New, lower reporting thresholds apply to transactions completed and pre-merger notifications filed on or after February 22, 2010.
The Federal Trade Commission (FTC) recently announced revised notification thresholds for the Hart-Scott-Rodino (HSR) Antitrust Improvements Act of 1976 (HSR Act), as well as new 2010 thresholds for determining whether parties trigger the prohibition against interlocking directors under Section 8 of the Clayton Act.
Notification Threshold Adjustments
Pursuant to the amendments passed by the U.S. Congress in 2000, the FTC published the revised thresholds for HSR pre-merger notifications in the Federal Register on January 21, 2010. These revised thresholds will become effective on February 22, 2010. Any transactions completed and any HSR pre-merger notifications filed on or after February 22, 2010, (Effective Date) must comply with these new thresholds.
As required, the FTC adjusted the notification thresholds to reflect the percentage change in the gross national product (GNP) for the fiscal year ending September 30, 2009. This year represents the first instance in which the FTC has decreased the notification thresholds to reflect a negative GNP.
Most notably, the base filing threshold of $50 million, which frequently determines whether a transaction requires filing of an HSR notification, will decrease from $65.2 million to $63.4 million following this revision. The changes also will affect other dollar-amount thresholds:
- The alternative statutory size-of-transaction test, which captures all transactions valued above $200 million regardless of the “size-of-persons,” will decrease from $260.7 to $253.7 million.
- The statutory size-of-person thresholds (applicable to transactions now valued at less than $253.7 million) will decrease from $13.0 million to $12.7 million and from $130.3 million to $126.9 million.
These adjustments will affect parties contemplating HSR notifications in various ways. Parties contemplating transactions that fall below the current thresholds may have an obligation to file a notification for transactions closed on or after February 22, 2010, if the transaction meets or exceeds the adjusted base threshold. For example, a transaction resulting in the acquiring person holding voting securities, assets or a controlling interest in a non-corporate entity valued at or above $63.4 million, but less than $65.2 million, would not be reportable before the Effective Date, but may be reportable after the Effective Date.
The adjustments will also affect various exemptions under the HSR rules. For example, acquisitions of foreign assets and voting securities of foreign issuers may be exempt today because those foreign assets or issuers do not hold U.S. assets or generate U.S. sales of $65.2 million or more. However, such acquisitions may no longer be exempt upon the Effective Date if they hold U.S. assets or generate U.S. sales of $63.4 million.
Parties may also incur higher notification filing fees for transactions that fall just below current thresholds, but cross the revised thresholds. Although filing fees for HSR-reportable transactions will remain unchanged, the applicable filing fee tiers will shift downward as a result of the GNP-indexing adjustments:
- Transactions valued at or in excess of $63.4 million but less than $126.9 million require parties to pay a $45,000 filing fee.
- Transactions valued at or in excess of $126.9 million but less than $634.4 million require parties to pay a $125,000 filing fee.
- Transactions valued at or above $634.4 million require parties to pay a $280,000 filing fee.
Interlocking Directorate Thresholds Adjustment
On January 21, 2010, the FTC announced revised thresholds for interlocking directorates, which are effective immediately upon publication in the Federal Register. The FTC revises these thresholds annually by an amount equal to the percentage increase or decrease in the level of GNP. 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 each corporation has more than $10 million (as adjusted) in capital, surplus and undivided profits. The prohibition does not apply, however, if either corporation has less than $1 million (as adjusted) in competitive sales. Pursuant to the recently revised thresholds, Section 8 of the Clayton Act applies to corporations with more than $25,841,001 in capital, surplus and undivided profits, while it does not apply where either corporation has less than $2,584,100 in competitive sales.