Navigating the New HSR Landscape: Key Insights from the Final Pre-Merger Notification Form Rules

Navigating the New HSR Landscape: Key Insights from the Final Pre-Merger Notification Form Rules

In September 2021, the Hart-Scott-Rodino Antitrust Improvements Act (HSR Act) Pre-Merger Notification Form (PMNF) rules underwent a significant overhaul. These changes, which will

affect mergers and acquisitions (M&A)

starting January 15, 2022, aim to streamline the notification process while providing more clarity and flexibility. Let us examine some key insights from the new rules.

Simplified Filing Thresholds

The revised rules introduce simplified filing thresholds for transactions. Specifically, the size-of-person test for both acquirer and target has been revised as follows:

• Acquirer: $200 million in total assets or annual sales for the past two fiscal years
• Target: $18.2 million in total assets or annual sales for the past two fiscal years

These changes will result in a

reduced number of filings for smaller transactions

, saving both time and resources.

Revised De Minimis Safe Harbor

A new de minimis safe harbor

has been introduced under the rules:

• This safe harbor applies to transactions with no actual or potential competition between the parties.
• The value of the transaction must be less than $50 million for both the acquirer and target.

This provision will allow

many more transactions to be exempted from filing

, resulting in faster clearance for such deals.

New Timing and Filing Procedures

The updated rules introduce new timing and filing procedures

that offer greater flexibility:

• An acquirer can file a Notification and Report Form with a proposed date certain for closing (up to 30 days from filing).
• The parties may file early for voluntary review before the notification becomes effective.

These modifications allow for more precise planning and scheduling of transactions, making the M&A process more efficient.

Introduction to the Hart-Scott-Rodino Antitrust Improvements Act (HSR)

The Hart-Scott-Rodino Antitrust Improvements Act (HSR) of 1976 is a significant piece of antitrust legislation in the United States. Enacted to promote competition and prevent anticompetitive mergers, HSR remains a crucial regulatory framework shaping M&A activity in today’s business landscape.

Purpose and Importance

Initially aimed at addressing growing concerns over monopolistic practices and the consolidation of market power, HSR introduced a mandatory pre-merger notification process for certain transactions. The Act’s primary objective is to allow the Antitrust Division of the U.S. Department of Justice (DOJ) and the Federal Trade Commission (FTC) to review potential anticompetitive mergers before they are completed, ultimately safeguarding consumers and preserving competition.

Overview of the HSR Process

Under HSR, parties engaged in a merger or acquisition must file a notification form with the FTC and/or DOJ when specific thresholds are met. These thresholds revolve around the size of the merging entities or their respective assets. The agencies then have a set period to review the notification, usually 30 days for uncontested transactions, and may request additional information or issue second requests for more in-depth investigation. If no issues are identified, the agencies will clear the merger to proceed. However, if competitive concerns exist, the agencies can challenge the transaction or seek remedies.

Importance of Understanding HSR Rules

Increased Regulatory Scrutiny

Global M&A market growth and the increasing focus on competition concerns have led to heightened regulatory scrutiny. Understanding HSR rules is crucial for companies looking to merge or acquire, as compliance can save valuable time and resources while mitigating potential legal risks.

Global M&A market

With the global M&A market continuing to evolve and expand, having a solid grasp of HSR rules becomes increasingly important. Companies operating on an international scale need to understand the implications of cross-border transactions under HSR and potential parallel investigations in foreign jurisdictions.

Background on the HSR Pre-Merger Notification Process

Overview of the current process:

The Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act) mandates that parties to a merger or acquisition provide notice to the Antitrust Division of the Department of Justice (DOJ) and the Federal Trade Commission (FTC) before consummating a transaction that meets certain size thresholds. The current process involves several steps:

Filing threshold requirements:

For a transaction to be reportable, the combined size of the parties involved must exceed certain thresholds. These thresholds are adjusted annually based on the gross national product (GNP) and are as follows:

• Size of Parties: Each party must have had total assets or gross revenues in excess of $184.3 million in the last fiscal year.
• Transaction Size: The transaction value must exceed $921.6 million for a reporting obligation under the DOJ and $368.4 million for an FTC filing.

Recent changes to the HSR notification process:

In late 2016 and early 2017, significant modifications were made to the HSR notification process. These changes include:

Increased filing fees:

The HSR Act now requires parties to pay escalating filing fees based on the size of the transaction and the number of parties involved. These fees can range from $48,000 for transactions under the filing threshold to over $280 million for megadeals.

Expanded scope of transactions subject to HSR reporting:

The new regulations expanded the scope of transactions subject to HSR filing requirements to include:

• Certain joint ventures:
• Temporary alliances:
• Options, warrants, and other convertible securities:

Rationale behind the changes:

These modifications were made to enhance competition and protect consumers by ensuring that regulators have sufficient information to assess the potential impact of a merger on the marketplace. By increasing filing fees, expanding the scope of transactions subject to HSR reporting, and implementing new guidelines for joint ventures, temporary alliances, and other arrangements, the regulators aim to:

• Encourage more efficient review processes.
• Reduce the risk of anticompetitive mergers and acquisitions.

I Insights from the Final Pre-Merger Notification Form Rules

Changes to the form’s content and structure

The Antitrust Division of the Federal Trade Commission (FTC) and the Department of Justice’s Antitrust Division (DOJ) have finalized new rules for the Pre-Merger Notification Form (Form HSR). These changes, effective on January 15, 2023, aim to improve transparency, clarify filing requirements for complex transactions, and enhance regulatory scrutiny.

New questions related to competition and market power

The updated form now requires more detailed information about the parties involved in the transaction, their markets, and potential competitors. This includes requests for information on foreign competition, joint ventures, and alternative products or services.

Clarification of filing requirements for complex transactions

The new rules also introduce clarifications on when to file, which include more precise definitions of “size-of-person” and “size-of-transaction” thresholds. This will help businesses better understand their filing obligations for larger, more complex transactions.

Implications for businesses and dealmakers

Businesses and dealmakers should be aware of the following consequences:

Increased transparency and disclosure

The revised Form HSR will require more extensive disclosures about the business dealings and market positioning of the parties involved. This heightened transparency could potentially lead to increased regulatory scrutiny.

Enhanced regulatory scrutiny and potential delays in the merger process

As a result of increased transparency, agencies may need additional time to review and analyze submitted information. This could lead to potential delays in the merger process.

Strategies for navigating the new HSR landscape

To successfully navigate the new HSR landscape, businesses and dealmakers should consider:

Conducting thorough competition analyses and due diligence

A comprehensive review of the competitive landscape will help businesses determine if they are obligated to file under the new rules and prepare for potential regulatory challenges.

Seeking legal advice and guidance on filing requirements

Consulting with experienced antitrust attorneys can provide valuable insight into the new rules and help ensure compliance.

Building relationships with regulatory agencies to foster a smoother approval process

Engaging in open communication and collaboration with antitrust authorities can help businesses better understand potential concerns and mitigate any potential issues, leading to a smoother approval process.

Conclusion: Key Insights from Final Pre-merger Notification Form Rules

In this concluding section, we summarize the key insights from the final pre-merger notification form rules. Changes to the Hart-Scott-Rodino (HSR) process will have a significant impact on businesses undergoing mergers and acquisitions (M&A). The revised rules aim to modernize the HSR process by enhancing transparency, improving efficiency, and increasing predictability.

Impact on Businesses

Changes to the HSR process include modifications to the size-of-transaction threshold, increased filing fees, and expanded jurisdiction over foreign transactions. Businesses must stay informed about these changes and be prepared for potential delays in the M&A process.

Importance of Staying Informed and Prepared

It is crucial for businesses to stay informed and prepared for regulatory changes in the M&A landscape. By staying up-to-date on changes to the HSR process, companies can adjust their strategies accordingly and minimize potential disruptions.

Encouraging Continued Collaboration

Lastly, it is essential to encourage continued collaboration between businesses, regulators, and legal experts. This cooperation ensures a fair and competitive marketplace for consumers. By working together, we can create an environment that fosters growth, innovation, and a level playing field for all participants in the M&A landscape.