Antitrust in 60 Seconds: Merger Reporting
The 60-Second Read:
The Hart-Scott-Rodino Act (HSR), signed into law by President Gerald Ford, created a system called the premerger notification program that informs the antitrust authorities about proposed mergers and acquisitions before they close. These mergers must meet certain requirements, but when they do the parties must submit detailed filings describing the transaction and cannot complete the transaction until the waiting period has expired or the government has terminated its investigation. Whether a company has to file under HSR depends on the size of the transaction and the parties. While HSR rules have been extremely helpful in merger enforcement, it is not always necessary for a merger to come under scrutiny. Agencies have made agreements with certain companies to expand their filing requirements, meaning even transactions below HSR thresholds must be reported. Agencies can also choose to investigate any merger regardless of whether it meets the HSR threshold. HSR only serves to provide the agencies with more information; it does not restrict the agencies from acting.
The Importance of Hart-Scott-Rodino
A common saying in merger enforcement is that it is “difficult to unscramble the egg.” What this means is that once two companies have integrated after a merger it can be very difficult to divide them back. This problem was addressed in the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR). The law created reporting requirements for larger mergers, which were more likely to have the potential for anticompetitive harm. The filings required by HSR reduce the expense of merger enforcement and give the enforcement agencies information necessary to determine whether further investigation of the merger is warranted or if the merger should be challenged. The law also prevents companies from completing the transaction for 30 days while the agencies review, avoiding the “unscrambling” problem. The investigating agency can ask for additional information, and extend the waiting period, by issuing what is known as a second request. The HSR Act created a powerful tool for antitrust enforcement agencies, and also provided more certainty in markets by establishing a concrete merger investigation program.
The HSR Process
The first step of the HSR process is determining whether a company meets the reporting threshold. The most recent guidelines state that reporting is generally required for transactions that meet all of the following conditions:
- As a result of the transaction, the acquiring person will hold an aggregate amount of voting securities, NCI [Non-Corporate Interests] and/or assets of the acquired person valued in excess of $200 million (as adjusted), regardless of the sales or assets of the acquiring and acquired persons; or
- As a result of the transaction, the acquiring person will hold an aggregate amount of voting securities, NCI and/or assets of the acquired person valued in excess of $50 million (as adjusted) but at $200 million (as adjusted) or less; and
- One person has sales or assets of at least $100 million (as adjusted); and
- The other person has sales or assets of at least $10 million (as adjusted).
Determining whether a transaction meets the threshold can sometimes be challenging, because some of the threshold requirements are subject to interpretation. These thresholds can also be amended by the agencies as needed. The agencies have a comprehensive guide on how to determine if a transaction meets the threshold, and parties can also contact the premerger notification office for questions.
Once an HSR filing is made, the parties enter a mandatory thirty-day waiting period. This waiting period can conclude in several ways. The simplest is that the antitrust agencies decide not to take action, the thirty days naturally expire, and the transaction is completed. The parties may also request an early termination, which is granted if both agencies complete their investigation and decide not to take an enforcement action. Finally, the agencies could decide further investigation is necessary and a second request will be issued. The second request gives the agencies another 30 days to review after both parties are deemed to have complied with the second request. This clock is today seen as mostly a formality, as the parties almost always negotiate a document production and review schedule with the agency.
At any moment in time an antitrust agency can begin an enforcement action to either block the transaction or negotiate a settlement that will allow the transaction with conditions. This right of the agencies exists regardless of the HSR process, which only restricts when parties can complete a transaction.
Enforcement Beyond HSR
HSR is a tool to increase enforcement, it is not intended to restrict enforcement. The antitrust enforcement agencies can open investigations on, and challenge, mergers that fall below HSR reporting thresholds. The agencies can also still challenge and remedy completed transactions, including attempting to restore markets to their previous competitiveness by unwinding the transaction.
Additionally, it is not uncommon for settlements between companies and antitrust enforcers to include language that increases the reporting requirements of future transactions if the agencies believe that such notice is warranted. For example, the Department of Justice negotiated a settlement with Anheuser-Busch InBev that included reporting requirements in the case of certain future acquisitions of brewers, distributors, or brands that do not meet the HSR threshold.