The Hart-Scott-Rodino Act and Premerger Notifications: An Overview
February 13, 2019 by Josh Hrala
Mergers and acquisitions have a lot of moving parts that HR and the leadership team need to be aware of. One of the most important, especially for companies of larger sizes, is the Hart-Scott-Rodino Act, which dictates which companies have to make premerger notifications to the government.
So what is the Hart-Scott-Rodino Act and how do you know if you need to follow the guidelines set forth by it? This is what we will be covering in this blog today.
A note before we start, though. We are not lawyers. This guide is merely a way to get familiarized with a high-level view of the Hart-Scott-Rodino Act and premerger notifications as a whole. In order to ensure you are complying with all local, state, and federal laws, work with your legal counsel, who should already be a part of your M&A deal team.
With that said, let’s jump right into the basics.
What Is the Hart-Scott-Rodino Act?
The Hart-Scott-Rodino Act of 1976 – also known as the HSR Act – is a set of amendments to US antitrust laws, which dictate that certain mergers, acquisitions, and transfers of securities and assets, must be reviewed by the Federal Trade Commission (FTC) and the Department of Justice (DOJ) before they are enacted to make sure that the deals do not compromise US commerce under antitrust laws.
The act was named after senators Philip A. Hart, Hugh D. Scott, and representative Peter W. Rodino. It was signed into law by President Gerald R. Ford in September 1976.
To understand more about the Hart-Scott-Rodino Act, let’s go straight to the source, the FTC, who states:
“The Hart-Scott-Rodino Act established the federal premerger notification program, which provides the FTC and the Department of Justice with information about large mergers and acquisitions before they occur. The parties to certain proposed transactions must submit premerger notification to the FTC and DOJ. Premerger notification involves completing an HSR Form, also called a “Notification and Report Form for Certain Mergers and Acquisitions,” with information about each company’s business. The parties may not close their deal until the waiting period outlined in the HSR Act has passed, or the government has granted early termination of the waiting period.”
In short, the act says that if companies meet a certain threshold, they must send a premerger notification to both the FTC and DOJ for review. During this review time, the deal cannot be finalized, though due diligence can still occur.
How to Know When Your Deal Requires a Premerger Notification
To keep things rather simple, the Hart-Scott-Rodino Act created a threshold to gauge what deals need to be reviewed by the FTC and DOJ.
“As of 2018, the base filing threshold for the HSR Act which determines whether a transaction requires a Premerger Notification is $84.4 million. The statutory size-of-person threshold is between $16.9 million and $168.8 million,” reports Will Kenton, from Investopedia.
“Alternatively, the statutory transaction size test that applies to all transactions even if the “size-of-person” threshold is not met is $337.6 million.”
If your deal meets this threshold, you have to file a Premerger Notification letter, which is often referred to as a ‘HSR Form.’ These forms have fees based on how large the deal is. Here’s Kenton again with more details:
“Filing fees for an HSR Form depend on the size of a transaction. For example, transactions worth $84.4 million or above (but under $168.8 million) require a filing fee of $45,000. Transactions valued at over $168.8 million but under $843.9 million come with at $125,000 filing fee. And transactions valued at over $843.9 million have a HSR Form filing fee of $280,000.”
As you can see, this can all get very complicated, which is why we must say it again: work with your legal team to make sure you understand whether or not the deal you are crafting falls within this threshold.
If you’d like more details, you can read all about the thresholds via the FTC’s guidelines here.
What Happens After You File a Premerger Notification?
Okay, say that you do, in fact, need to file a premerger notification based on the threshold of the Hart-Scott-Rodino Act. What now?
Well, you simply have to wait to continue the deal.
“Once the companies have filed the required PNR forms, a waiting period begins. The waiting period is usually 30 days, but for cash tender offers or an acquisition in bankruptcy it is 15 days,” reports Kenton.
He goes on to say that the deal may continue if the waiting period lapses or if the government reaches a conclusion before the waiting period is over and cancels it early. If, for whatever reason, they do find an issue with your deal and think that it will cause commerce issues, they will likely reach out and dig a little deeper into the deal. If they do this, they will extend the waiting period.
If they conclude that the deal is no good, they will seek an injunction to stop it from happening.
In a lot of ways, the Hart-Scott-Rodino Act is like the WARN Act. The companies that the legislature applies to both have to meet certain thresholds for companies to comply.
Where Is HR’s Role in All of This?
In short, it really depends. The Hart-Scott-Rodino Act is mainly something that upper leadership, legal teams, and financial advisers will discuss. However, it largely depends on how large the organization is.
The reason why it’s a bit confusing is that if the companies are large enough to have to comply with the act, HR is likely to not be involved. There are those rare cases though where a startup can easily reach a valuation that triggers the Hart-Scott-Rodino Act to take effect.
This is why it is vital for you to work with your legal team when dealing with any of these matters. Once again, we are not lawyers.
The Hart-Scott-Rodino Act and Premerger Notification: The Recap
When dealing with larger mergers or acquisitions, you must pay attention to what regulations are set forth by the government. In this case, the Hart-Scott-Rodino Act requires larger deals to be reviewed by the FTC and DOJ before completion to ensure that they are complying with US antitrust laws.
If you’d like to learn more about the Hart-Scott-Rodino Act and premerger notifications, the FTC has a bunch of resources you can download here.
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