FTC Increases Thresholds for HSR Filings and Interlocking Directorates, Announces New Filing Fees
Antitrust and Competition Law Alert® | January 26, 2023
Authors: Bernard (Barry) A. Nigro Jr., Nathaniel L. Asker, Aleksandr B. Livshits and Harrisson C. Kummer
HSR Size-of-Transaction Threshold Increased to $111.4 million
The Federal Trade Commission announced new notification thresholds under the Hart-Scott-Rodino Act, effective as of February 27, 2023. The current thresholds continue to apply to all transactions closed prior to the effective date. Of particular note, the initial threshold for notification under the HSR Act will increase from $101 million to $111.4 million.[1]
The new notification thresholds will apply to all transactions consummated on or after February 27, 2023. The principal changes are as follows:
|
HSR Rule |
New 2023 Threshold |
2022 Threshold |
|
Minimum size-of-transaction for which an HSR notification is required[2] |
$111.4 million |
$101 million |
|
Size-of-person test |
Sales or assets of $222.7 million for one party and $22.3 million for the other party |
Sales or assets of $202 million for one party and $20.2 million for the other party |
|
Size-of-transaction above which size-of-person test does not apply |
$445.5 million |
$403.9 million |
The FTC also officially announced the new HSR filing fee schedule passed by Congress at the end of last year, which increases the filing fees for larger transactions.
|
2023 Filing Fee Thresholds |
Fee |
|
Greater than $111.4 million but less than $161.5 million |
$30,000 |
|
$161.5 million or greater but less than $500 million |
$100,000 |
|
$500 million or greater but less than $1 billion |
$250,000 |
|
$1 billion or greater but less than $2 billion |
$400,000 |
|
$2 billion or greater but less than $5 billion |
$800,000 |
|
$5 billion or greater |
$2.25 million |
The exemption thresholds for acquisitions of foreign issuers and assets will increase as well. Under the revised thresholds:
- Acquisitions of voting securities of a foreign issuer by a US person are exempt unless the foreign issuer either: (i) holds assets in the United States valued in excess of $111.4 million or (ii) made sales in or into the United States in excess of $111.4 million in the last fiscal year.
- Acquisitions of voting securities of a foreign issuer by a foreign person are exempt unless the transaction confers control over the issuer and the thresholds above are met.
- Acquisitions of foreign assets are exempt if the assets did not generate sales in or into the United States in excess of $111.4 million in the last fiscal year.
Revised Thresholds for Prohibition on Corporate Interlocks
Section 8 of the Clayton Act prohibits any person from serving as a director or officer of competing corporations, unless sales of the competing products or services of the two corporations are below certain de minimis thresholds. Under the revised thresholds, which are effective immediately, simultaneous service as a director or officer of two corporations, each with capital, surplus, and undivided profits in excess of $45,257,000 and “competitive sales” of $4,525,700 or more, is prohibited, subject to several exceptions.[3]
The FTC’s announcement of the revised thresholds serves as a useful reminder that effective Section 8 compliance requires corporations to review annually the outside affiliations of their directors and officers to assess whether, for example, sales growth, entry into new markets, or a decline in sales or exit from a noncompeting business may trigger potential issues under the statute.[4] Given the Justice Department’s recent announcement of several director resignations, as the first in a broader review of potentially unlawful interlocking directorates, investors and corporations should be mindful of growing regulatory scrutiny in this area.
[1] Transactions that are not subject to the HSR Act reporting requirements remain subject to the substantive antitrust laws (principally, Section 7 of the Clayton Act) and may still be investigated by the FTC, the Antitrust Division of the Department of Justice or state attorneys general. The federal agencies, in particular, are active in investigating and challenging non-reportable transactions raising competitive concerns, including consummated transactions.
[2] The HSR Act’s reference to “size-of-transaction” is a misnomer. Because the HSR Act considers the aggregate holdings resulting from a transaction, the threshold may be crossed even if the incremental acquisition itself is less than the “size-of-transaction” threshold. In addition, even if an HSR notification is made for the acquisition of voting securities in excess of the minimum threshold, additional HSR notifications may be required before crossing subsequent thresholds of (i) $222.7 million; (ii) $1.1137 billion; (iii) 25% of the voting securities of an issuer, if valued in excess of $2.2274 billion; or (iv) 50% of the voting securities of an issuer.
[3] In particular, if the “competitive sales” of either corporation during the last completed fiscal year are less than two percent of that firm’s total sales, or less than four percent of each corporation’s total sales, the interlock is exempt under the statute.
[4] Section 8 provides a one-year grace period to resolve an interlock issue that arises as a result of changes in a corporation’s business.
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