On May 21, 2014, the Federal Trade Commission and the Department of Justice published the Hart-Scott-Rodino Annual Report Fiscal Year 2013 (for the period from October 1, 2012 to September 30, 2013). The Annual Report summarizes Federal Trade Commission and Department of Justice actions conducted under the Hart-Scott-Rodino Antitrust Improvements Act, or HSR Act, in fiscal 2013. Noteworthy findings include:
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Compared to fiscal 2012, in fiscal 2013 the number of HSR filings decreased 7.2%, the percentage of transactions investigated increased 14.7%, the percentage of investigated transactions leading to second requests dropped 8.9%, and the percentage of challenges to reported deals dropped 10.0%.
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The agencies continue to enforce the HSR Act's notification requirements with respect to acquisitions of company stock by corporate officers and directors, often in an inadvertent "failure to file" situation.
This update provides key highlights of the Annual Report and offers practical advice.
The Annual Report Shows an Increase in Percentage of Deals Investigated
In fiscal 2013, 1,326 transactions were reported under the HSR Act, a 7.2% decrease from the 1,429 transactions reported in fiscal 2012. In fiscal 2013 the Federal Trade Commission and the Department of Justice investigated about 17% of reported transactions, a 14.7% increase over those investigated in fiscal 2012. Of the transactions investigated, 22% resulted in the issuance of second requests, a decrease from the 24% reported in fiscal 2012 but the second-highest percentage in five years. And where second requests were issued, 81% of the transactions (compared to 90% in fiscal 2012) resulted in an abandoned or restructured deal, a consent decree requiring the parties to divest assets, or litigation in federal district court. These trends suggest that the agencies are conserving their resources and targeting transactions that present more obvious competitive concerns.
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2009
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2010
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2011
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2012
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2013
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Transactions Reported
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716
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1,166
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1,450
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1,429
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1,326
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Investigated
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23%
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20%
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18%
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15%
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17%
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Investigated – 2nd Request Issued
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20%
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19%
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21%
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24%
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22%
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2nd Requests Resulting in Challenge
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100%
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95%
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67%
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90%
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81%
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Practical Tip
Address Antitrust Concerns Early in the Process. A company considering an acquisition that is likely to raise agency concerns should confer with its antitrust counsel early in the negotiation process. It should address potential anticompetitive concerns with counsel during the preparation and filing of reports under the HSR Act and engage with antitrust authorities as soon as possible in the waiting period in order to avoid a second request.
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Corrective Filings. The statistics cited above do not include agency actions taken in connection with post-consummation "corrective filings." During fiscal 2013, 39 corrective filings for violations were received, and the agencies brought two enforcement actions resulting in $1,200,000 in civil penalties. (This is a substantial decrease from fiscal 2012, when 60 such filings were made and two resulted in penalties.) The antitrust agencies examine the circumstances of each violation to determine whether penalties should be sought.
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Prompt Corrective Filings May Help Companies Avoid Penalties. When the parties inadvertently fail to file, the enforcement agencies generally do not seek penalties if the parties
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promptly make corrective filings after discovering the failure to file;
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submit an acceptable explanation for their failure to file; and
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have not previously violated the HSR Act.
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Failures to File Often Involve Executives Who Exercised Stock Options. Although there are many different circumstances under which a failure to file may occur, one of the most common scenarios involves corporate executives exercising a very small number of options or warrants to purchase their company's stock. The failure to file often results in such a situation because, although the purchase price of the stock acquired through the exercise of the option or warrant typically falls well below the size-of-transaction threshold (currently $75.9 million), the executives fail to aggregate the value of those shares with their existing holdings when determining whether a filing is necessary.
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Practical Tip
When Executives Exercise Stock Options, Consider the Effect on HSR Thresholds. Companies whose executives receive part of their compensation in the form of options or warrants to purchase company stock are advised to first determine whether the aggregate value of the company stock to be held by the executive as a result of an option exercise meets or exceeds the HSR size-of-transaction threshold and, if so, to undertake a complete HSR threshold analysis to determine whether an HSR filing is required prior to issuing any shares.
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Additional Information
This update is intended only as our summary of the Hart-Scott-Rodino Annual Report for Fiscal Year 2013. Click here for the full text of the report.
