Canada: U.S. Increases Deal Reporting and Foreign Exemption Thresholds

In the United States, the 2006 annual adjustment to reportable transaction thresholds increases the dollar values of exemptions available for transactions involving Canadian and other non-U.S. assets and issuers.

The United States Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the HSR Act) requires parties to certain mergers and acquisitions, including certain acquisitions of non-U.S. assets and securities, to file pre-merger notifications with the Federal Trade Commission and the Antitrust Division of the Department of Justice and observe a waiting period (usually 30 days) before consummating the transaction. Prior to the current changes, the HSR Act was generally applicable when, as a result of an acquisition, the acquiring person will hold voting securities or assets valued in excess of US$53.1 million ("size of transaction test") and either the acquiring or acquired person has annual net sales or total assets of at least US$106.2 million and the other person has annual net sales or assets of at least US$10.7 million ("size of parties test"). Acquisitions of assets or voting securities valued in excess of US$212.3 million were reportable even if the size of parties test was not met.

Notwithstanding the foregoing, exemptions exist for certain acquisitions of "foreign assets" and voting securities of "foreign issuers," such that the thresholds for reporting transactions are generally higher when the assets or voting securities being acquired are "foreign" and when the parties to the transaction are themselves "foreign persons". For purposes of the HSR Act, assets are generally considered "foreign" if they are located outside of the United States and generate less than a certain threshold of sales in or into the United States. An issuer is considered "foreign" if it is not incorporated or organized under the laws of the United States and does not have principal offices within the United States.

Effective February 17, 2006 for transactions that close on and after that date, the HSR Act filing thresholds and exemptions (including the "foreign" exemptions often relied upon by Canadian and other non-U.S. persons) have been increased.

The size of transaction threshold has increased from US$53.1 million to US$56.7 million. The size of parties thresholds of US$106.2 million and US$10.7 million have increased to US$113.4 million and US$11.3 million, respectively. Acquisitions of assets or voting securities valued in excess of US$226.8 million (previously US$212.3 million) will be reportable even if the size of parties test is not met. Similarly, the "foreign" exemption thresholds have been increased as follows.

Acquisitions of Assets

Acquisitions of assets located outside of the United States are exempt unless the foreign assets the acquiring person will hold as a result of the acquisition generated sales in or into the United States exceeding US$56.7 million during the acquired person’s most recent fiscal year.

Where the assets being acquired exceed this threshold, the transaction is nevertheless exempt if both the acquiring and acquired persons are non-U.S. persons, and:

  • the aggregate sales of the acquiring and acquired persons in or into the United States are less than US$124.7 million in their respective most recent fiscal years;
  • the aggregate total assets of the acquiring and the acquired persons located in the United States are less than US$124.7 million; and
  • the acquiring person will not hold voting securities and/or assets of the acquired person valued at greater than US$226.8 million.

Acquisitions of Voting Securities

Acquisitions of voting securities of a non-U.S. issuer by a U.S. person will be exempt unless the issuer (including any entities it controls) either:

  • holds assets located in the United States having an aggregate total value of over US$56.7 million; or
  • made aggregate sales in or into the United States of over US$56.7 million in its most recent fiscal year.

Acquisitions of voting securities of a non-U.S. person by a non-U.S. person will be exempt unless the acquisition will confer control of the issuer and the issuer either:

  • holds assets located in the United States having an aggregate total value of over US$56.7 million; or
  • made aggregate sales in or into the United States of over US$56.7 million in its most recent fiscal year.

Even if the non-U.S. issuer whose securities are being acquired exceeds one of these US$56.7 million thresholds, the transaction is nevertheless exempt if both the acquiring and acquired persons are non-U.S. persons, and:

  • the aggregate sales of the acquiring and acquired persons in or into the United States are less than US$124.7 million in their respective most recent fiscal years;
  • the aggregate total assets of the acquiring and acquired persons located in the United States are less than US$124.7 million; and
  • the acquiring person would not hold assets and/or voting securities of the acquired person valued at greater than US$226.8 million.

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.

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