Today, the Federal Trade Commission (“FTC”) published revised thresholds for the Hart-Scott-Rodino (“HSR”) Act, which will take effect on March 4, 2021. Earlier, the FTC also announced new thresholds for Section 8 of the Clayton Act, which governs interlocking directorates. Each of these thresholds is lower for 2021, than for 2020. This is only the second time the HSR Act thresholds, which—like the Section 8 thresholds—are indexed to gross national product, have fallen since annual adjustments began in 2005. In contrast, the maximum daily civil penalty for violations of the HSR Act, which is tied to inflation, has increased.
HSR Act Thresholds
The HSR Act requires parties to certain mergers and acquisitions to notify the FTC and Antitrust division of the U.S. Department of Justice (“DOJ”) and observe a waiting period (usually 30 days) prior to consummating a reportable transaction. The jurisdictional thresholds are adjusted annually. Beginning March 4, 2021, acquisitions resulting in aggregate holdings of voting securities, assets, or controlling interests in non-corporate entities valued at more than $92 million may be reportable (“size of transaction”).
For transactions that result in aggregate holdings valued at more than $92 million, but less than $368 million, the parties will also need to meet the “size of person” test for the Act to apply. This test will require one “person” to have annual net sales or total assets of at least $184 million and the other “person” to have at least $18.4 million in annual net sales or total assets. However, if the “acquired person” is not “engaged in manufacturing,” the smaller size of person test will only be met if it has assets valued at more than $18.4 million.
The notification thresholds, which are used to determine whether a new filing is required for the acquisition of additional voting securities within five years of the expiration or early termination of a prior filing, will also decrease, as shown below.
Section 8 Thresholds (“Interlocking Directorates”)
With certain exceptions, Section 8 of the Clayton Act prohibits one person from serving as a director or officer of two competing corporations at the same time, if each competitor corporation has capital, surplus and undivided profits above an annually adjusted threshold. Effective January 21, 2021, this threshold is $37,382,000.
However, this prohibition does not apply if:
- the “competitive sales” (as defined by the statute) of either corporation are less than 2 per centum of that corporation’s total sales;
- the “competitive sales” of each corporation are less than 4 per centum of that corporation’s total sales; or
- the “competitive sales” of either corporation are less than an annually adjusted threshold. Effective January 21, 2021, this threshold is $3,738,200.
Finally, the FTC has announced the maximum daily civil penalty amount for HSR violations. The amount increased from $43,280 to $43,792 per day of the violation. The new maximum applies to civil penalties assessed on or after January 13, 2021, regardless of when the underlying violation occurred.
How Covington Can Help
Application of Section 8 of the Clayton Act and the HSR Act and its implementing rules can be complex. Our antitrust practice group includes attorneys, including several who served at the Federal Trade Commission or the Antitrust Division of the U.S. Department of Justice, with decades of experience in advising on HSR matters. Our team can provide detailed and practical insight into how these rules apply to various types of entities and transactions.
If you have any questions concerning the material discussed in this client alert, please contact the authors of the blog post.