What you should know before filing the Hart-Scott-Rodino Act

The Hart-Scott-Rodino (HSR) Act is an essential piece of legislation that decision makers at companies seeking to merge, acquire, or be acquired must understand. It requires a very involved filing with not one but two federal agencies, and if a company fails to comply, it can face steep financial penalties or increased regulatory scrutiny. 

This article will walk readers through the highlights of the Hart-Scott-Rodino Act, including how it works, where companies often go wrong, and what happens if they don’t meet its obligations.

What is the Hart-Scott-Rodino Antitrust Improvements Act of 1976?

This Act, better known as the Hart-Scott-Rodino Act, is a set of amendments to U.S. antitrust laws, in particular the Clayton Act of 1914. It was meant to give antitrust enforcement agencies more time and information to review proposed mergers and, by extension, promote competition. It requires mergers and acquisitions over a certain value to report premerger notifications of large transactions to both the Federal Trade Commission (FTC) and the U.S. Department of Justice Antitrust Division (DOJ) for antitrust review. When parties meet the HSR requirements, they must submit filings regarding the proposed transaction to both agencies and wait a specified period before they can close. The parties' HSR filings require them to disclose basic information about the transaction and their businesses, such as their subsidiaries, revenues, and competitive overlaps between their companies.

During the waiting period, one of the U.S. antitrust agencies reviews the transaction to ensure it is not likely to substantially harm competition. At the end of the waiting period, the investigating agency can allow the transaction to close or file suit in court to block the transaction. At any point, the agency may negotiate a settlement with the parties to resolve their competitive concerns, such as requiring a divestiture of a line of business.

Which transactions require an HSR filing?

An HSR filing is required when mergers, acquisitions of assets or equity, and joint ventures exceed a minimum value and, in some cases, an additional threshold based on the size of each party. New thresholds are issued annually. Even if the HSR thresholds are met, there are many exemptions to HSR reportability to consider.

The tests and the current fee thresholds for each are as follows:

• Size-of-transaction test. The size-of-transaction test evaluates the assets, voting securities, and non-corporate interests — such as membership interests or units — the acquiring party will hold after the acquisition. The test is met if the value of the equity or assets to be acquired exceeds $90 million.
• Size-of-person test. An additional test applies only if the transaction value is between $90 million and $359.9 million. This test is generally met if the worldwide total assets or annual net sales of one party — including all entities within the group — are at least $180 million and those of the other party are at least $18 million. However, there are variations of this test, depending on whether the parties are engaged in manufacturing.

One party — including any subsidiary or division — must also be engaged in commerce in the U.S. or activity affecting U.S. commerce. A foreign party can meet this test if it engages in business or makes sales in or into the U.S.

For more insights on how to prepare and submit filings for parties that must report a transaction under the HSR Act, see Practical Law’s HSR Filing Toolkit. 

What is the HSR filing fee?

In general, the filing fee is set by the value of the transaction, which is set at the time of filing. As of March 2024, the filing fees are:

The filing fee thresholds change annually. For an updated chart of the six-tiered filing fee structure, see Practical Law’s HSR filing fee adjustment chart.

What is the review process for an HSR filing?

The parties seeking to merge must file a premerger notification — called the “Notification and Report Form for Certain Mergers and Acquisitions” — with the FTC and the Assistant Attorney General in charge of the Antitrust Division of the Department of Justice.

Once both parties have filed, a specific merger review timeline begins. For most, but not all, transactions, this starts with an initial 30-day waiting period. For cash tender offers and bankruptcies, the initial waiting period is only 15 days.

During the initial waiting period:

• The FTC and DOJ complete a preliminary review and determine which agency will take the filing, known as the clearance process, if further information or investigation is needed. This process can take a few days or, in rare cases, a few weeks. Usually, the agencies decide based on which one has experience with the industry at issue.
• If the agencies take no further action, the initial waiting period ends at 11:59 pm on the last day and the parties may close. Parties may also request early termination of the waiting period, which the agencies can grant at any point if they conclude there are no competitive concerns.
• If the agency still has antitrust concerns by the end of the waiting period, it issues what is known as a Second Request, extending the waiting period and launching a more in-depth investigation. A Second Request requires the parties to produce an enormous volume of documents and data. Compliance with a Second Request usually takes two to four months, can cost millions of dollars, and may extend the time to close the deal by 10 months or more. These investigations often end with a settlement or litigation. However, only a small number of deals receive Second Requests each year.