Federal antitrust laws provide that large transactions involving the merger or acquisition of large companies with or by other large companies are subject to review by the U.S. Federal Trade Commission ("FTC") and the U.S. Justice Department for potential anti-competitive effects. However, given how the relevant laws and regulations define large, a merger or acquisition that doesn't seem all that large and doesn't seem like it would have any impact on competition can still be subject to federal government review.
The law that created the government review process, the Hart-Scott-Rodino Antitrust Improvements Act of 1976 ("HSR"), provides for a notification of the FTC and the Justice Department of any pending merger or acquisition transaction where the parties meet the "size-of-person" test and the transaction itself meets the "size of transaction" test. Prior to recent amendments, if one of the parties, either the buyer or the seller, had annual net sales or total assets of more than $100 million, and the other party had annual net sales or total assets of more than $10 million and the transaction was valued at more than $50 million, then the transaction was reportable, and both parties were required to file the HSR Premerger Notification and Report Form with the FTC and the Justice Department. If a transaction was valued at more than $200 million, then it was reportable regardless of the size of the parties.
In 2000, HSR was amended to provide for annual increases to these notification thresholds based upon the annual change in the gross national product. In February 2009, the thresholds were increased so that the parties had to exceed $130.3 million and $13 million for the size-of-person test, and the transaction had to be valued at more than $65.2 million for it to be reportable; or if the transaction exceeded $260.7 million it was reportable regardless of the size of the parties. If the parties and/or the transaction exceed the thresholds, then the transaction is reportable even if there are no obvious anti-competitive effects; i.e., a financial buyer is acquiring a company in a line of business in which it has no other interest.
There is a filing fee for the premerger notification, usually paid by the buyer, that starts at $45,000, increases to $125,000 for transactions valued over $130.3 million and is higher for larger transactions.
When a premerger notification filing is made, the FTC has 30 days to decide if it wants to investigate further. If the 30-day waiting period expires without the FTC seeking additional information, that is the end of the process. If the FTC seeks additional information, it means that the FTC is concerned about the potential effects of the transaction on competition and the inquiry is, in essence, just the beginning.
For transactions in which there clearly are no anti-competitive effects, the parties can seek an early termination of the 30-day waiting period which the FTC often grants within two weeks.
There are substantial penalties for failing to file the premerger notification form; currently $11,000 per day and increasing to $16,000 per day for each day after a transaction occurs for which the notice is not filed.
With merger or acquisition transactions often having debt assumption, stock, earnouts or other contingent payments as part of the overall purchase price, determining whether an HSR Premerger Notification and Report Form needs to be filed may require a thorough analysis of the transaction. Such an analysis should be done soon after the business deal is finalized so, if necessary, the government review process can be accomplished without delaying the completion of the transaction.
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