| Competition law |
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| Basic concepts |
| Anti-competitive practices |
| Enforcement authorities and organizations |
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.
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The Act provides that before certain mergers, tender offers or other acquisition transactions can close, 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 filing describes the proposed transaction and the parties to it. Upon the filing, a 30-day waiting period (15-days for all-cash tender offers) then ensues 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.
It is unlawful to close the transaction during the waiting period. Although the waiting period is generally 30 days (again, 15 days if the transaction is an all cash tender offer), 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. Additionally, some types of transactions are afforded the special treatment of shorter waiting periods.
The filing requirement is triggered only if the value of the transaction and, in some cases, the size of the parties, exceed certain dollar thresholds, which are adjusted over time. For the purpose of determining the "size of the parties" one assesses the size of the party to the transaction, its ultimate parent entity, and all subsidiaries of that ultimate parent entity.
The rules are somewhat complicated. The general rule was a filing was required if three tests are met; (1) the transaction affects commerce; (2) either (a) one of the parties has sales each year or assets of $100 million or more [as of 2008, raised to $126.3 million] and the other party has sales or assets of $10 million or more [as of 2008, raised to $12.6 million]; or (b) the amount of stock the acquirer has is valued at $200 million or more [as of 2008, raised to $252.3 million] at any time; and (3) the value of the transaction is $50 million or more [as of 2008, raised to $66 million].[1]
There is also a rule prohibiting "interlocking directorates" where a person serves on the board of directors of competing companies over a certain size; this initially was $10 million but has been raised as of 2011 to $26.8 million, but does not apply if any competitor has total assets of $1 million or less (as of 2011, $2.6 million).
The rules are somewhat overlapping to some degree, but the basic requirements are that all transactions of $252.3 million or more require a filing. All transactions worth more than $63.1 million require a filing if one of the parties is worth at least $12.6 million, the other is worth at least $126.3 million and the total amount of assets now owned by the acquirer reaches $252.3 million. These are only the mandatory filing requirements; 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 person, for the purposes of determining whether they reach the asset trigger, the value of their residence and the sports car that they drive 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 or certain real estate transactions such as for purchasing land used for buildings used by the acquiring party (an exception to the exception is that if the transaction is for a hotel-casino then the transaction is not exempt if the three conditions above are met). An example was given that a merger of two corporations each having a net asset value of $99 million would not require a filing.[2] Presumably this would be raised to the current floor limits under the current rules, e.g. two corporations with assets of $125 million each could merge without triggering the reporting requirements.
The firm that is making the proposed acquisition is required to pay a substantial filing fee when making its filing; the amount of the fees is tied to the size of the transaction, as of 2008[update] the fee was US$45,000 for transactions of US$50 million to $100 million; (in 2010 the instructions were revised to clarify that the fee is $45,000 for transactions greater than 63.4 million but less than 126.9 million); $125,000 for transactions of $100 million to $500 million (clarified in 2010 to $125,000 for transactions of $126.9 million or greater but less than $634.4 million); and $280,000 for transactions over $500 million (clarified in 2010 to $280,000 for transactions of $634.4 million or more). Also, the filing fee is good for, during a period of up to one year after the original transaction, further transactions that do not exceed the next threshold (such as if a transaction was reported amounting to $78 million, the acquiring party could make additional purchases as long as they did not exceed $100 million within one year after the original filing). Once they reached $100 million, a new filing and new fee would be required, but no further fee would be required unless the total of purchases reached $500 million. There are also filing requirements based on the percentage of acquisition, at 25% of a company worth $1 billion, or 50% of any company if filing is required. However, once 50% or more of the target had been acquired or the amount of acquisitions reported exceeded $500 million, no further reports are required to be filed.
In transactions where either the FTC or the Antitrust Division believes there may be significant anticompetitive consequences, either agency may require more background information from the parties to the merger by means of the second request process.
Title III of the Act allows states to sue companies in Federal court for monetary damages under antitrust laws in parens patriae, on behalf of their citizens; previously, only the persons harmed by anticompetitive activity had a right to sue for damages. Title III is in substance the original bill introduced in the House of Representatives by Congressman Peter W. Rodino, Jr.; the other titles of the Act were added as the bill was amended during Congressional deliberations.