Premerger Notification Thresholds, Penalties for Noncompliance to Increase

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

The FTC has revised its thresholds for acquisitions and mergers subject to the report-and-wait requirements of the Hart-Scott-Rodino (HSR) Act. These higher thresholds will become effective February 12, 2009.

Separately, the agency adjusted for inflation its civil penalties for violations of HSR rules as well as for violations of the FTC Act. These new civil penalties apply to violations occurring after February 9.

Pursuant to the HSR Act, plans for large acquisitions and mergers must be disclosed to the Department of Justice and the FTC to enable the federal antitrust enforcement authorities to examine their competitive effects and have an opportunity to challenge them under the antitrust laws prior to consummation. Only the transactions that exceed the jurisdictional thresholds need to be reported on the Notification and Report Form.

2000 Amendments

Amendments to the HSR Act in 2000 imposed new thresholds and called for indexing of these thresholds for inflation annually beginning in Fiscal Year 2005. They have since been revised based on changes in Gross National Product.

Between February 1, 2001 and March 2, 2005, acquisitions that resulted in an acquirer holding an aggregate total amount of the voting securities and assets of the acquired party in excess of $200 million were reportable, unless otherwise exempted. On the other extreme, no transaction resulting in an acquiring person holding $50 million or less of assets or voting securities of an acquired person needed to be reported. The reportability of transactions falling between these boundaries was based on the “size of person” test (which generally required one side of the transaction to have sales or assets in excess of $100 million and the other $10 million).

New Thresholds

Under the revised thresholds, acquisitions that result in an acquirer holding an aggregate total amount of the voting securities and assets of the acquired party in excess of $260.7 million will be reportable (up from the current $252.3 million), unless otherwise exempted. No transaction resulting in an acquiring person holding $65.2 million or less (up from $63.1 million or less) of assets or voting securities of an acquired person will need to be reported.

The “size of person” test, applied to transactions valued at more than $65.2 million but less than $260.7 million, requires one party to have sales or assets in excess of $130.3 million and the other $13.0 million (up from $126.2 million and $12.6 million, respectively). Where an acquired person is not engaged in manufacturing, only its total assets (unless its sales are at least $130.3 million) will be considered in determining its size.

Filing Fees

Along with notifying the agencies, parties must pay premerger filing fees. The fees are based on the size of the transaction. Under the revised thresholds, a filing fee of $45,000 will be required for reportable transactions valued at less than $130.3 million (up from $126.2 million); transactions valued at at least $130.3 million but less than $651.7 million will be subject to a $125,000 filing fee; and a $280,000 filing fee will be assessed on the largest transactions.

Inflation Adjustment to Civil Penalties

The FTC has adjusted its civil penalty dollar amounts in accordance with the Federal Civil Penalties Inflation Adjustment Act of 1990. Pursuant to the Act, the FTC is required to make certain regulatory adjustments to civil penalty amounts within its jurisdiction at least once every four years. The Commission last published adjustments to civil penalties in 2004.

Civil penalties for premerger filing notification violations under the HSR Act will increase from $11,000 to $16,000 per violation, effective February 9. The same increase—from $11,000 to $16,000—applies to civil penalties for unfair or deceptive acts or practices under Secs. 5(l), (m)(1)(A) and (m)(1)(B) of the FTC Act and energy conservation violations under Sec. 525(b) the Energy Policy and Conservation Act. The civil penalty for violations of cease-and-desist orders issued under section 11(l) of the Clayton Act will increase from $6,500 to $7,500.

The text of amended Commission Rule 1.98, which sets out the civil penalties, will appear at CCH Trade Regulation Reporter ¶9801.93.

Interlocks Under Sec. 8 of Clayton Act

The FTC has also released its annual recalculation of profits and sales thresholds applicable in determining whether an individual can serve as an officer or director of two or more competing corporations.

Under the new threshold amounts, effective January 13, 2009, interlocking management is prohibited if each of the companies has capital, surplus, and undivided profits in excess of $26,161,000 and the competitive sales of each corporation exceed $2,616,100. Under Sec. 8 of the Clayton Act, the FTC is required to recalculate the figures annually based on changes in the Gross National Product.

Details of the revised jurisdictional thresholds for Secs. 7A and 8 of the Clayton Act will appear in CCH Trade Regulation Reporter (74 Federal Register 1687, 1688, January 13, 2009).