Hart-Scott-Rodino Updates: Suspended Early Termination and Revised Filing Thresholds for 2021PDF
The Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice announced recently that they are suspending the practice of granting early terminations of merger reviews that raise no antitrust concerns.
Early termination is a procedure that parties can request when they make the premerger notifications that the federal Hart-Scott-Rodino statute requires. The HSR statute imposes a 30-day waiting period before parties can close a transaction. If the antitrust agencies grant early termination, parties can close their transaction prior to the end of this 30-day period.
Early termination is reserved for transactions that raise no apparent competitive concerns, such as equity purchases by index funds or small acquisitions in unconcentrated markets. Parties often seek early termination unless they want their transaction to remain confidential (the FTC publicizes early-termination notices).
The suspension of early terminations means that, for any HSR-reportable transaction, the earliest that the transaction can close is 30 days after the HSR filing. More than half of all transactions reported under the HSR Act receive early termination. Thus, the suspension will affect a significant number of transactions, including transactions that have no antitrust implications.
In announcing the suspension, the agencies cited the transition to a new presidential administration and the unprecedented volume of HSR filings that they are currently seeing. They stated that the suspension will allow for a review of the processes and procedures used to grant early terminations. There is no announced end date for the suspension, although the FTC said that it “anticipate[s] that this temporary suspension will be brief.”
This is the first time early terminations have been suspended indefinitely. Indeed, aside from a two-week suspension of early terminations in March of last year while the agencies transitioned to electronic filing in the midst of the COVID-19 pandemic, early terminations have never been suspended and have been paused only during government shutdowns.
Commissioners Phillips and Wilson — the FTC’s two Republican commissioners — issued a statement criticizing the suspension as unwarranted. They expressed concern that suspending early terminations “will delay the consummation of competitively innocuous transactions,” possibly “harm[ing] employees, small businesses, and financially imperiled firms.”
It remains to be seen whether the suspension of early terminations is a harbinger of increased antitrust scrutiny under Democratic leadership — scrutiny not only of firms’ conduct and proposed transactions, but also of the agencies’ practices. Some members of Congress have proposed legislation that would prevent or limit certain types of transactions, as well as legislation that would make even broader changes to federal antitrust law.
All companies that are contemplating a transaction above the HSR threshold need to consider the implications of the suspension of early terminations. Those companies must now plan for a 30-day waiting period before a transaction can close, whether the transaction poses antitrust concerns or not. That change could affect financial and tax planning, integration efforts, employee notification and transition plans, and other follow-on effects of transactions.
The other recent HSR news is more routine — the annual adjustment of the adjusted dollar thresholds for premerger notifications under the HSR Act. The notification requirements apply only to transactions that satisfy “size of transaction” and “size of person” dollar thresholds. Those thresholds are adjusted annually based on changes in the U.S. gross national product.
Under the changes announced last week, the size-of-transaction threshold will decrease for the first time since 2010, moving to $92 million from $94 million. No HSR notification for a transaction will be required if the value of voting securities or assets held as a result of the transaction, as calculated under the HSR rules, falls below $92 million.
The size-of-person threshold will also decrease. After that decrease, the test will generally limit HSR filing requirements to transactions where one party has sales or assets of at least $184 million (previously $188 million) and the other party has sales or assets of at least $18.4 million (previously $18.8 million). Transactions valued above $368 million (previously $376 million), however, require an HSR notification regardless of the sales or assets of the parties.
The new thresholds apply to any transaction that closes on or after March 4, 2021.
These thresholds, of course, are not the full story on HSR compliance — or on antitrust risk — for mergers and acquisitions. For example, even if a transaction is reportable based on the HSR thresholds, it could qualify for an HSR Act exemption. More importantly, even nonreportable transactions are still subject to antitrust scrutiny. In recent years, the DOJ, the FTC and the states have all have challenged transactions that fall below the HSR thresholds.
Merger-related antitrust issues can be complex. Robinson Bradshaw attorneys are well-versed in these areas. They are available to guide clients through the HSR reporting process and any government investigation that may follow an HSR filing. Contact the authors for more information.