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
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.