FTC Revises Thresholds for Merger Filings, Interlocking Directorates

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

The FTC has announced its annual revisions to the thresholds for notifying the antitrust agencies of a proposed acquisition and merger pursuant to the report-and-wait requirements of the Hart-Scott-Rodino (HSR) Act.

The thresholds, which were increased based on the change in the Gross National Product (GNP), will become effective February 24, 2011.

Disclosure Requirements

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.

However, in light of the recent increase in the number of federal enforcement actions challenging consummated mergers, it must be understood that the antitrust agencies can challenge a merger or acquisition that does not meet the HSR 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 meeting or exceeding $263.8 million will be reportable (up from the current $253.7 million), unless otherwise exempted.

“Size of Person” Test

No transaction resulting in an acquiring person holding $66 million or less (up from $63.4 million or less) of assets or voting securities of an acquired person will need to be reported. The reportability of transactions falling between these boundaries is based on the “size of person” test.

Under the “size of person” test, transactions valued at $66 million or more but less than $263.8 million will be reportable if one party has sales or assets in excess of $131.9 million and the other $13.2 million (up from $126.9 million and $12.7 million, respectively).

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 $45,000 filing fee will be required for reportable transactions valued at less than $131.9 million (up from $126.9 million); a $125,000 filing fee will be required for reportable transactions valued at least $131.9 million but less than $659.5 million (up from $634.4 million); and a $280,000 filing fee will be assessed on the largest transactions.

Interlocking Directorates

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 Sec. 8 of the Clayton Act, the FTC is required to recalculate the figures annually based on changes in the GNP.

Under the new threshold amounts, effective January 25, 2011, interlocking management is prohibited if each of the companies has capital, surplus, and undivided profits in excess of $26,867,000 and the competitive sales of each corporation exceed $2,686,700. These figures are up from last year’s thresholds—$25,841,000 for Clayton Act, Section 8(a)(1), and $2,584,100 for Clayton Act, Section 8(a)(2)(A).

The FTC notice appears here at 76 Federal Register 4349, January 25, 2011.

Premerger Notification Thresholds Adjusted Downward for 2010

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 thresholds, which will become effective February 22, 2010, were adjusted downward for the first time based on the change in the Gross National Product (GNP).

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.

Revised 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 $253.7 million will be reportable (down from the current $260.7 million), unless otherwise exempted. No transaction resulting in an acquiring person holding $63.4 million or less (down from $65.2 million or less) of assets or voting securities of an acquired person will need to be reported.

The reportability of transactions falling between these boundaries is based on the “size of person” test. Under the “size of person” test, transactions valued at more than $63.4 million but less than $253.7 million will be reportable if one party has sales or assets in excess of $126.9 million and the other $12.7 million (down from $130.3 million and $13 million, respectively).

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 $45,000 filing fee will be required for reportable transactions valued at less than $126.9 million (down from $130.3 million); a $125,000 filing fee will be required for reportable transactions valued at least $126.9 million but less than $634.4 million (down from $651.7 million); and a $280,000 filing fee will be assessed on the largest transactions.

Interlocking Directorates

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 21, 2010, interlocking management is prohibited if each of the companies has capital, surplus, and undivided profits in excess of $25,841,000 and the competitive sales of each corporation exceed $2,584,100. These figures were also adjusted downward. Under Sec. 8 of the Clayton Act, the FTC is required to recalculate the figures annually based on changes in the GNP.

Further information regarding the HSR thresholds will appear at CCH Trade Regulation Reporter ¶ 4231. An explanation of the rules for interlocking directorates will appear at CCH Trade Regulation Reporter ¶ 4575.

Details are available here at the FTC website.

Apple, Google Boards of Directors Lose Members as FTC Investigates Overlaps

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

Google announced yesterday that a member of its corporate board of directors, who was also a member of Apple’s corporate board, had stepped down.

Google did not give a reason for the resignation of Dr. Arthur Levinson. However, it follows an August 3 announcement by Apple that Google's chief executive officer, Eric E. Schmidt, was stepping down from Apple's board.

At that time, Apple said that Schmidt's departure was a mutual decision and necessary in light of growing competition between the firms.

“Unfortunately, as Google enters more of Apple's core businesses, with Android and now Chrome OS, Eric's effectiveness as an Apple Board member will be significantly diminished, since he will have to recuse himself from even larger portions of our meetings due to potential conflicts of interest,” said Steve Jobs, Apple's CEO.

FTC Reaction

In response to Google’s announcement about Levinson’s resignation, FTC Chairman Jon Leibowitz said:

“Google, Apple, and Mr. Levinson should be commended for recognizing that overlapping board members between competing companies raise serious antitrust issues and for their willingness to resolve our concerns without the need for litigation.”

Leibowitz added that the agency would “continue to monitor companies that share board members and take enforcement actions where appropriate.”

Government Challenges

The FTC disclosed in August that it was investigating Google/Apple interlocking directorates. Sec. 8 of the Clayton Act conditionally prohibits interlocking directorates in competing corporations. Yet, government challenges to the overlaps are rare.

Over the last few decades, there have only been a handful of government challenges. The most recent Department of Justice complaint alleging a Clayton Act, Sec. 8 violation was filed in 2007. In that case, the government challenged CommScope Inc.'s proposed $2.6 billion acquisition of Andrew Corporation to preserve competition for drop cable.

The government contended that the transaction would have given CommScope the ability to appoint directors to the board of Andes, a substantial competitor, in violation of Sec. 8 of the Clayton Act. The suit was resolved by a consent decree (2008-2 Trade Cases ¶76,247). (See December 10, 2007 entry, Trade Regulation Talk.)

Yesterday’s announcement by the FTC could signal a move toward greater scrutiny of interlocks, however, especially between high profile companies like Google and Apple.

The Google announcement appears here on the company website. Commissioner Leibowitz’s statement is available here.