What Is the Hart-Scott-Rodino Antitrust Improvements Act of 1976?
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, companies must submit premerger notifications to both the Federal Trade Commission and the Justice Department for specific acquisitions. Whether premerger notifications are required depends on three factors: the type of business, the size of the companies involved, and the value of the transaction. In case regulators detect any possible anti-competitive concerns, they might discuss concessions with the affected companies or try to temporarily stop the transaction.
The Hart-Scott-Rodino Antitrust Improvements Act of 1976, commonly referred to as the "HSR Act" or Public Law 94-435, plays a pivotal role in regulating mergers and acquisitions within large companies. Enacted as amendments to existing antitrust laws, including the Clayton Antitrust Act, this legislation mandates that such corporations must submit notifications to both the Federal Trade Commission and the Department of Justice's anti-trust division before proceeding with specific mergers, acquisitions, or tender offers.
To comply with the law, companies planning to merge must submit an HSR Form, widely known as a premerger notification report. This enables regulators to scrutinize the proposed merger in light of antitrust regulations, ensuring fair competition in the market.
President Gerald Ford signed this significant act into law, solidifying its position in the business landscape. It remains a vital tool in maintaining a competitive market environment and upholding the principles of fair trade and competition.
How Does the Hart-Scott-Rodino Antitrust Improvements Act of 1976 Work?
The Hart-Scott-Rodino Antitrust Improvements Act of 1976 operates through a well-defined process. Once the concerned companies submit the necessary forms, a waiting period ensues. Typically, this waiting period spans 30 days; however, for cash tender offers or acquisitions in bankruptcy, it is reduced to 15 days.
Upon the waiting period's conclusion or early termination by the government, the transaction can proceed. However, if regulators identify potential anti-competitive issues with the proposed merger, they take specific actions. They may request further information from the involved companies and extend the waiting period. Alternatively, they might engage in negotiations with the companies to implement measures that restore competition. In more severe cases, they may seek to prevent the transaction by filing a preliminary injunction in court.
The HSR Act sets forth specific premerger tests that determine the necessity of a filing:
- Commerce Test: Any party involved in a proposed transaction must engage in commerce or participate in activities that impact commerce, a condition broadly applicable to almost all cases.
- Size-of-Person Test: As of 2020, either the acquiring or acquired entity must possess total assets or annual net sales of $188 million or more, while the other party should have total assets or annual net sales of $18.8 million or more.
- Size-of-Transaction Test: This test is satisfied when a certain amount of assets or voting securities worth at least $94 million (as of 2020) is acquired. Alternatively, if 15% or more of voting securities are purchased, and the acquiring party gains control of an entity with annual net sales or total assets of $94 million or more, the test is met.
For the year 2020, the base filing threshold under the HSR Act, which determines whether a transaction necessitates premerger notification, stands at $904 million. The statutory size-of-person threshold ranges from $18.8 million to $188 million. In cases where the "size-of-person" threshold is not met, the statutory transaction size test applies, set at $376 million.
Fees for HSR Forms Based on Transaction Size
The Hart-Scott-Rodino (HSR) forms entail filing fees, which differ according to the transaction's size. For instance, transactions ranging from over $94 million to less than $188 million mandate a $45,000 filing fee. Transactions valued between more than $188 million to less than $940.1 million attract a filing fee of $125,000. Lastly, transactions exceeding $940.1 million require a filing fee of $280,000.
The Hart-Scott-Rodino Antitrust Improvements Act of 1976 is crucial in regulating large companies' mergers and acquisitions. By requiring premerger notifications to be submitted to the Federal Trade Commission and the Department of Justice, it ensures that potential antitrust concerns are thoroughly examined before proceeding with transactions. The Act sets specific tests, such as the commerce test and size-of-person test, to determine the necessity of a filing. Additionally, the size-of-transaction test applies to all transactions, with various filing fees based on the transaction's value. This comprehensive framework aims to maintain fair competition and uphold the principles of the Act in the ever-changing business landscape.