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FTC Issues Annual HSR Threshold Adjustments

Corporate and Securities Alert | January 27, 2017
By: Lori Smith and Michael Psathas

On January 19, 2017, the Federal Trade Commission (FTC) announced revisions to the Hart-Scott-Rodino Improvements Act of 1976 (HSR Act) thresholds for determining whether parties to certain transactions are required to make notification filings with the FTC and the Department of Justice and observe a waiting period prior to consummating a reportable transaction. The newly adjusted HSR Act thresholds will apply to covered transactions beginning on or after the effective date which is expected to be mid-to-late February (the exact date will be 30 days after publication in the Federal Register). The new thresholds apply to transactions that close after the effective date.

Unless a transaction qualifies for exemption, the HSR Act generally applies to the acquisition of assets or voting securities (or interests in an unincorporated entity) in excess of the applicable thresholds, which are indexed annually to adjust for inflation based upon the gross national product. Although often referred to as “pre-merger” filings, the HSR Act applies to a broad range of transactions beyond mergers and acquisitions of all or substantially all of, or a majority of an entity’s assets or equity. The HSR Act can apply to joint ventures, minority investments (subject to certain additional rules and thresholds), follow-on investments, or incremental increases in ownership and can even apply to the acquisition by an employee or director if the result of such transaction is that the person’s aggregate holdings will exceed the HSR reporting thresholds.

To determine if a transaction will require an HSR filing, the parties must consider both size of transaction and size of person thresholds. The size of person threshold generally applies where one party to the transaction has annual net sales or total assets meeting the higher end of the size of person threshold and the other party has annual net sales or assets meeting the lower threshold.

Under the revisions, if the transaction is valued at $80.8 million or less, no HSR filing is required. Transactions valued at more than $80.8 million, and which do not exceed $323 million in value, will require an HSR filing only if the parties meet the size of person thresholds and no exemption applies. For transactions valued at more than $323 million for which no exemption applies, then the size of the person test is inapplicable and the transaction will require an HSR filing. 

 Summary of Adjustments to the HSR Act's Thresholds

Threshold

Current Threshold

2017 Revised Threshold

Size of Transaction Test

$78.2M

$80.8M

Size of Person Test (if applicable)

$15.6M and $156.3M

$16.2M and $161.5M

Size of Transaction Test above which Size of Person Test does not apply

$312.6M

$323M


In addition, the filing fees for a reportable transaction will be as follows: (1) $45,000 for transactions valued in excess of $80.8 million but less than $161.5 million; (2) $125,000 for transactions valued at $161.5 million or greater but less than $807.5 million; and (3) $280,000 for transaction valued at $807.5 million or more.

Certain other thresholds and exemptions have been revised under the HSR Act. A full copy of the FTC release can be found here

Conclusion

The rules governing valuation of a transaction, identification of the parties (including parent entities) that may need to be considered in determining size of person thresholds, types of transactions that may require a filing, and available exemptions are very complex and require thorough and careful analysis.

If you have any questions or would like further information, please contact Lori Smith (smithl@whiteandwilliams.com; 212.714.3075), Ryan Udell (udellr@whiteandwilliams.com; 215.864.7152), Michael Psathas (psathasm@whiteandwilliams.com; 212.868.4833) or Ian Doherty (dohertyi@whiteandwilliams.com; 215.864.7090).

This correspondence should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult a lawyer concerning your own situation with any specific legal question you may have.
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