HSR Alert Memo

02/21/2001

Summary

The Federal Trade Commission (FTC) with the concurrence of the Department of Justice (DOJ), has approved interim Hart-Scott-Rodino (HSR) premerger notification rules under the Clayton Act. The changes to the HSR rules took effect on February 1, 2001 and will affect transactions closing after that date. There are also provisions that affect filings made between February 1, 1997 and February 1, 2001. Significantly, there has been an increase from $15 million to $50 million. As a result, transactions valued at less than $50 million will no longer require filings under the HSR Act. In addition, the agencies implemented a new tiered fee structure, with companies paying filing fees of $45,000 for transactions valued at less than $100 million, $125,000 for transactions valued at $100 million to less than $500 million, and $280,000 for transactions valued at $500 million or more. These changes along with several others are discussed in greater detail below. Many stock and asset acquisitions, will be affected by these new rules, and therefore we encourage you to consider these changes and consult with us as you plan acquisitions.

Background and Overview

In December 2000, Congress enacted the first significant changes in the HSR statute since its passage in 1976. The changes to the HSR statute which affect premerger notifications include: 

  • an increase in the size-of-transaction threshold to $50 million;
  • elimination of the 15% size-of-transaction threshold;
  • transactions valued at greater than $200 million will be reportable without regard to size-of-person;
  • the size-of-transaction and size-of-person dollar thresholds will be adjusted each fiscal year, beginning in 2005;
  • implementation of a tiered fee structure based on the value of the voting securities or assets held as a result of the transaction;
  • the length of the waiting period that follows substantial compliance with second requests will be thirty (30) days for most transactions; and
  • the end of any time period that would be a Saturday, Sunday or legal public holiday will be the next regular business day.

The New HSR Rules

Effective Date
The interim rules took effect on February 1, 2001. For unreported transactions that were consummated prior to February 1, the old thresholds are still applicable, however, the new filing fee schedule is applicable to all transactions consummated on February 1 and later.

Size-of-Transaction
The size-of-transaction threshold will increase to $50 million replacing the current $15 million threshold. The $50 million size-of-transaction threshold will be an absolute floor. Thus, no transaction resulting in an acquiring person holding $50 million or less of assets or voting securities of an acquired person will be reportable. Transactions valued at more than $200 million will be reportable without regard to size-of-person. The current size-of-person test will continue to apply to acquisitions valued at $200 million or less. The 15% size-of-transaction threshold was eliminated.
 
Acquiring persons must now provide a written explanation of how a valuation was made if the valuation and acquisition price differ or if the price cannot be determined and may fall within a range that crosses a filing-fee threshold. Moreover, if a "Fair Market Value" is used, the name and contact information of the person who made that determination must be included in the filing. In addition, a valuation worksheet is available to assist filers in valuing transactions under the new rules. The worksheet is not part of the rules, and does not need to be filed.

Filing Fees
A tiered fee structure has been implemented, replacing the existing uniform $45,000 filing fee. Now, the filing fee that the acquiring person must pay is based on the value of the voting securities or assets held as a result of the transaction. The fees range from $45,000 to $280,000, as described above. Further, the dollar thresholds will be adjusted annually, beginning with fiscal year 2005, to reflect changes in the gross national product during the previous year.

Transitional Provisions
Under the old rules, those persons who filed premerger notifications and within a year of the filing met or crossed the threshold for which they had filed, would have had five (5) years in which they did not have to file on subsequent transactions unless they crossed another threshold. Under the new rules, this five (5) year period has been shortened to the earlier of (i) the end of the original five (5) year period, or (ii) February 1, 2002. After February 1, 2002 the new size-of-transaction thresholds apply to all filers.

Second Requests
Filers who are issued a "second request" for information by the FTC will now be invited to discuss the request with an FTC representative, usually within five (5) business days after the request is issued and a modification to the request may be required if a less burdensome request would be sufficient. Additionally, for filers who believe that full compliance with a second request should not be required, the new rules establish a process for petitioning the General Counsel of the FTC to resolve the issues in a timely manner. The DOJ may also issue second requests and is required to establish comparable procedures.

Waiting Periods
The length of the initial waiting period now ends on the next regular business day after the end of the thirty (30) calendar days. The length of the waiting period that follows substantial compliance with a second request is now thirty (30) days for most transactions, instead of twenty (20) days under the old rules. The ten (10) day period for cash tenders and bankruptcy transactions is unchanged.

Consequences of New Rules
In the past, small start-up companies were able to escape review due to the size-of-person test, now if the transaction value is $200 million or more a filing is necessary without regard to the size-of-person. This change was made because start-up transactions may have significant anti-competitive effects that the agencies want to have a chance to consider prior to consummation. As a result, many high-tech companies will now need to consider antitrust issues in advance of a transaction and to understand in advance the possibility of the delays while the transaction is reviewed by the agencies.

Bear in mind that noncompliance with the HSR statute can lead to substantial fines and penalties including unwinding of a transaction. Thus, companies should pay careful attention to comply with the new requirements and to seek counsel to assist them in their antitrust analysis of potential transactions.

For further information please contact:
 

Bryce Linsenmayer
linsenmb@haynesboone.com
713-547-2007

Jennifer Wisinski
wisinskj@haynesboone.com
972-680-7567

Debra Hatter
hatterd@haynesboone.com
512-692-8354

Garrett DeVries
devriesg@haynesboone.com
214-651-5614

Steve Milton
miltons@haynesboone.com
817-347-6703

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