What Is the Hart-Scott-Rodino Antitrust Improvements Act of 1976?
The Hart-Scott-Rodino Antitrust Improvements Act of 1976 requires large companies to file notifications with the Federal Trade Commission and the anti-trust division of Department of Justice prior to certain mergers and acquisitions or tender offers.
The law requires companies intending to merge to file an HSR Form, also called a "Notification and Report Form for Certain Mergers and Acquisitions" and generally known as a premerger notification report. This gives regulators an opportunity to review the proposed merger based on antitrust laws.
President Gerald Ford signed the act into law as a set of amendments to existing antitrust laws, including the Clayton Antitrust Act. The Hart-Scott-Rodino Antitrust Improvements Act of 1976 is also known as the "HSR Act" or Public Law 94-435.
- The Hart-Scott-Rodino Antitrust Improvements Act of 1976 requires companies to file premerger notifications with the Federal Trade Commission and the Justice Department for certain acquisitions.
- The necessity of premerger notifications depends on three factors: the nature of the commerce, the size of the parties involved, and the size of the transaction.
- If regulators see potential anti-competitive issues, they could negotiate concessions with the companies or seek to preliminarily enjoin the transaction.
How the Hart-Scott-Rodino Antitrust Improvements Act of 1976 Works
Once companies file the required forms, a waiting period begins. The waiting period is usually 30 days, or 15 days for cash tender offers or an acquisition in bankruptcy.
The transaction can proceed once the waiting period ends or if the government terminates the waiting period early. If regulators see potential anti-competitive issues with the proposed merger, they will request additional information from the companies involved and extend the waiting period; they will negotiate an agreement with the companies to enact measures to restore competition; or they will seek to stop the transaction by filing a preliminary injunction in court.
Under the HSR Act, the following tests must be met to require a pre-merger filing:
- The commerce test: Any party to a proposed transaction must be engaged in commerce or be involved in any activity that affects commerce. This requirement is so broad that it will be met in nearly all cases.
- The size-of-person test: As of 2020, either the acquiring or acquired person must have total assets or annual net sales of $188 million or more. The other party must have total assets or annual net sales of $18.8 million or more.
- The size-of-transaction test: This test is met if a certain amount of assets or voting securities—at least $94 million as of 2020—is being acquired. It is also met if 15% or more of voting securities are acquired and, as a result, the acquiring party gains control of an entity with annual net sales or total assets of $94 million or more.
For 2020, the base filing threshold for the HSR Act, which determines whether a transaction requires a premerger notification, is $904 million. The statutory size-of-person threshold is between $18.8 million and $188 million. Alternatively, the statutory transaction size test that applies to all transactions (even if the "size-of-person" threshold is not met) is $376 million.
HSR forms carry a filing fee that varies depending on the size of a transaction. For example, transactions worth more than $94 million but less than $188 million require a $45,000 filing fee. Transactions valued at more than $188 million but less than $940.1 million incur a $125,000 filing fee. The filing fee is $280,000 for transactions greater than $940.1 million.