HSR Insights - 2013 Thresholds for Hart-Scott-Rodino Antitrust Improvements Act of 1976

Antitrust, Competition & Distribution Update

Date: January 16, 2013

Overview

On January 10, 2013, the Federal Trade Commission (FTC) announced the 2013 revised jurisdictional thresholds under the HSR Act, which will become effective in February 2013.

The FTC revises the thresholds annually based on changes in the gross national product from the previous year. The 2013 thresholds increased from those in 2012 due to continued growth in the U.S. economy.

New 2013 Jurisdictional Thresholds

 

Under 2013 jurisdiction thresholds, a transaction will be reportable if:

Size of Transaction Test

The acquiring person will hold, as a result of the transaction, an aggregate total amount of voting securities, assets and/or interests in non-corporate entities of the acquired person valued in excess of $70.9 million; and

Size of Person Test

The acquiring person or the acquired person has annual net sales or total assets of $14.2 million or more, and the other person has annual net sales or total assets of $141.8 million or more.
Transactions valued at greater than $283.6 million are reportable, regardless of the size of person test.
New 2013 Filing Fee Thresholds

 

Filing fee

The 2013 filing fee thresholds are as follows:

$45,000

If the aggregate amount of voting securities, assets and/or interests in non-corporate entities to be held as a result of the transaction is greater than $70.9 million but less than $141.8 million.

$125,000

If the aggregate amount of voting securities, assets and/or interests in non-corporate entities to be held as a result of the transaction is equal to or greater than $141.8 million but less than $709.1 million.

$280,000

If the aggregate amount of voting securities, assets and/or interests in non-corporate entities to be held as a result of the transaction is equal to or greater than $709.1 million.
Reminder for Companies – Narrow Interpretation of Passive Investment Exemption

The HSR Act contains an exemption for acquisitions of up to 10 percent of voting securities of an issuer if the acquisition is made solely for the purpose of investment. Such transactions are exempt from premerger filings if the company acquiring the voting securities does not intend to participate in the basic business decisions of the issuer. The exemption does not apply if the company acquiring the voting securities intends to participate in the management of the issuer. Companies are well advised to consult with counsel when relying on the passive investment exemption.

The FTC recently alleged that the incremental acquisitions of shares of Cracker Barrel Old Country Store, Inc. (Cracker Barrel) stock by Biglari Holdings, Inc. (Biglari) resulted in Biglari's aggregate holdings of Cracker Barrel exceeding the minimum dollar value reporting threshold (then $66 million) under the HSR Act. The complaint states that Biglari improperly failed to report the transaction to U.S. antitrust authorities. Biglari claimed the purchases were a "passive" investment. The complaint alleges that Biglari could not rely on the passive investment exemption, as it intended to actively participate in the management of Cracker Barrel, including seeking a seat on the company's board of directors and requesting in-person meetings with Cracker Barrel's management.

The FTC noted that the passive investment exemption is a narrow one, and it will not hesitate to seek civil penalties against companies that try to abuse it. The U.S. antitrust agencies may determine that a party has the intent to actively participate in the management of an issuer, even if the company making the acquisition does not take any such actions until after the acquisition is complete.

Biglari agreed to pay $850,000 to resolve FTC allegations that it violated the premerger reporting laws. If the HSR Act applies to an acquisition of voting securities, both the notification and waiting period requirements must be satisfied prior to the acquisition of beneficial ownership of the shares. Failure to comply may result in civil penalties of up to $16,000 for each day the company is in violation.