It is no secret that the United States went through two decades of vigorous antitrust improvements and enforcement. Before the Hart-Scott-Rodino Antitrust Improvements Act was passed, the enforcement agencies weren’t powerful enough to require private economic data from third parties, and the competitors of the merging company, like what we discussed in Williams Act. And because of that, the enforcement agencies were forced to drop countless investigations due to the lack of hard economic data.
When the Hart-Scott-Rodino Antitrust Improvements Act was passed in 1976, the power of the Justice Department and the Federal Trade Commission, the two antitrust enforcement agencies, increased significantly. This means that the HSR law gave the Justice Department the right to issue “Civil Investigative Demands” to the merging companies. It also has them the right to require third parties to gather data prior to filing a complaint.
Additionally, thanks to the HSR, it is now possible for the government to require the postponement of proposed M&As until the authorities gave their approval of the deal. This wasn’t possible before the passage of HSR.
Moreover, the HSR law requires that the Bureau of Competition of the FTC and the Antitrust Division of the Justice Department be given the opportunity to review any proposed Mergers and Acquisitions in advance. An acquisition or a merger is not allowed to be consummated until the authorities have reviewed the transaction – this is all according to the HSR act.
It is up to the two agencies to decide which of them will investigate the particular transaction. The HSR also prevents consummation of a merger until the end of specified waiting periods. This means that failing to file in a timely manner could lead to the delay of completion of the transaction.
One of the main reasons why HSR was passed is to prevent the consummation of transactions that would ultimately be found to be anticompetitive. This way, the Justice Department will have the capability to avoid disassembling a company that had been formed in part through an anticompetitive merger or acquisition. Some might even hear others refer to this process as “unscrambling eggs”
The HSR is a big help and has given the government enough power to halt any transaction by means of granting of injunctive relief while it attempted to rule on the competitive effects of the business combination in question. During the times when injunctive relief was not possible yet, it would take many years for the mandated divestiture to take place after the original acquisition or merger.
With the HSR, these problems could be prevented before they even occur. The HSR added another layer of regulation and a waiting period for tender offers.
Size Requirements for Filing
The law established size thresholds for filing because there are times where small mergers and acquisitions are less likely to have anticompetitive effects. There are two thresholds: the size-of-transaction threshold and the size-of-person threshold. We will look into both of those thresholds in a little bit. Those who failed to file is subjected to monetary penalties of $16,000 for each day that the filing is late.
The Two Thresholds
- Size-of-Transaction Threshold – this threshold is only met if the buyer is acquiring voting securities or assets of $80.8 million or more. This is updated as of the year 2017. Any deal above that level requires a filing. Deals beneath that level require no HSR filing.
- Size-of-Person Threshold – on the other hand, there’s the size-of-person threshold where if one party to a transaction has $161.5 million or more in sales or assets, and the other has $16.2 million or more in sales and assets, the test is met. There is a contingency to this threshold, too. The contingency is that all deals that are valued at $32 million or more have to be reported regardless of the size-of-person test.
Additionally, it is also important to understand that the Justice Department and the Federal Trade Commission are still authorized to challenge any M&A on antitrust grounds. This is true even if a filing is not required under HSR thanks to the Sherman Act and the Federal Trade Commission act.
As expected, there are also deadlines for filing. As soon as a bidder announces a tender offer or any other offer, they must immediately file under the HSR Act. This response comes in the form of the target’s filing which must be within 15 days after the bidder has filed.
How does one file? There is a 15-page form which is available for download on the Federal Trade Commision website. The form requires the bidder to submit business data describing the business activities and revenues of the acquiring. Additionally, the target firms’ operations must also be provided according to the North American Industrial Classification System or NAICS codes.
Most of the time, a lot of the firms already have this information as it is also required to be submitted to the U.S. Bureau of the Census. Additionally, the acquiring firm is also required to attach any reports the firm has compiled to analyze the competitive effects of this transaction in their file.
Under the HSR Act, there is a 30-day waiting period unless the deal is a cash tender offer or a bankruptcy sale. In those cases, the waiting period is only 15 days. Now, if either the Justice Department or the Federal Trade Commission concludes that a closer inquiry is necessary, they may push for a second request for information.
This second request adds another 30 days to the waiting period, or 10 days in case of cash tender offers or bankruptcy sales.
The filing companies may also request for early termination of the waiting period. This is on the grounds that it is clear there are no anticompetitive effects. In most cases, these requests are granted. However, as expected, there are also some investigations that can be lengthy.
The HSR filing is also considered as a confidential filing with the government. This means that it is not meant for public disclosure. However, the target is also made aware of the bidder’s intentions because the target company receives a notice and is required to respond to the government.
There are also certain exemptions to the HSR Act. This includes certain acquisitions that are supervised by governmental agencies as well as certain foreign acquisitions. This exception allows an individual to acquire up to 10% of an issuer’s voting securities for as long as the acquisition is solely for the purposes of investment.