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what is hsr in m&a?

4 Answer(s) Available
Answer # 1 #

In the United States, mergers and acquisitions involving companies of a certain size must be reviewed by one of the competition authorities—the Federal Trade Commission or the Department of Justice.

Under 15 U.S.C. § 18a, commonly known as the Hart-Scott-Rodino Antitrust Improvements Act, parties to certain mergers and acquisitions must submit premerger notification filings known as HSR filings and wait a prescribed amount of time before consummating the transaction.

Bona Law has a number of attorneys that are experts on antitrust merger issues. Please contact us if you would like to speak with any of our attorneys about your transaction.

You should also check out these articles on antitrust and HSR filings and mergers:

1.  Considering a Merger or Acquisition? Avoid these 10 Minefields in your HSR Filing to the Antitrust Agencies

2. Give and Take of Proposed HSR Rules: Private Equity Companies and Small Transactions

3. Three Lessons for an HSR Mergers & Acquisitions Problem: Did you "Aggregate"?

4.  An Antitrust Agency Just Called About a Merger--What Happens Next?

5. Hart-Scott-Rodino (HSR) Premerger Notification and Antitrust: What You Need to Know Now

6. How to Avoid an HSR Second Request (Maybe)

7. FTC Guts Major Benefit of Antitrust HSR Process for Merging Parties

8. FTC Continues the HSR Process's "Death of a Thousand Cuts"

9.  The FTC withdraws Vertical Merger Guidelines. Will it take on big-tech small acquisitions next?

10.  FTC Continues to Unilaterally Repeal the HSR Merger Review Process

Below are some frequently asked questions with answers about HSR filings.

For antitrust purposes, a “merger” includes any acquisition of assets, stock, or share capital of another person or entity, even if the acquisition does not result in control of the target company. An acquisition of less than a controlling interest does not obviate HSR filing requirements if the acquisition exceeds the operative thresholds.

The HSR Act notification requirements apply to transactions that satisfy the specified “size of transaction” and “size of person” thresholds. These thresholds are adjusted annually to reflect changes in the U.S. gross national product.

Three thresholds determine the applicability of HSR filing requirements. First, one of the parties to the transaction must be in commerce in the United States or otherwise affect U.S. commerce.

Second, the acquiring party must be acquiring securities, non-corporate interest, or assets of the target in excess of $111.4 million––the “size of transaction” threshold. An HSR Act notification is thus not required when the value of the voting securities and assets is below this threshold.

Third, if the transaction exceeds $111.4 million but does not exceed $445.5 million--the "size of the parties" threshold––at least the “ultimate parents” of one party involved in the transaction must have annual net sales or total assets of at least $222.7 million, and the “ultimate parents” of the other party must have annual net sales or total assets of at least $22.3 million. The test for an acquired person not engaged in manufacturing is sales of $222.7 million or assets of $22.3 million.

Transactions valued at more than $445.5 million are reportable regardless of the size of the parties, unless an HSR Act exemption applies.

The new thresholds will remain in effect until next annual adjustment, in the first quarter of 2024.

Parties who violate the HSR Act are subject to monetary penalties. The maximum civil penalty for HSR Act violations per day during which the party is in violation has now increased from $46,517 to $50,120.

The FTC has also adjusted the thresholds in Section 8 of the Clayton Act that trigger the prohibition on “interlocking directorates.” These thresholds trigger prohibitions on certain interlocking memberships on corporate boards of directors. They are now $45,257,000 for Section 8(a)(l) and $4,525,700 for Section 8(a)(2)(A).

HSR filings are premerger notifications that parties to a proposed merger transaction make with both the Federal Trade Commission and the Department of Justice. Subject to minor exceptions, both the seller and the buyer must each separately file with both agencies. Once the filing is made, a mandatory waiting period begins.

Both the U.S. Department of Justice and the Federal Trade Commission have jurisdiction over HSR filings. Because either agency may choose to review a merger, parties must submit HSR filings to both agencies.

The HSR waiting period begins the day after both the FTC and DOJ receive complete HSR filings from both the buyer and the seller of the transaction (for most filings). If one of the filings is not deemed complete, it may be “bounced,” where the waiting period is delayed, until the deficiencies identified by the agency are correct.

For most filings, the mandatory initial waiting period is 30 days, beginning the day after the filings are received complete and ending at 11:59pm on the 30th day thereafter (unless a federal holiday is on either date).

If an agency makes a request for additional information (called a “Second Request”), the transaction cannot be consummated at the expiration of the initial waiting period. Typically Second Requests are issued on the last day before the expiration of the initial waiting period.

During the waiting period, an agency will review the filing. If the agency decides not to take further action, it will do nothing and, when the waiting period expires, the parties are free to consummate the transaction. The agency may also grant an "early termination," discussed more below.

If an agency decides to conduct further review, it will issue a request for additional information called a “Second Request.”

Either party may request “early termination” (ET) of the waiting period. Only one party to the transaction need request ET, but both agencies must grant the ET request for it to apply. ET may be requested in an HSR filing or made by separate request after filing. Because the agencies work on different timelines, one agency may grant long before the other. And because the agencies are independent, one agency may grant ET but not the other. For these reasons, parties should not rely on the possibility of ET. Of course, every terminations do occur.

Update: On February 4, 2021, the FTC and DOJ temporarily suspended the discretionary practice of early termination. You can listen to Steven Cernak discuss this decision on the M&A Review with CTFN Podcast.

If an agency makes a Second Request, the parties must make an attempt to “substantially comply” with the request. Once the parties comply with the request and submit valid certifications of substantial compliance, the waiting period will then end 30 days after the date of the certification.

Once a transaction’s waiting period expires, the acquiring party has exactly one year from that date to consummate the transaction, regardless of whether that date falls on a weekend or holiday. After one year, the HSR filing is expired, and the parties must submit new HSR filings.

Acquiring parties seeking to run time may “withdraw and refile” its HSR filing without paying a new filing fee, but it provides for a new waiting period. This can benefit both the filing parties and the agencies because it can allow agencies to timely review the transaction without issuing a Second Request. The withdraw and refile process is not available if a Second Request has already been issued.

Abella Hussnain
Answer # 2 #

Under the Hart-Scott-Rodino (HSR) Act, parties to certain large mergers and acquisitions must file premerger notification and wait for government review.

Yashi cvecqwpa
Answer # 3 #

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 15 U.S.C. § 18a, 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.

The HSR Act provides that parties must not complete certain mergers, acquisitions or transfers of securities or assets, including grants of executive compensation, until they have made a detailed filing with the U.S. Federal Trade Commission and Department of Justice and waited for those agencies to determine that the transaction will not adversely affect U.S. commerce under the antitrust laws. While parties can carry out due diligence and plan for post-merger integration, they may not take any steps to integrate operations, such as an acquiring party obtaining operational control of the acquired party.[1]

The Act provides that before certain mergers, tender offers or other acquisition transactions (including certain grants of executive compensation) can be completed, 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 parties then must wait a certain period, usually 30 days (15 days for all-cash tender offers or bankruptcy sales) 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 or could cause an anti-competitive effect in the parties' markets. The filing is not made public, but the agencies may disclose some information about the transaction, especially in the case of publicly announced transactions.[2]

Failure to file the form carries a civil penalty of up to $41,484 per day against the parties, their officers, directors or partners, and the agencies may obtain an order requiring an acquirer to divest assets or securities acquired in violation of the Act. It is also unlawful to complete the transaction during the waiting period, and the same penalties apply. Although the waiting period is generally 30 days (15 days if the transaction is an all-cash tender offer or a bankruptcy sale), 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. Some types of transactions are afforded the special treatment of shorter waiting periods.[2]

The filing requirement is triggered only if the value of the transaction and, in some cases, the size of the parties, exceeds certain dollar thresholds, which are adjusted periodically under the Act. For the purpose of determining the "size of the parties", one assesses the size of the party's ultimate parent entity and all subsidiaries of that entity. The general rule is that a filing is required if three tests are met:

There is also a rule prohibiting "interlocking directorates", that is, it prohibits a person from serving on the board of directors of competing companies valued at over a certain size (this amount was $27.7 million in 2012); but does not apply if the two companies have annual sales in competition with each other of less than $2.7 million.[6]

The rules are somewhat overlapping, but all transactions where the acquiring person will hold an aggregate amount of securities and/or assets of $272.8 million or more (as of 2012[update]) require a filing. Also, all transactions worth more than $68.2 million require a filing if one of the parties is worth at least $13.6 million, the other is worth at least $136.4 million and the total amount of assets now owned by the acquirer reaches $272.8 million. 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 natural person, for the purposes of determining whether they reach the asset trigger, the value of their primary residence and car 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 and certain real estate purchases. An example was given that a merger of two corporations each having a net asset value of $99 million would not require a filing.[6][7]

In transactions where either the FTC or the Antitrust Division believes there may be significant anti-competitive consequences, either agency may require that the parties submit more background information by means of the second request process.

The firm that is making the proposed acquisition is required to pay a substantial filing fee when making its filing; the amount of the fee is tied to the size of the transaction, as of 25 February 2016[update] the fee was $45,000 for transactions of at least $78.2 million but less than $156.3 million; $125,000 for transactions of $156.3 million to $781.5 million; and $280,000 for transactions over $781.5 million.[8] The filing fee covers additional transactions, during a period of up to five years after the original transaction, that do not exceed the next threshold. There are also filing requirements based on the percentage of acquisition, at 25% of a company worth $1.36 billion, or 50% of a company where the amount held by the acquirer will be worth at least $68.2 million. However, once 50% or more of the target has been acquired, or the amount of acquisitions reported exceeded $682.1 million, no further reports are required to be filed.[6]

Title III of the Act[9] allows attorneys general of states to sue companies in federal court for monetary damages under antitrust laws. as parens patriae,[10] on behalf of their citizens. Previously, there was no practicable way for large numbers of individual persons harmed by such anticompetitive activities as small overcharges per person, to sue for damages; it was too costly.[11] Congress sought to remedy that problem with this statute.[12] Title III is in substance the original bill introduced in the House of Representatives by congressman Peter W. Rodino; the other titles of the Act were added as the bill was amended during congressional deliberations.[citation needed]

The effectiveness of the parens patriae provision of HSR was greatly weakened by the Supreme Court's Illinois Brick decision, which substantially limited damages relief to direct purchasers, making consumer indirect purchasers unable to sue.[13] Accordingly, wholesalers or retailers might be able to sue in federal court in a price-fixing case, even though they passed overcharges on to ultimate consumers,[14] but the consumer purchasers could not; yet, the parens patriae provision in HSR is directed at vindicating the right of those very victims. To some extent, however, this effect was mitigated by the availability of state law and congressional passage of the Class Action Fairness Act of 2005 (CAFA),[15] under which class actions can be removed from state court to federal court but state parens patriae actions cannot. Consequently, state attorneys general can pursue price-fixing cases on behalf of the state's consumers under state law in state courts.[16]

Peter Rodino commented in 2002 on the 25th anniversary of the legislation, "the legislation absolutely has transformed merger enforcement. Competition, as well as the consumer, has benefitted."[17] The Federal Trade Commission's Deputy Director stated that implementation of the Act "has been instrumental in detecting transactions that have been the subject of numerous enforcement actions and [it] continues to do its job well".[17]

W Glassberg
Structure Maintainer
Answer # 4 #

Not all mergers or acquisitions require a premerger filing. Generally, the deal must first have a minimum value and the parties must be a minimum size. These filing thresholds are updated annually. In addition, some stock or asset purchases are exempt, as are purchases of some types of real property. For further help with filing requirements, see the FTC's Guides to the Premerger Notification Program. There is a filing fee for premerger filings.

For most transactions requiring a filing, both buyer and seller must file forms and provide data about the industry and their own businesses. Once the filing is complete, the parties must wait 30 days (15 days in the case of a cash tender offer or a bankruptcy) or until the agencies grant early termination of the waiting period before they can consummate the deal.

Parties proposing a deal file with both the FTC and DOJ, but only one antitrust agency will review the proposed merger. Staff from the FTC and DOJ consult and the matter is "cleared" to one agency or the other for review (this is known as the "clearance process"). Once clearance is granted, the investigating agency can obtain non-public information from various sources, including the parties to the deal or other industry participants.

After a preliminary review of the premerger filing, the agency can:

If the waiting period expires or is terminated, the parties are free to close their deal. If the agency has determined that it needs more information to assess the proposed deal, it sends both parties a Second Request. This extends the waiting period and prevents the companies from completing their deal until they have "substantially complied" with the Second Request and observed a second waiting period. A Second Request typically asks for business documents and data that will inform the agency about the company's products or services, market conditions where the company does business, and the likely competitive effects of the merger. The agency may conduct interviews (either informally or by sworn testimony) of company personnel or others with knowledge about the industry.

Typically, once both companies have substantially complied with the Second Request, the agency has an additional 30 days to review the materials and take action, if necessary. (In the case of a cash tender offer or bankruptcy, the agency has 10 days to complete its review and the time begins to run as soon as the buyer has substantially complied.) The length of time for this phase of review may be extended by agreement between the parties and the government in an effort to resolve any remaining issues without litigation.

The potential outcomes at this stage are:

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