What is the Hart-Scott-Rodino Antitrust Improvements Act of 1976?
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, significant firms must notify the Federal Trade Commission and Department of Justice antitrust division before certain mergers, acquisitions, or tender offers.
To comply with the legislation, merging corporations must submit an HSR Form, a “Notification and Report Form for Certain Mergers and Acquisitions,” or a premerger notification report. This allows regulators to evaluate the deal under antitrust laws.
President Gerald Ford signed the measure, amending antitrust laws, particularly the Clayton Antitrust Act. The “HSR Act,” or Hart-Scott-Rodino Antitrust Improvements Act of 1976, is also Public Law 94-435.
How the 1976 Hart-Scott-Rodino Antitrust Improvements Act Works
Companies must wait after filing paperwork. The waiting time is typically 30 or 15 days for cash tender bids or bankruptcy acquisitions.
The transaction can occur after the waiting period or if the government stops it early. Suppose regulators suspect anti-competitive issues with the merger. In that case, they may request more information, extend the waiting period, negotiate a deal to restore competition, or file a preliminary injunction to stop the transaction.
Tests before merger
For merger filing, the HSR Act requires the following tests:
- The commerce test requires parties participating in a proposed transaction to be active in commerce or related activities. The majority of situations will meet this wide threshold.
- The size-of-person test: By 2020, the purchasing or acquired party must have $188 million or more in total assets or annual net sales. The opposite party needs $18.8 million in assets or net sales.
- The size-of-transaction criteria require acquiring at least $94 million in assets or voting securities as of 2020. Obtaining 15% or more voting stocks and gaining control of a firm with yearly net sales or total assets of $94 million or more meets the criteria.
HSR Act base filing level for 2020 is $904 million, determining whether a deal requires a public notice. The statutory size-of-person barrier is $18.8 million to $188 million. Other than the “size-of-person” criterion, the statutory transaction size test for all transactions is $376 million.
Special Considerations
HSR filing fees vary by transaction size. Transactions over $94 million but under $188 million incur a $45,000 filing fee. Over $188 million, but under $940.1 million, transactions incur a $125,000 reporting charge. The reporting charge is $280,000 for transactions over $940.1 million.
Conclusion
- Certain purchases need stricter disclosures to the FTC and Justice Department under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. Premerger notifications depend on the type of business, the parties involved, and the transaction amount.
- If authorities suspect anti-competitive problems, they may negotiate concessions or preliminarily enjoin the deal.
