United States: Recent Changes To Hart-Scott-Rodino Notification Requirements

The U.S. Federal Trade Commission (FTC) recently announced several important changes to pre-merger notification filing requirements under the Hart-Scott-Rodino Antitrust Improvements Act (HSR), including revised filing thresholds and changes to the revenue information and classifications parties must report on HSR notifications. The Federal Trade Commission also announced revised thresholds to determine whether competing corporations may have interlocking directors.

Pursuant to the amendments passed by the U. S. Congress in 2000, the Federal Trade Commission announced on January 13, 2006, the revised filing thresholds for HSR pre-merger notifications. These revised thresholds will become effective February 17, 2006. The HSR pre-merger notifications filed on or after February 17, 2006, must comply with these new thresholds.

As required, the FTC adjusted the filing thresholds for inflation, and the thresholds will increase in line with the increase in the gross national product for the fiscal year ending September 30, 2005. Most notably, the base filing threshold of $50 million, which frequently determines whether filing an HSR notification is necessary, will increase to $56.7 million following this revision. The changes also will affect other dollar-amount thresholds:

• The alternative size-of-transaction test, which captures all transactions valued above $200 million regardless of the "size-of-persons," will be adjusted to $226.8 million.

• The size-of-person thresholds (applicable to transactions now valued at $226.8 million or less) will increase from $10 million to $11.3 million and from $100 million to $113.4 million.

• The threshold for the "foreign issuer"/"foreign asset" exemptions will be adjusted from $50 million to $56.7 million.

The adjustments will affect parties contemplating HSR filings in various ways:

• Parties may be relieved from the obligation to file notification for transactions that fall below the adjusted base threshold. For example, a transaction resulting in the acquiring person holding voting securities or assets valued at $55 million would not be reportable on or after February 17, 2006.

• Parties may also realize a benefit of lower notification filing fees for transactions that just cross current thresholds. While filing fees for the HSR-reportable transactions will remain divided among three levels, soon those thresholds will shift upward as a result of the inflation indexing adjustments.

• Transactions valued between $56.7 million and $113.4 million require parties to pay a $45,000 filing fee.

• Transactions valued between $113.4 million and $567 million require parties to pay a $125,000 filing fee.

• Transactions valued above $567 million require parties to pay a $280,000 filing fee.

Beginning January 30, 2006, all parties filing HSR pre-merger notifications must report revenues for 2002 and the most recently completed year according to 2002 North American Industry Classification System (NAICS) codes. Previously, parties reported revenues for 1997 and the most recently completed year according to 1997 NAICS codes. The FTC changed the base year for revenue reporting from 1997 to 2002 when the Office of Management and Budget recently updated its NAICS manual. This change will affect the revenue information and classifications parties report on future HSR pre-merger notifications compared to information parties reported in the past. While this will reduce some burdens of compiling data for a nine-year-old base year (1997), it will require work to update filings to reflect the new 2002 base year. Companies that file HSR notifications on a regular basis may consider updating this base year data, even if they do not have a pending transaction.

On January 13, 2006, the FTC also announced revised thresholds for interlocking directorates, which were effective immediately. The FTC also must revise these thresholds annually according to the change in gross national product. Section 8 of the Clayton Act prohibits a person from serving as a director or officer of two competing corporations if certain thresholds are met. The prohibition against interlocking directors applies if a corporation has more than $10 million (as adjusted) in capital, surplus and undivided profits; however, if either corporation has less than $1 million (as adjusted) in competitive sales, then the prohibition does not apply. According to the recently revised thresholds, section 8 of the Clayton Act covers corporations with more than $22,761,000 in capital, surplus and undivided profits, while it does not apply to corporations with less than $2,267,100 in competitive sales.

McDermott’s Antitrust & Competition Group regularly provides guidance to clients regarding pre-merger reporting, the scope of permissible pre-merger activities and defending transactions before the U.S. and international competition authorities.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.