Yes. The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, 15 U.S.C. § 18a (the “HSR Act”), requires companies (or private investors) contemplating mergers or acquisitions of voting securities, non-corporate interests, or assets that meet or exceed certain monetary thresholds (and do not qualify for an exemption) to file notification forms with the Federal Trade Commission (“FTC”) and Department of Justice (“DOJ”), and to wait a designated period of time before consummating the transaction. 

Section 7 of the Clayton Act, 15 U.S.C. § 18, provides the substantive legal rule for determining whether mergers and other transactions may be prohibited because they are anticompetitive. Transactions may be challenged under the Clayton Act even if they do not meet the thresholds for reporting under the HSR Act, and even if the transaction was previously reported under the HSR Act and was not challenged at that time. 

In challenging mergers and other transactions, the FTC may also rely on Section 5 of the FTC Act, 15 U.S.C. § 45, which prohibits “unfair methods of competition.” Some transactions may also be subject to challenge under Section 1 and/or Section 2 of the Sherman Act, 15 U.S.C. §§ 1, 2, which prohibit anti-competitive contracts, combinations or conspiracies and monopolistic conduct.

In addition to these federal statutes, individual U.S. states have antitrust statutes that may also be used to challenge transactions.
 

Merger review and enforcement are under the concurrent jurisdiction of two agencies of the federal government, the FTC and the Antitrust Division of the DOJ, collectively referred to below as the “Antitrust Agencies” or “agencies.” 

The agencies have concurrent jurisdiction to review transactions reported under the HSR Act.  After the initial filings are made, each agency determines whether it believes further investigation is warranted. If one of the agencies so determines, that agency will handle the investigation unless both agencies want to investigate. In that event, they determine which one will handle the case by agreement, generally based on which has greater expertise in the industry involved.

In addition to the two federal agencies, State Attorneys General can take an active role in challenging transactions under federal and/or state antitrust laws. Private parties may also challenge transactions under certain circumstances.

No.

Yes. Pre-merger filing requirements are imposed by the HSR Act and the regulations adopted to implement it. The statute and regulations are available on the FTC’s website: http://www.ftc.gov/bc/hsr/index.shtm.

The HSR Act requires notification for all acquisitions of voting securities, non-corporate interests or assets that meet the applicable thresholds, including acquisitions of “foreign” (non-U.S.) entities or assets, and acquisitions by “foreign” persons of U.S. entities or assets. Foreign persons may be required to file even if they do not have any pre-existing presence in the U.S. (i.e., even if they have no U.S. subsidiaries and own no U.S. assets or voting securities of U.S. companies).

Notable Exemptions

The statute and regulations provide nearly three dozen exemptions from the notification requirement.  

“Foreign” Acquisitions: Three exemptions deal with “foreign” acquisitions. Two of those exemptions require analysis of sales in or into the United States generated by the foreign assets being acquired, the foreign entity whose voting securities are being acquired and, in certain cases, the parties to the acquisition, and exemption transactions that are under an annually-adjusted specified threshold. The rules also require aggregation of pre-existing holdings when multiple foreign issuers are being acquired from the same person. The third exemption permits entities controlled by foreign states to buy or sell assets located, or interests of an entity organized, in that same foreign state. These “foreign” acquisition exemptions are complicated and care must be taken to ensure they are applied properly.    

Acquisitions of non-voting securities: Under the HSR Rules and Regulations, voting securities are securities that entitle the owner to vote for the directors of the issuer of those securities or of another entity under common control.  Acquisitions of non-voting securities are exempt from the HSR Act.  Likewise, “convertible” voting securities – voting securities that do not presently entitle the owner to vote for directors but will upon some event or exchange, such as warrants – are exempt; however, the acquisition may be reportable at the time of conversion.  

Certain passive acquisitions: Acquisitions of voting securities pursuant to a stock split or pro rata stock dividend are exempt.

Acquisitions of minority interests in non-corporate entities: Non-corporate interests are interests in unincorporated entities such as partnerships or limited liability companies (LLCs), that gives the holder a right to profits of the entity or a right to any of its assets in the event of dissolution. Acquisitions of non-corporate interests that confer control of the entity can be potentially reportable, but acquisitions that do not confer control of a non-corporate entity are not subject to reporting.

Certain acquisitions “solely for the purpose of investment”: If, as a result of the acquisition, the acquiring person will hold less than 10 percent of the outstanding voting securities of the issuer, and is acquiring the securities “solely for purposes of investment,” the acquisition is exempt. “Solely for the purposes of investment” means that the acquiring person does not intend to influence the basic business decisions of the issuer, or to participate in the management of the issuer. Merely voting the stock is not considered to be evidence of an intent inconsistent with the “solely for the purposes of investment” exemption. However, the FTC has suggested that the following types of conduct by an acquiring person could be viewed as inconsistent with this exemption: (i) nominating a candidate for the board of directors of the issuer; (ii) proposing corporate action requiring shareholder approval; (iii) soliciting proxies; (iv) serving as an officer or director of the issuer, or having a controlling shareholder, director, officer or employee of the acquirer serving as an officer or director of the issuer; (v) being a competitor of the issuer; or (vi) doing any of the foregoing with respect to any entity directly or indirectly controlling the issuer.

“Intraperson” transactions: If an acquiring person “controls” an entity as defined by the HSR rules (e.g., by holding 50 percent or more of the voting securities of an issuer), all subsequent acquisitions of interests within that entity are exempt.

Acquisitions by gift, intestate succession or device, or by an irrevocable trust: Acquisitions resulting from a gift, intestate succession, testamentary disposition or transfer by a settlor to an irrevocable trust are exempt.

Other exemptions: There are numerous other, fairly narrow, exemptions available for certain acquisitions. 
 

Yes, a notification is required for acquisitions of voting securities that would result in the acquiring person holding voting securities valued in excess of the size of the transaction threshold. However, acquisitions of non-corporate interests that do not confer control of the non-corporate entity are not reportable.

The formation of a joint venture can also be reportable under the HSR Act. Complex rules govern the formation of joint ventures and these transactions are subject to special valuation rules and exemptions.

Yes, some foreign-to-foreign transactions must be reported; there is a local effects test of sorts embedded within the applicable regulations to determine whether the transaction is reportable.

Specifically, acquisitions of stock of a foreign issuer are exempt unless the issuer, on a consolidated basis with its controlled entities, holds assets located in the U.S. (including U.S.-registered intellectual property) with a fair market value greater than USD $90 million (as adjusted annually) or had more than USD $90 million (as adjusted annually) of aggregate sales in or into the U.S. in its most recent fiscal year. Where the ultimate parent entity of the buyer is foreign, however, notification is not triggered until an acquisition would result in control, even if the issuer’s U.S. sales and assets are significant. Nevertheless, the acquisition may still be exempt if the aggregated U.S. sales or U.S. assets of the acquiring and acquired persons do not exceed a specified, annually-adjusted threshold. 
 

There is a “size of transaction” test for all acquisitions and a “size of persons” test applicable to some acquisitions. Companies generally will need to comply with the HSR Act pre-merger notification and waiting period requirements if the following is true:

The size of the transaction (as defined by the HSR Act and applicable regulations) is in excess of USD $445.5 million (as adjusted annually);

or

The size of the transaction is in excess of USD $111.4 million (as adjusted annually) but equal to or less than USD $445.5 million (as adjusted annually), and the total assets or annual net sales of the ultimate parent entity of one party to the transaction (as defined by the HSR Act and applicable regulations) equals USD $222.7 million (as adjusted annually) or more, and the total assets (or annual net sales of a person engaged in manufacturing) of the ultimate parent entity of the other party to the transaction equals USD $22.3 million (as adjusted annually) or more.

The size of the transaction is determined by detailed guidelines contained in the HSR Rules and Regulations, which specify how and as of what date a valuation must be made. In general, the higher of the agreed or fair-market value must be used. In addition, calculating the size of a transaction often requires adding the acquiring person’s pre-existing holdings in the acquired person to the interests being acquired in the transaction at hand. 

Note that the dollar figures in this section are the current thresholds in effect for 2023, but they are subject to change annually based on changes in the U.S. gross national product. Revised thresholds are announced on the FTC’s website.

The filing is mandatory for all transactions that meet the applicable thresholds and are not covered by an exemption.  

There is no deadline for making an HSR filing. However, transactions that are subject to the HSR Act cannot be consummated until the filings are made and the waiting period (including any extension of that period) has expired or been terminated by the Antitrust Agencies.

In order to make a filing, the parties must have executed a contract, agreement in principle or letter of intent for the transaction (which can be non-binding) and have a good faith intention to complete the transaction (which they must affirm under penalty of perjury).  

Note that on June 27, 2023, the FTC proposed significant revisions to the U.S. premerger notification process. These revisions may make it more difficult to file a premerger notification form before there is an executed contract. The proposal, which is subject to public comment and potential revision, is available here: https://www.federalregister.gov/documents/2023/06/29/2023-13511/premerger-notification-reporting-and-waiting-period-requirements . Be sure to check regarding the status of the proposed revisions before planning to file in the U.S.    

There is an automatic 30-day waiting period that is triggered upon receipt of the filing fee and both parties’ filings (15 days for cash tender offers). During this time, the transaction cannot be consummated. This waiting period is the default period for all transactions.

For certain transactions where an acquired person may not have participated in the transaction, the waiting period is 30 days from the time the acquiring person submits his or her filing (as opposed to when both parties have submitted their filings). For example, this waiting period applies to tender offers, purchases of voting securities on a stock exchange, conversions of convertible securities, and certain exercises of stock options.

The 30-day waiting period expires at 11:59 p.m. on the thirtieth calendar day after the agencies receive completed filings, or if that day falls on a weekend or public holiday, on the next regular business day.

For certain types of transactions, a shorter waiting period of 15 days applies. This shorter waiting period applies to cash tender offers and certain sales under 11 U.S.C. 363(b) related to bankruptcy proceedings. Under the HSR rules, reportable transactions of this nature require the sending of a notice to the acquired person in addition to the filing of a notification and report form.

The 15-day waiting period expires at 11:59 p.m. on the fifteenth calendar day after the agencies receive a completed filing from the acquiring person, or if that day falls on a weekend or public holiday, on the next regular business day.
 

The Notification and Report Form and instructions for completing it are available on the FTC’s website:  http://www.ftc.gov/bc/hsr/index.shtm. Both the acquiring person and the acquired person are required to make an HSR filing. The form requires information regarding the parties, the transaction and the assets, voting securities or non-corporate interests that are being acquired.

Detailed current revenues, broken out under the North American Industry Classification System, must be provided for all U.S. operations. Lists of affiliates, subsidiaries, minority shareholdings and minority investors must be provided on a worldwide basis, subject to certain limited exclusions, as well as share ownership information on minority holdings and investors. If the parties have overlapping lines of business, information must be provided regarding geographic markets and prior acquisitions regarding operations within the United States.

In addition, the following documents must be submitted with the form:

• The final or most recent version of all documents that constitute the agreement between the parties to enter into the transaction;
• Specified financial statements (the most recent annual reports, annual audit reports and regularly prepared balance sheets); and
• “Item 4 documents” – the confidential information memorandum prepared for the transaction, if any, and certain documents prepared by or for officers or directors that evaluate or analyze the transaction (or for certain documents, the sale of the business to be acquired) and that discuss competition, competitors, markets, market shares, synergies or efficiencies resulting from the transaction or potential for sales growth or expansion.

Parties may voluntarily submit additional documents or information together with their filings.

The agencies require rigorous compliance with the requirement to locate and provide all documents (including electronic documents and emails) that are responsive to the request for Item 4 documents. Counsel should plan the search for such documents accordingly and be able to demonstrate the thoroughness of the search in the event questions about its completeness arise.

Note that on June 27, 2023, the FTC proposed significant revisions to the U.S. Premerger Notification and Report form. The proposed revisions are extensive and would require the provision of many more categories of information than described above.  The proposal is available here: https://www.federalregister.gov/documents/2023/06/29/2023-13511/premerger-notification-reporting-and-waiting-period-requirements

The proposed revisions are subject to a public comment period which ends on August 28, 2023, and the proposal may be revised.  It is not yet clear when the revisions will go into effect or exactly what the final premerger notification form requirements will be.  Be sure to check regarding the status of the proposed revisions before beginning to prepare a U.S. premerger notification filing.     

The pre-merger filing fee is paid by the acquiring party unless the parties agree otherwise. The amount of the fee is based upon the value of the assets or voting securities that will be held as a result of the transaction and is between USD $30,000 and USD $2,250,000 depending on the size of the transaction.

There is an automatic 30-day initial waiting period that is triggered upon receipt of the filing fee and both parties’ filings (15 days for cash tender offers). During this time, the transaction cannot be consummated. This waiting period is the default period for all transactions. (For more details on the initial waiting period, see our response to "Is there an automatic waiting period? If so, please specify")  Within the initial waiting period, the reviewing agency reviews the information provided by the parties in the Notification and Report Form and related documents in order to evaluate the expected competitive effects of the transaction. If deemed necessary, the agency will conduct a further investigation by seeking additional information voluntarily from the parties and by interviewing customers and competitors of the parties. The agency then makes a determination of whether to allow the waiting period to expire or to take action to allow further investigation of the transaction.

Parties may request that the agencies grant early termination of the waiting period.  If the reviewing agency grants early termination, it is publicly announced in the Federal Register and on the FTC’s website. In February 2021 the agencies announced a temporary suspension of early termination grants and stopped granting early termination except in very narrow circumstances.  This suspension remains in place and the agencies have not indicated when it will be lifted.

The agencies may extend the waiting period by issuing a Request for Additional Documents and Information (commonly known as a "Second Request") before the end of the initial waiting period. Doing so extends the waiting period until 30 days (10 days for cash tender offers) after the parties have substantially complied with the Second Request (by producing the requested documents and information).

Although it may appear at first glance that the issuance of a Second Request only delays the merger review process by an additional 30 days, it is important to keep in mind that the additional 30-day period only begins to run after the agencies have received a complete response to the Second Request. Because a Second Request typically requests an extensive amount of information and can require the submission of thousands of documents, including emails and other electronic documents, the issuance of a Second Request, in fact, could delay the merger review process by many months.

Further extensions of the waiting period can be made only by a federal court at the request of one of the Antitrust Agencies.

After the HSR Act waiting period has expired (including any extension of the waiting period following issuance of a Second Request), the Antitrust Agencies can prevent the consummation of a transaction only by seeking an injunction from a federal district court.  In that context, the agency will file a complaint challenging the transaction under Section 7 of the Clayton Act and seeking a temporary restraining order, a preliminary injunction and a permanent injunction barring consummation (or if consummation has occurred, requiring the parties to unwind the transaction and make divestitures).

These matters are usually resolved by the district court’s ruling on the request for a preliminary injunction, after expedited discovery and hearing. District court decisions are subject to review by a federal court of appeals.

The FTC may also begin an administrative proceeding to challenge the transaction, which takes place before an FTC Administrative Law Judge.

There is no legal bar against challenging a transaction even if a filing was made and the waiting period was permitted to expire without further inquiry, and in fact, the agencies recently challenged a consummated transaction approximately six months after the HSR waiting period had expired. As a practical matter, however, if the agencies have had an opportunity to review a transaction based on complete and accurate filings, they are very unlikely to revisit it post-consummation.

The Clayton Act prohibits mergers and acquisitions whose effect “may be substantial to lessen competition or to tend to create a monopoly” in a line of business. The courts largely follow the analytical structure outlined by the Antitrust Agencies in their joint 2010 Horizontal Merger Guidelines (see http://www.justice.gov/atr/public/guidelines/hmg-2010.html). 

As a general matter, the Antitrust Agencies seek to challenge transactions that are likely to create or enhance “market power” or to facilitate the exercise of market power. Market power is defined as the ability to profitably maintain prices above competitive levels for a significant period of time.

On July 19, 2023, the Antitrust Agencies proposed draft Merger Guidelines which would substantively change the analytical structure that they use to evaluate transactions. The draft guidelines consider a wider variety of instances under which transactions could be deemed anticompetitive, and, if approved as drafted, would likely result in more transactions being investigated and challenged. The draft changes, which are subject to a public comment period ending on September 18, 2023, are available here: https://www.ftc.gov/system/files/ftc_gov/pdf/p859910draftmergerguidelines2023.pdf

It is unclear at this time when the revised merger guidelines will go into effect or what their final content will be.

If the agencies do not have concerns about a transaction, the agencies may “take a pass” on a transaction by allowing the HSR waiting period to expire or by granting early termination of the waiting period. This allows the parties to close the transaction. If the agencies have concerns about a transaction, they have a wide attitude to negotiate agreements with the parties requiring divestiture, licensing, or behavioral remedies as a condition for avoiding a lawsuit challenging the transaction. Typically the agencies prefer structural remedies such as the divestiture of an independent business unit. As discussed above, the agencies may also challenge the transaction in federal district court or through administrative proceedings before the FTC.

Yes, the parties are free to offer, and often do offer, proactive commitments to the agency which they believe will remedy competition concerns.  

Failure to file is subject to civil penalties of USD $50,120 for each day of noncompliance (as adjusted annually). The agencies aggressively pursue parties that have failed to make required HSR filings and have obtained a number of multimillion-dollar settlements with parties that failed to make filings, failed to disclose all information required in a filing or exercised control over the acquired party without waiting for the HSR waiting period to expire.

Consummation of a reportable transaction or a transfer of beneficial ownership prior to the expiration of the waiting period (known as “gun-jumping”) would subject the parties to the USD $50,120 per day HSR Act penalty (as adjusted annually). In addition, prohibited mergers may be remedied by injunctive relief including divestitures, unwinding the transaction, and disgorgement.

If a transaction has been enjoined by a federal district court, violation of that order would also subject the parties to fines and potential imprisonment for contempt of court.

Yes. Even if a transaction does not require an HSR filing, the Antitrust Agencies have authority under the Clayton Act to challenge potentially anticompetitive transactions before or after they have closed.  

If an agency wishes to challenge a non-reportable transaction, and the transaction has not closed, it may seek an agreement by the parties to hold the merging businesses separate and not consummate the acquisition until the agency has completed its investigation. If the parties do not agree, the agency cannot block the transaction on its own authority, and must file a complaint in a federal district court challenging the transaction under Section 7 of the Clayton Act and seeking a temporary restraining order, a preliminary injunction and a permanent injunction barring consummation (or if consummation has occurred, requiring the parties to unwind the transaction and make divestitures). 

The Antitrust Agencies are active and aggressive in their merger enforcement. In recent years, the agencies have challenged multiple transactions post-consummation and have even challenged non-reportable deals. The Antitrust Agencies have also pursued several corporations (and individuals) for failing to make required HSR filings. These recent enforcement actions underscore the importance of maintaining strict compliance with the HSR Act and demonstrate the substantial penalties that await both individuals and companies that fail to comply.

Acquisitions of U.S. assets or companies by foreign persons may fall under other federal statutes that do not directly deal with competition issues.

In conjunction with an HSR Act analysis and/or filing, it is often wise to consider other related filings. If a foreign-controlled entity is acquiring a U.S. entity, a filing with the Committee on Foreign Investment in the United States ("CFIUS") may be required.