Hart-Scott-Rodino Antitrust Improvements Act Lawyers

This Act gives the federal government the opportunity to assess the competitive implications of a merger or acquisition between enterprises. When a firm decides to combine or buy one or more other companies, all parties involved in the transaction must file paperwork with the federal government.

Following the submission of the files, there is a 30-day waiting period during which the government considers whether to authorize the merger based on any anticompetitive repercussions of the Act.

Which Transactions Necessitate the Submission of an HSR?

The HSR Act applies to certain mergers, asset or equity purchases, and joint ventures that exceed a minimum valuation and, in some situations, an extra threshold based on each party’s size. The HSR Act thresholds are changed on an annual basis. Even if the standards are reached, there are other exemptions to HSR reporting to consider.

The tests, as well as the current thresholds for each, are as follows:

• Test for transaction size: The size-of-transaction test considers the acquiring party’s assets, voting securities, and non-corporate interests (such as membership interests or units) following the purchase. If the value of the shares or assets to be acquired exceeds $90 million, the condition is met.
• The size-of-person-test: An additional criterion is only applicable if the deal is worth between $90 million and $359.9 million. This test is normally met if one party’s worldwide total assets or yearly net sales (including all entities within the group) exceed $180 million and the other party’s exceed $18 million. This test, however, has differences depending on whether the parties are engaged in production.

One party, including any subsidiary or division, must also be involved in commerce in the United States or activity influencing commerce in the United States. A foreign party can achieve this requirement if they do business or make sales in or into the United States.

Is this Act Mandatory for All Mergers and Acquisitions?

No, the federal government does not review each and every merger and acquisition between businesses; rather, this Act applies to merging or acquiring businesses that meet the following criteria:

• One of the enterprises must routinely engage in commerce, which is true of all businesses.
• For one firm, the company must have at least $100 million in yearly net sales, or the group with a controlling portion of the company’s equity (50% or more) must have more than $100 million in total assets.
• The other firm must have annual net sales of at least $10 million, or the group with a controlling portion of the company’s equity must have total assets of more than $100 million.

At least $15 million in assets or securities must be acquired, or 15% of voting securities must be acquired, so that one firm gains control of a portion of a company or a company it did not previously control. The acquired entity’s total assets or net sales must be worth at least $25 million.

What is the Procedure for Reviewing an HSR Filing?

Once both parties have filed, a merger review timeframe is established. The majority – but not all – transactions begin with a 30-day waiting period. The first waiting period for cash tender bids and bankruptcy is merely 15 days.

During the initial HSR waiting period, the FTC and DOJ conduct a preliminary examination and decide which agency will accept the file (the clearing procedure) if additional investigation is required. This can take a few days or, in extreme situations, several weeks. Typically, agencies choose based on which candidate has experience in the business in question.

If the agencies take no additional action, the initial waiting time will finish at 11:59 p.m. on the last day, and the parties may conclude. Parties may also request that the waiting period be terminated earlier, which the agencies may do at any time if they determine that there are no competition concerns.

If the agency still has antitrust concerns at the end of the waiting period, it files a Second Request, which extends the waiting period and initiates a more thorough investigation.

A Second Request necessitates the parties to produce a massive amount of papers and data.

Compliance with a Second Request often takes two to four months, can cost millions of dollars, and can add ten months or more to the time it takes to finalize the deal. These investigations frequently result in a settlement or litigation. However, each year, only a small percentage of deals earn Second Requests.

What Happens if You Don’t Follow the HSR Act?

Companies are frequently ignorant that the HSR Act relates to their transaction and may proceed without completing an HSR form and a waiting period. This can result in enforcement measures as well as civil penalties.

Failures to file under the HSR Act most typically occur because corporate executives, officials, and directors are unaware that acquisitions of company shares, such as vesting of restricted stock units or dividend reinvestment in a 401(k), might trigger an HSR reporting duty.

Shareholders do not combine existing shares with newly purchased shares to determine whether they have crossed one of the criteria. If stock prices rise, for example, purchasing only one more share may result in an HSR filing.

The investment-only exemption, which requires a shareholder to be passive and hold no more than 10% of an issuer’s outstanding voting stocks before making a subsequent acquisition, is no longer available to investors.

What Are the Most Prevalent HSR Violations?

The complexities of the HSR Act frequently result in unintended errors. However, a sound legal strategy paired with practical legal knowledge can assist in avoiding typical infractions such as:

• Failure to file on time: It is crucial to understand when to file. Late filing might result in severe monetary fines of up to $42,530 each day of violation.
• Violations involving firearms: Parties to an HSR-reportable transaction are unable to conclude until the waiting time expires or the agencies terminate the transaction. During the waiting period, the FTC or DOJ may file an enforcement action if the parties begin to merge their assets or operations or if the buyer asserts control over the seller. Acting too quickly can result in multi-million dollar civil penalties. The parties must remain separate and independent rivals until the waiting period passes.
• Inability to comply: Failure to comply with the HSR Act, or filing an incomplete HSR form, can result in serious implications for businesses and people, such as restarting the waiting period or significant civil penalties. Keeping updated with legal information, including knowing what is and isn’t a reportable transaction, will assist mitigate potential complications.

Is your company’s antitrust compliance program effective? For enterprises subject to the HSR act, a thorough antitrust compliance program is vital, assisting you in avoiding potential infractions and pitfalls while laying a solid foundation for future success.

Should I Speak with an Attorney If I Have Questions About the Act?

You might seek the advice of a business attorney with experience in mergers and acquisitions. Your attorney will be able to provide you with guidance and choices about mergers and acquisitions, as well as assist you with all of the legal formalities required to carry out the process efficiently.