HSR Transaction and Filing Fee Thresholds Adjusted; Civil Penalty Increased Significantly; Civil Penalty Imposed.
Thresholds Adjusted
The Hart-Scott-Rodino Antitrust Improvements Act of 1976 (“HSR”) requires parties to stock and asset transactions that satisfy specified jurisdictional thresholds to provide the Federal Trade Commission (“FTC”)
and Department of Justice (“DOJ”) with information for use in evaluating whether to raise antitrust objections to the proposed transaction. The parties must wait a designated period of time (usually 30 calendar
days) after providing that information before the proposed transaction can be consummated. The FTC and DOJ frequently grant requests to terminate the waiting period early (particularly where the proposed transaction raises
no substantive antitrust concerns), and also have the right to extend the waiting period (as part of a so-called “second request”).
The FTC has announced the most recent adjustments to those HSR jurisdictional thresholds. These adjustments will be effective February 12, 2009, and will apply to all transactions that close on or after that effective date.
When HSR was adopted in 1976, its jurisdictional thresholds, though set to capture relatively large transactions, were never indexed for inflation. As a result, by the late 1990’s smaller and smaller transactions also
had become subject to HSR compliance. Congress fixed this problem as part of a broader amendment to HSR, which became effective February 1, 2001. That legislation also directed the FTC to adjust the various HSR jurisdictional
thresholds for inflation, annually, beginning in 2005. This new adjustment represents the FTC’s fifth annual adjustment.
Summary of Adjustments to HSR Jurisdictional Tests
|
||
HSR Test |
Old Threshold |
New Threshold |
Size-of-Parties |
Larger Party:
|
Larger Party:
|
Size-of-Transaction |
$63.1 million |
$65.2 million |
Size-of-Transaction
|
$252.3 million |
$260.7 million |
The basic HSR jurisdictional tests were restated as part of the legislation effective February 1, 2001. Transactions are reportable if three distinct tests (commerce test, size-of-transaction test, and size-of-parties test) are
satisfied and no exemption applies. Once these latest adjustments go into effect, the size-of-transaction test will be satisfied if the transaction has a value (as determined under HSR) in excess of $65.2 million (up from $63.1
million); and, if the size-of-transaction exceeds $260.7 million (up from $252.3 million), the transaction could be reportable whether or not the size-of-parties test is satisfied. Where the size-of-parties test does apply,
it would be satisfied, in general, where one “person” (as determined under HSR) has worldwide annual net sales or worldwide total assets of $130.3 million (up from $126.2 million), and the other person $13.0 million
(up from $12.6 million).
The FTC also is adjusting the corresponding thresholds, based on the value of the transaction, used to determine the applicable HSR filing fee (the filing fees themselves are unchanged):
Summary of Adjustments to HSR Filing Fee Thresholds
|
||
HSR Filing Fee |
Old Threshold |
New Threshold |
$45,000 |
Less than $126.2 million |
Less than $130.3 million |
$125,000 |
Less than $630.8 million |
Less than $651.7 million |
$280,000 |
$630.8 million or more |
$651.7 million or more |
Civil Penalty Increased
HSR compliance obligations arise where the HSR jurisdictional tests are satisfied and no exemption applies, whether or not the particular transaction actually raises any substantive antitrust concerns. A civil penalty can be assessed for HSR violations, and that penalty can accumulate rapidly. The FTC recently announced the first adjustment to the HSR civil penalty in more than 10 years. Once the adjustment goes into effect, on February 9, 2009, violators will be subject to a civil penalty of up to $16,000 per day (up from $11,000 per day) from the day of the violation to the day when HSR clearance has been achieved. In the past, enforcement action has been taken months, or even years, after the actual HSR violation.
Inflation since the last adjustment (in 1996) accounts for the large adjustment now. An earlier adjustment (in October 2000) from $11,000 to $12,000 was rescinded by the FTC one month later after it determined that, under applicable law, the $11,000 penalty could not be further adjusted except for increases rounded in multiples of $5,000.
Civil Penalty Assessed
Two related investment funds recently agreed to pay HSR civil penalties totaling $800,000 to settle charges that they violated HSR in connection with certain add-on investments they made in September and October 2004 in the stock of AutoZone, Inc. The two partnerships, ESL Partners, L.P. and ZAM Holdings, L.P., agreed to pay civil penalties of $525,000 and $275,000, respectively. At the time, investment decisions for both partnerships were made by RBS Partners, L.P., and the individual who managed and operated RBS Partners served on the AutoZone board of directors. (Although commonly controlled, ESL Partners and ZAM Holdings were not included within the same “person” for HSR purposes.)
ESL Partners had received HSR clearance, on September 1, 1999, in connection with acquisitions of AutoZone stock contemplated at that time. Under HSR, that clearance also exempted certain add-on acquisitions of AutoZone stock for a five-year period thereafter (expiring September 1, 2004). So, several add-on acquisitions made from late September to mid-October 2004 could not rely on that expired five-year exemption. ZAM Holdings also had previously acquired AutoZone stock, in transactions that were not reportable under the HSR rules as then in effect; however, its add-on acquisitions in mid-October 2004 were not similarly exempted.
Only after the FTC’s Premerger Notification Office contacted ESL Partners and ZAM Holdings in late January 2005 to inquire about the absence of HSR filings were corrective filings made by them. It appears that both partnerships claimed exemption under HSR’s “solely for the purpose of investment” exemption. However, the FTC indicated they did not qualify for that exemption because they intended to participate in the basic business decisions of the issuer (through, among other things, the RBS Partners’ designee on the AutoZone board of directors); and, in the case of ESL Partners, its holdings exceeded the 10% maximum allowed under the investment-intent exemption. Corrective filings were made by the partnerships shortly after the FTC’s inquiry, and the HSR waiting periods expired in late February 2005 (for ESL Partners) and early March 2005 (for ZAM Holdings).
The agreed-upon civil penalties represent approximately 25% of the potential maximum civil penalty that could have been assessed for those violations (based on the $11,000 per day maximum penalty in effect at the time). This percentage is well below the level typically obtained for HSR violations, and may indicate the FTC believed civil penalties were warranted but did not consider the violations to have been intentional.
For questions on HSR requirements and compliance, contact:
June Ann Sauntry404.885.3210
Mitchell P. Portnoy
212.704.6135
Lori H. Jones
404.885.3828