted the notification thresholds based on the change in the gross national product (GNP) for the fiscal year ending September 30, 2011. Most notably, the base filing threshold of $50 million, which frequently determines whether a transaction requires filing of an HSR notification, will increase from $66.0 million to $68.2 million. The changes also will affect other dollar-amount thresholds:

The alternative statutory size-of-transaction test, which captures all transactions valued above $200 million regardless of the “size-of-persons,” will be adjusted to $272.8 million.
The statutory size-of-person thresholds (applicable to transactions valued at less than $272.8 million, but more than $68.2 million) will increase from $13.2 million to $13.6 million and from $126.9 million to $131.9 million.

The adjustments will affect parties contemplating HSR notifications in various ways. Parties may be relieved from the obligation to file a notification for transactions closed on or after February 27, 2012, that result in holdings below the adjusted base threshold. For example, a transaction resulting in the acquiring person holding voting securities or assets valued at less than $68.2 million would not be reportable on or after the effective date. The adjustments will also affect various exemptions under the HSR rules. For example, acquisitions of foreign assets and voting securities of foreign issuers will now be exempt unless they generated U.S. sales in excess of $68.2 million or, in the case of foreign voting securities, the issuer has assets in the United States valued in excess of $68.2 million.

Parties may also realize a benefit of lower notification filing fees for transactions that just cross current thresholds. Under the rules, the acquiring person must pay a filing fee, although the parties may allocate that fee amongst themselves. Filing fees for HSR-reportable transactions will remain unchanged for now (although the FTC is pursuing filing fee increases). However, the applicable filing fee tiers will shift upward as a result of the GNP-indexing adjustments:

Transactions valued at or in excess of $68.2 million, but less than $136.4 million require a $45,000 filing fee.
Transactions valued at or in excess of $136.4 million, but less than $682.1 million require a $125,000 filing fee.
Transactions valued at or above $682.1 million require a $280,000 filing fee.

Interlocking Directorate Thresholds Adjustment

On January 27, 2012, the FTC published [...]

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