M&A

Antitrust Deal-Size Thresholds Raised

Starting Feb. 28, mergers and acquisitions will have to be valued higher in order to need approval under Hart-Scott-Rodino.
Stephen TaubJanuary 30, 2008

The Federal Trade Commission has raised the thresholds for how large a proposed merger or acquisition must be to require approval under The Hart-Scott-Rodino Antitrust Improvements Act of 1976.

Effective for transactions that will close on or after February 28, 2008, the new “size-of-transaction” threshold is $63.1 million. That is, deals in which there is a buyer that will hold voting securities or assets valued at that level or higher must be reported to the government and approved before they can be completed.

The previous significant changes to the HSR Act took effect on February 1, 2001, when the size-of-transaction threshold was raised from $15 million to $50 million, with annual adjustments for inflation that began in 2005.

The “size-of-person” threshold has also increased. Under this requirement, for a deal to be reportable, total assets or annual net sales must now be at least $126.2 million for one party’s control group and $12.6 million for the other party’s control group. However, transactions larger than $252.3 million must be reported even if the size-of-person test is not met.

The FTC is required to publish adjustments to the HSR Act’s thresholds annually, based on the change in the gross national product.

In general, the Act requires that certain proposed transactions be reported prior to completion to the FTC and the Justice Department’s Antitrust Division. The parties must then wait a specified period, usually 30 days — 15 days in the case of a cash tender offer or a bankruptcy sale — before they may complete the transaction.

“The premerger notification program, with its filing and waiting-period requirements, provides the agencies with both the time and the information necessary to conduct this antitrust review,” the FTC explains.

In fiscal 2006 — the most recent year for which data is available — 1,768 transactions were reported under the HSR Act, up about 4 percent from the prior year.

The FTC challenged 16 transactions for 2006, leading to nine consent orders and seven abandoned transactions. Its most notable challenge was the proposed merger of Teva Pharmaceutical Industries and IVAX Corp. “The proposed merger likely would have increased prices for consumers in the U.S. market for several generic drug products,” the commission asserted.

The commission also challenged Fresenius AG’s proposed acquisition of Renal Care Group, saying it would have caused in higher prices and reduced incentives to improve service for consumers who receive outpatient dialysis services in several U.S. markets.

The DOJ challenged 16 merger transactions, leading to eight consent decrees, two abandoned transactions, and six other transactions that were restructured after the department informed the parties of its antitrust concerns.

For example, the DOJ obtained a consent decree under which Mittal Steel Co. was to divest one of the three North American tin mills it would own as a result of acquiring Arcelor S.A. “The divestiture will preserve competition in the market for tin mill products, which are finely rolled steel sheets used in many consumer product applications,” the FTC noted in its annual report last summer.

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