HSR Reporting Threshold To Increase To $53.1 Million

Companies considering mergers or acquisitions should be aware of changes announced by the Federal Trade Commission (FTC) that will affect their obligation to file reports notifying the federal antitrust agencies of such transactions. Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act), certain persons acquiring or selling securities or assets must file a Premerger Notification and Report Form with the FTC and the Antitrust Division of the Department of Justice (DOJ) and delay consummation of the deal until the expiration of a waiting period. That waiting period normally lasts 30 days (15 days for a tender offer), but may vary depending on several circumstances. The agencies use the information in these forms to determine whether to challenge the transaction under the antitrust laws. On January 25, 2005, the FTC, with DOJ’s concurrence, announced changes that will affect these reporting obligations.

The HSR Act establishes two thresholds to determine whether a transaction is subject to a reporting requirement: the "size of the transaction" and the "size of the person." Currently, transactions that will result in a person holding more than $200 million of the acquired person’s voting securities and/or assets must be reported. Transactions valued between $50 million and $200 million are reportable if the "size of the person" threshold is also met. This occurs if one party to the transaction has sales or assets in excess of $100 million and the other has sales or assets in excess of $10 million. Transactions in which the acquiring person will hold $50 million or less of the assets or voting securities of an acquired person are not reportable.

Under the HSR Act (15 U.S.C. § 18a(2)), the above filing thresholds are to be adjusted annually based on the change in the gross national product during the previous fiscal year. On January 25, 2005, the FTC, with DOJ’s concurrence, announced the first of these annual adjustments. The new thresholds will be effective 30 days after they are published in the Federal Register, which will occur around March 1, 2005. The new thresholds will be as follows:

Certain "size of transaction" thresholds are also used to determine the filing fees that must accompany HSR filings. The agencies have adjusted these thresholds as well, to correspond to the adjustments in the reporting thresholds. Along with the statutorily mandated adjustments to the filing and filing fee thresholds, the agencies have made similar adjustments in a number of other thresholds established by regulation. These include, for example, the thresholds governing acquisitions of foreign assets or securities.

In succeeding years, there will be more changes (probably increases, but always keyed to changes in the gross national product) in the thresholds. The new thresholds will not be set out in any material that the FTC makes available to HSR filers, such as reporting forms and instructions. Instead, the old, round-number thresholds will be described as "adjusted," (e.g., "$100 million (adjusted)"), which is meant to signal companies that they must determine the adjusted threshold by referring to the FTC’s announcement of the adjustment for the current year. Technically, this information is to be found in the Federal Register, but the FTC website includes a link to the current thresholds, http://www.ftc.gov/os/2005/01/050125revised7aclaytonactfrn.pdf.

The foregoing is a brief summary of significant changes in the HSR reporting obligation. As indicated, these changes affect HSR filing requirements and filing fee obligations, as well as a number of subsidiary regulations governing the HSR process.

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