United States: Annual Increase in Hart-Scott-Rodino Thresholds

The Federal Trade Commission announced on January 13, 2006 revised thresholds under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (15 U.S.C. §18a) ("the HSR Act"). The new thresholds will become effective on February 17, 2006 for transactions that close on or after that date. The threshold adjustments are mandated by the major HSR amendments in 2000, which substantially increased the HSR thresholds. The 2000 HSR amendments require annual indexing of the thresholds based on changes in gross national product for each fiscal year beginning after September 30, 2004. Accordingly, the HSR thresholds are now adjusted on an annual basis.

The 2000 HSR Amendments raised the Size of the Transaction Test to $50 million. This figure is currently $53.1 million based on last year’s annual adjustment, and shortly will increase to $56.7 million. Accordingly, under the current Size of the Transaction Test, no HSR filing is required unless the acquisition results in an acquiring person holding an aggregate total amount of voting securities and/or assets of the acquired person in excess of $53.1 million (to increase to $56.7 million).

Under the current thresholds, acquisitions valued above $212.3 million are reportable regardless of the size of the parties, and acquisitions valued at greater than $53.1 million (to become $56.7 million) but less than or equal to $212.3 million are reportable only if the Size of the Parties Test is met. The $212.3 million threshold will become $226.8 million.

The Size of the Parties Test currently is typically met if the acquiring or acquired person has annual net sales or total assets of $106.2 million or more and the other person has annual net sales or total assets of $10.7 million or more. (Many people remember this test at its original level as a $10 million/$100 million test). The current $10.7 million/$106.2 million test will shortly become $11.3 million/$113.4 million.

An acquiring person in a reportable acquisition of voting securities files for the highest applicable among five notification thresholds. The notification threshold may determine, for example, whether a subsequent acquisition of additional voting securities from the same acquired issuer will require another HSR filing. The new notification thresholds that will become effective with the forthcoming adjustments are:

• An aggregate total amount of voting securities of the acquired person valued at greater than $56.7 million but less than $113.4 million;

• An aggregate total amount of voting securities of the acquired person valued at $113.4 million or greater but less than $567 million;

• An aggregate total amount of voting securities of the acquired person valued at $567 million or greater;

• Twenty-five percent of the outstanding voting securities of an issuer if valued at greater than $1.134 billion; or

• Fifty percent of the outstanding voting securities of an issuer if valued at greater than $56.7 million.

The filing fee amounts are not changing, but the thresholds for application of the fees are increasing.

• The filing fee currently is $45,000 if the aggregate amount of assets and voting securities to be held as a result of the acquisition is more than $53.1 million (to become $56.7 million) but is less than $106.2 million (to become $113.4 million).

• The filing fee currently is $125,000 if the aggregate amount of assets and voting securities to be held as a result of the acquisition is from $106.2 million (to become $113.4 million) to less than $530.7 million (to become $567 million).

• The filing fee currently is $280,000 if the aggregate amount of assets and voting securities to be held as a result of the acquisition is $530.7 million (to become $567 million) or more.

Although not related to the increase in thresholds, parties contemplating an HSR filing should be aware of very recent changes to the form reporting requirements. Effective December 30, 2005, the base year for reporting revenue on the HSR form by North American Industry Classification System ("NAICS") codes changed from 1997 to 2002. For 30 days following this effective date, parties may use either 1997 or 2002 revenue information so long as all filing parties to a transaction use the same year and codes in reporting overlaps under Item 7 of the HSR form. Effective January 11, 2006, parties are allowed to provide an internet address directly linking to the documents required under items 4(a) and 4(b) instead of providing paper copies of the required documents. Item 4(a) requires providing certain filings with the Securities and Exchange Commission, and Item 4(b) requires documents such as annual reports, annual audit reports and regularly prepared balance sheets.

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Most, although not all, of the dollar amounts in the HSR rules will be adjusted in accordance with the indexing for the thresholds discussed above. Parties must continue to be very careful in determining if a threshold is met given that the process can be very complex and the rules are highly technical. In analyzing a potential past failure to file under HSR, it will be necessary to look at the thresholds in place at the time of closing.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.