Most Significant Hart-Scott-Rodino (HSR) Changes in Decades Signal Rise in Antitrust Enforcement, and Need for Enhanced M&A Precautions
These and other changes, which will become effective on February 27, 2023, are described in this alert.
The size-of-transaction threshold will now be $111.4 million, triggering a HSR filing obligation if a purchaser will acquire and hold assets, corporate voting securities, or interests in non-corporate entities valued at this level. The original size-of-transaction threshold was $50 million; the 2022 amount was $101 million.
The size-of-person threshold (the other major component of the HSR test) will be met if one of the parties to the transaction has total assets or annual net sales valued at $222.7 million or more, and the other party has at least $22.3 million in total assets or annual net sales. The original size-of-person thresholds were $100 million and $10 million respectively; in 2022, they were $202 million and $20.2 million. However, under an important caveat demonstrating the greater importance of the size of transaction test, going forward the size of person threshold will not apply to transactions with a “size” of $445.5 million or more. The original number was $200 million; the 2022 threshold was $403.9 million.
On December 29, 2022, President Biden signed into law the Merger Filing Fee Modernization Act of 2022 (FFMA). The FFMA includes the first changes to HSR filing fees since 2001, rebooting the entire structure by establishing six tiers to replace the three tiers currently in place. For large transactions, the filing fees will dramatically increase, while for certain smaller transactions, filing fees will decrease. The net effect will be significantly increased funding for agency antitrust enforcement against both HSR reportable and non-reportable transactions.
The following new filing fees will apply for filings made on or after February 27, 2023:
- $30,000 for transactions sized at less than $161.5 million.
- $100,000 for transactions sized at $161.5 up to $500 million.
- $250,000 for transactions sized at $500 million up to $1 billion.
- $400,000 for transactions sized at $1 billion up to $2 billion.
- $800,000 for transactions sized at $2 billion up to $5 billion.
- $2,250,000 for transactions sized at $5 billion or more.
To illustrate how significantly the filing fees will increase for larger transactions under this new tier structure, consider that in 2020, the FTC reported 234 HSR transactions valued over $1 billion. Under the previous structure, which required a $280,000 filing fee at this level, these 234 transactions would have generated approximately $65.5 million total in filing fees. Under the new 2023 filing fee structure, these 234 transactions would generate from $93.6 million in fees (at the $400,000 fee level) to $526.5 million in fees (at the $2,250,000 fee level), depending on the size of transaction – a potential increase in funding from these larger transactions of approximately 43% to a whopping 800%. This sends a strong signal of increased antitrust enforcement, expressly denominated as the central goal in FFMA legislative history, and in turn the importance of heightened attention by corporates, in-house counsel, Antitrust and M&A practitioners to:
- antitrust training, compliance and audits as part of corporate risk management;
- thorough assessment of antitrust risk in connection with proposed M&A transactions likely to be HSR-reportable, including negotiation of filing fee payments and other risk-shifting provisions in deal documentation (dealmakers seeking to manage transaction expenses would certainly wish to be mindful of budgeting for filing fees jumping from $280,000 to up to $2.25 million); and
- consideration of so-called “non-reportable deal risk,” reflecting agency pride in targeting transactions too small to require HSR filing (such as one previously touted as warranting enforcement despite a valuation well below $10 million).
In a related announcement, the FTC has also revised upwards the thresholds for the so-called “interlocking directorates” provisions of Section 8 of the Clayton Act, which prohibit a person from serving as a director or officer in two competing corporations absent ability to qualify for certain exemptions. The revised thresholds, already in effect, are $45,257,000 for Section 8(a)(1) and $4,525,700 for Section 8(a)(2)(A).
Higher Civil Penalties
The FTC has also separately adjusted upward the dollar amounts of potential civil penalties for the 16 provisions of law enforced by the FTC, including violations of the HSR Act, now set at $50,120 per day. This means that companies failing to submit a required HSR filing (or one deemed deficient in some sense) for a full year could be subjected to civil penalties of up to approximately $18.3 million.
To discuss the potential HSR reportability of your M&A transaction, best practices for managing antitrust risks and expenses in M&A transactions, or other competition/antitrust issues, contact Michael Jahnke or any member of ArentFox Schiff's Antitrust and Trade Regulation Group.
 See FED. TRADE COMM’N, HART-SCOTT-RODINO ANNUAL REPORT – FISCAL YEAR 2020 28 (2020), https://www.ftc.gov/system/files/documents/reports/hart-scott-rodino-annual-report-fiscal-year-2020/fy2020_-_hsr_annual_report_-_final.pdf.
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