The Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR) requires parties to transactions meeting certain size thresholds to make notification filings with the Federal Trade Commission (FTC) and the Antitrust Division of the U.S. Department of Justice and to observe a waiting period before closing. On January 23, 2023, the FTC announced revisions to the reporting thresholds under HSR. Adjustments to the HSR reporting and exemption thresholds are made each year based on annual changes in the Gross National Product.
The revised thresholds will be effective on and after February 27, 2023 (30 days after publication in the Federal Register) and will apply to any transaction that will close on or after that date.
HSR applies to acquisitions of assets, voting securities and non-corporate interests (such as LLC membership interests) and also may apply to the formation of joint ventures, corporations and non-corporate entities (such as LLCs or limited partnerships). The FTC views certain grants of an exclusive license under intellectual property rights as an acquisition of assets that would be subject to the HSR filing requirements.
REVISED HSR REPORTING THRESHOLDS
Under the new thresholds:
- The basic HSR threshold applicable to most acquisitions is $111.4 million (up from $101 million).
- Transactions valued in excess of $111.4 million but not in excess of $445.5 million (up from $403.9 million) are reportable if the ultimate parent entity of one party to the transaction, together with all entities it controls, has sales or assets of at least $22.3 million (up from $20.2 million) and the ultimate parent entity of the other party, together with all entities it controls, has sales or assets of at least $222.7 million (up from $202 million). If the acquired person is not “engaged in manufacturing,” the threshold is not met unless that person has at least $22.3 million in total assets or $222.7 million in annual net sales.
- Transactions valued in excess of $445.5 million (up from $403.9 million) are reportable without regard to the size of the parties.
Even if a transaction is reportable based on these thresholds, it may qualify for an exemption from the HSR filing requirements, including exemptions available for certain acquisitions of non-US assets and voting securities.
HSR FILING FEES
On December 23, 2022, Congress passed the Merger Filing Fee Modernization Act (the MFFMA), which replaced the three-tiered filing fee schedule with a six-tiered filing fee schedule. Smith Anderson authored a client alert summarizing the MFFMA and it can be reviewed here. The FTC has also announced the new merger filing fee structure based on the size of the proposed transaction. The new structure will result in a decrease in fees for certain transactions generally having a lower value but a substantial increase in the highest valued transactions. Effective February 27, 2023, the new HSR filing fees will be as follows:
- $30,000 for transactions valued at less than $161.5 million.
- $100,000 for transactions valued at or above $161.5 million but less than $500 million.
- $250,000 for transactions valued at or above $500 million but less than $1 billion.
- $400,000 for transactions valued at or above $1 billion but less than $2 billion.
- $800,000 for transactions valued at or above $2 billion but less than $5 billion.
- $2.25 million for transactions valued at or above $5 billion.
Going forward, filing fees will be increased by an amount equal to the percentage increase, if any, in the consumer price index, as determined by the Department of Labor or its successor, for the year then ended over the level established for the year ending September 30, 2022. The FTC will publish annual adjusted amounts no later than January 31 of each year.
PENALTY FOR FAILURE TO MAKE AN HSR FILING
Companies and individuals considering transactions should seek legal advice to determine if an HSR filing will be required. Complex rules govern transaction valuation and the availability of exemptions under HSR. Failure to make a required HSR filing before closing is a violation of federal law and can subject parties to civil penalties that may be up to $50,120 (up from $46,517) per day for each day of noncompliance (penalties are adjusted for inflation in January of each year). Penalties can also be imposed on parties who submit incomplete filings (even if the filing was timely made). The new penalty amounts went into effect on January 11, 2023.
If you have questions about the new HSR thresholds or how to apply HSR to a specific transaction, please contact Miranda Miller, Lindsay Avagliano, or the Smith Anderson lawyer with whom you currently work.