Hart-Scott-Rodino Antitrust Improvements Act
Encyclopedia
The Hart–Scott–Rodino Antitrust Improvements Act of 1976 (Public Law 94-435, known commonly as the HSR Act) is a set of amendments to the antitrust
laws of the United States
, principally the Clayton Antitrust Act
. The HSR Act was signed into law by President
Gerald R. Ford on September 30, 1976. The context in which the HSR Act is usually cited is , title II of the original law.
The HSR Act is named after Senators Philip A. Hart and Hugh D. Scott, Jr. and Representative Peter W. Rodino
.
, tender offer
s or other acquisition transactions can close, both parties must file a "Notification and Report Form" with the Federal Trade Commission
and the Assistant Attorney General
in charge of the Antitrust Division
of the Department of Justice
. The filing describes the proposed transaction and the parties to it. Upon the filing, a 30-day waiting period (15-days for all-cash tender offers) then ensues during which time those regulatory agencies may request further information in order to help them assess whether the proposed transaction violates the antitrust
laws of the United States.
It is unlawful to close the transaction during the waiting period. Although the waiting period is generally 30 days (again, 15 days if the transaction is an all cash tender offer), the regulators may request additional time to review additional information and the filing parties may request that the waiting period for a particular transaction be terminated early ("early termination"). Early terminations are made public in the Federal Register
and posted on the Federal Trade Commission website. Additionally, some types of transactions are afforded the special treatment of shorter waiting periods.
The filing requirement is triggered only if the value of the transaction and, in some cases, the size of the parties, exceed certain dollar thresholds, which are adjusted over time. For the purpose of determining the "size of the parties" one assesses the size of the party to the transaction, its ultimate parent entity, and all subsidiaries of that ultimate parent entity.
The rules are somewhat complicated. The general rule was a filing was required if three tests are met; (1) the transaction affects commerce; (2) either (a) one of the parties has sales each year or assets of $100 million or more [as of 2008, raised to $126.3 million] and the other party has sales or assets of $10 million or more [as of 2008, raised to $12.6 million]; or (b) the amount of stock the acquirer has is valued at $200 million or more [as of 2008, raised to $252.3 million] at any time; and (3) the value of the transaction is $50 million or more [as of 2008, raised to $66 million].
There is also a rule prohibiting "interlocking directorates" where a person serves on the board of directors of competing companies over a certain size; this initially was $10 million but has been raised as of 2011 to $26.8 million, but does not apply if any competitor has total assets of $1 million or less (as of 2011, $2.6 million).
The rules are somewhat overlapping to some degree, but the basic requirements are that all transactions of $252.3 million or more require a filing. All transactions worth more than $63.1 million require a filing if one of the parties is worth at least $12.6 million, the other is worth at least $126.3 million and the total amount of assets now owned by the acquirer reaches $252.3 million. These are only the mandatory filing requirements; if an entity is not sure if the filing requirements apply to it, it can make a request of the Justice Department to determine if it is.
Some assets are not counted, generally assets that do not produce income. For example, if one of the parties involved in the transaction is a person, for the purposes of determining whether they reach the asset trigger, the value of their residence and the sports car that they drive are not counted, but the value of a second home that was rented out would be. There are certain exceptions on transaction reporting for usual and customary transactions: such as an airline purchasing planes or certain real estate transactions such as for purchasing land used for buildings used by the acquiring party (an exception to the exception is that if the transaction is for a hotel-casino then the transaction is not exempt if the three conditions above are met). An example was given that a merger of two corporations each having a net asset value of $99 million would not require a filing. Presumably this would be raised to the current floor limits under the current rules, e.g. two corporations with assets of $125 million each could merge without triggering the reporting requirements.
The firm that is making the proposed acquisition is required to pay a substantial filing fee when making its filing; the amount of the fees is tied to the size of the transaction, the fee was US$45,000 for transactions of US$50 million to $100 million; (in 2010 the instructions were revised to clarify that the fee is $45,000 for transactions greater than 63.4 million but less than 126.9 million); $125,000 for transactions of $100 million to $500 million (clarified in 2010 to $125,000 for transactions of $126.9 million or greater but less than $634.4 million); and $280,000 for transactions over $500 million (clarified in 2010 to $280,000 for transactions of $634.4 million or more). Also, the filing fee is good for, during a period of up to one year after the original transaction, further transactions that do not exceed the next threshold (such as if a transaction was reported amounting to $78 million, the acquiring party could make additional purchases as long as they did not exceed $100 million within one year after the original filing). Once they reached $100 million, a new filing and new fee would be required, but no further fee would be required unless the total of purchases reached $500 million. There are also filing requirements based on the percentage of acquisition, at 25% of a company worth $1 billion, or 50% of any company if filing is required. However, once 50% or more of the target had been acquired or the amount of acquisitions reported exceeded $500 million, no further reports are required to be filed.
In transactions where either the FTC or the Antitrust Division believes there may be significant anticompetitive consequences, either agency may require more background information from the parties to the merger by means of the second request
process.
for monetary damages under antitrust laws in parens patriae
, on behalf of their citizens; previously, only the persons harmed by anticompetitive activity had a right to sue for damages. Title III is in substance the original bill introduced in the House of Representatives
by Congressman Peter W. Rodino, Jr.; the other titles of the Act were added as the bill was amended during Congressional deliberations.
Antitrust
The United States antitrust law is a body of laws that prohibits anti-competitive behavior and unfair business practices. Antitrust laws are intended to encourage competition in the marketplace. These competition laws make illegal certain practices deemed to hurt businesses or consumers or both,...
laws of the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
, principally the Clayton Antitrust Act
Clayton Antitrust Act
The Clayton Antitrust Act of 1914 , was enacted in the United States to add further substance to the U.S. antitrust law regime by seeking to prevent anticompetitive practices in their incipiency. That regime started with the Sherman Antitrust Act of 1890, the first Federal law outlawing practices...
. The HSR Act was signed into law by President
President of the United States
The President of the United States of America is the head of state and head of government of the United States. The president leads the executive branch of the federal government and is the commander-in-chief of the United States Armed Forces....
Gerald R. Ford on September 30, 1976. The context in which the HSR Act is usually cited is , title II of the original law.
The HSR Act is named after Senators Philip A. Hart and Hugh D. Scott, Jr. and Representative Peter W. Rodino
Peter W. Rodino
Peter Wallace Rodino, Jr. was a Democratic United States Congressman from New Jersey from 1949 to 1989. Rodino rose to prominence as the chairman of the House Judiciary Committee, where he was chair of the impeachment hearings that led to the resignation of President Richard...
.
Pre-merger notification
The Act provides that before certain mergersMergers and acquisitions
Mergers and acquisitions refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling, dividing and combining of different companies and similar entities that can help an enterprise grow rapidly in its sector or location of origin, or a new field or...
, tender offer
Tender offer
Tender offer is a corporate finance term denoting a type of takeover bid. The tender offer is a public, open offer or invitation by a prospective acquirer to all stockholders of a publicly traded corporation to tender their stock for sale at a specified price during a specified time, subject to...
s or other acquisition transactions can close, both parties must file a "Notification and Report Form" with the Federal Trade Commission
Federal Trade Commission
The Federal Trade Commission is an independent agency of the United States government, established in 1914 by the Federal Trade Commission Act...
and the Assistant Attorney General
United States Assistant Attorney General
Many of the divisions and offices of the United States Department of Justice are headed by an Assistant Attorney General.The President of the United States appoints individuals to the position of Assistant Attorney General with the advice and consent of the Senate...
in charge of the Antitrust Division
United States Department of Justice Antitrust Division
The United States Department of Justice Antitrust Division is responsible for enforcing the antitrust laws of the United States. It shares jurisdiction over civil antitrust cases with the Federal Trade Commission and often works jointly with the FTC to provide regulatory guidance to businesses...
of the Department of Justice
United States Department of Justice
The United States Department of Justice , is the United States federal executive department responsible for the enforcement of the law and administration of justice, equivalent to the justice or interior ministries of other countries.The Department is led by the Attorney General, who is nominated...
. The filing describes the proposed transaction and the parties to it. Upon the filing, a 30-day waiting period (15-days for all-cash tender offers) then ensues during which time those regulatory agencies may request further information in order to help them assess whether the proposed transaction violates the antitrust
Antitrust
The United States antitrust law is a body of laws that prohibits anti-competitive behavior and unfair business practices. Antitrust laws are intended to encourage competition in the marketplace. These competition laws make illegal certain practices deemed to hurt businesses or consumers or both,...
laws of the United States.
It is unlawful to close the transaction during the waiting period. Although the waiting period is generally 30 days (again, 15 days if the transaction is an all cash tender offer), the regulators may request additional time to review additional information and the filing parties may request that the waiting period for a particular transaction be terminated early ("early termination"). Early terminations are made public in the Federal Register
Federal Register
The Federal Register , abbreviated FR, or sometimes Fed. Reg.) is the official journal of the federal government of the United States that contains most routine publications and public notices of government agencies...
and posted on the Federal Trade Commission website. Additionally, some types of transactions are afforded the special treatment of shorter waiting periods.
The filing requirement is triggered only if the value of the transaction and, in some cases, the size of the parties, exceed certain dollar thresholds, which are adjusted over time. For the purpose of determining the "size of the parties" one assesses the size of the party to the transaction, its ultimate parent entity, and all subsidiaries of that ultimate parent entity.
The rules are somewhat complicated. The general rule was a filing was required if three tests are met; (1) the transaction affects commerce; (2) either (a) one of the parties has sales each year or assets of $100 million or more [as of 2008, raised to $126.3 million] and the other party has sales or assets of $10 million or more [as of 2008, raised to $12.6 million]; or (b) the amount of stock the acquirer has is valued at $200 million or more [as of 2008, raised to $252.3 million] at any time; and (3) the value of the transaction is $50 million or more [as of 2008, raised to $66 million].
There is also a rule prohibiting "interlocking directorates" where a person serves on the board of directors of competing companies over a certain size; this initially was $10 million but has been raised as of 2011 to $26.8 million, but does not apply if any competitor has total assets of $1 million or less (as of 2011, $2.6 million).
The rules are somewhat overlapping to some degree, but the basic requirements are that all transactions of $252.3 million or more require a filing. All transactions worth more than $63.1 million require a filing if one of the parties is worth at least $12.6 million, the other is worth at least $126.3 million and the total amount of assets now owned by the acquirer reaches $252.3 million. These are only the mandatory filing requirements; if an entity is not sure if the filing requirements apply to it, it can make a request of the Justice Department to determine if it is.
Some assets are not counted, generally assets that do not produce income. For example, if one of the parties involved in the transaction is a person, for the purposes of determining whether they reach the asset trigger, the value of their residence and the sports car that they drive are not counted, but the value of a second home that was rented out would be. There are certain exceptions on transaction reporting for usual and customary transactions: such as an airline purchasing planes or certain real estate transactions such as for purchasing land used for buildings used by the acquiring party (an exception to the exception is that if the transaction is for a hotel-casino then the transaction is not exempt if the three conditions above are met). An example was given that a merger of two corporations each having a net asset value of $99 million would not require a filing. Presumably this would be raised to the current floor limits under the current rules, e.g. two corporations with assets of $125 million each could merge without triggering the reporting requirements.
The firm that is making the proposed acquisition is required to pay a substantial filing fee when making its filing; the amount of the fees is tied to the size of the transaction, the fee was US$45,000 for transactions of US$50 million to $100 million; (in 2010 the instructions were revised to clarify that the fee is $45,000 for transactions greater than 63.4 million but less than 126.9 million); $125,000 for transactions of $100 million to $500 million (clarified in 2010 to $125,000 for transactions of $126.9 million or greater but less than $634.4 million); and $280,000 for transactions over $500 million (clarified in 2010 to $280,000 for transactions of $634.4 million or more). Also, the filing fee is good for, during a period of up to one year after the original transaction, further transactions that do not exceed the next threshold (such as if a transaction was reported amounting to $78 million, the acquiring party could make additional purchases as long as they did not exceed $100 million within one year after the original filing). Once they reached $100 million, a new filing and new fee would be required, but no further fee would be required unless the total of purchases reached $500 million. There are also filing requirements based on the percentage of acquisition, at 25% of a company worth $1 billion, or 50% of any company if filing is required. However, once 50% or more of the target had been acquired or the amount of acquisitions reported exceeded $500 million, no further reports are required to be filed.
In transactions where either the FTC or the Antitrust Division believes there may be significant anticompetitive consequences, either agency may require more background information from the parties to the merger by means of the second request
Second request (law)
In United States antitrust law, a second request is a discovery procedure by which the Federal Trade Commission and the Antitrust Division of the Justice Department investigate mergers and acquisitions which may have anticompetitive consequences.-Legal basis:...
process.
Parens patriae actions
Title III of the Act allows states to sue companies in Federal courtUnited States district court
The United States district courts are the general trial courts of the United States federal court system. Both civil and criminal cases are filed in the district court, which is a court of law, equity, and admiralty. There is a United States bankruptcy court associated with each United States...
for monetary damages under antitrust laws in parens patriae
Parens patriae
Parens patriae is Latin for "parent of the nation." In law, it refers to the public policy power of the state to intervene against an abusive or negligent parent, legal guardian or informal caretaker, and to act as the parent of any child or individual who is in need of protection...
, on behalf of their citizens; previously, only the persons harmed by anticompetitive activity had a right to sue for damages. Title III is in substance the original bill introduced in the House of Representatives
United States House of Representatives
The United States House of Representatives is one of the two Houses of the United States Congress, the bicameral legislature which also includes the Senate.The composition and powers of the House are established in Article One of the Constitution...
by Congressman Peter W. Rodino, Jr.; the other titles of the Act were added as the bill was amended during Congressional deliberations.