The U.S. Federal Trade Commission announced the annual changes to the thresholds contained in section 7A (Hart-Scott-Rodino) and section 8 of the Clayton Act (15 U.S.C. §§ 18a, 19) (Interlocking Directors). The new HSR thresholds apply to any transaction that closes 30 days after publication of the new thresholds in the Federal Register, while the new section 8 thresholds take effect immediately.
The Hart-Scott-Rodino Antitrust Improvements Act, section 7A of the Clayton Act, requires companies proposing a merger or acquisition to notify federal authorities if the size of the parties involved and the value of a transaction exceed certain monetary thresholds, absent an applicable exemption. The purpose of the statute is to allow the FTC and the U.S. Department of Justice’s Antitrust Division an opportunity to review and challenge transactions that may substantially harm competition before the transactions close. For section 7A, the new size-of-transaction threshold (the $50 million threshold) increased from $90 million to $94 million; the size-of-person thresholds (the $10 and $100 million thresholds) will be $18.8 million and $188 million, respectively; and the former $200 million transaction size threshold will be $376 million.
As to section 7A, the new size-of-transaction threshold refers to the purchase price or the fair market value of the voting securities, assets or noncorporate interests acquired. The size-of-transaction threshold can also be triggered by the formation of a new entity or the conversion of a nonvoting security into a voting security. The new $18.8 million and $188 million size-of-person thresholds refer to the total current assets or total annual revenues of each of the acquiring and acquired parties.
Unless an exemption applies, transactions in excess of $376 million are reportable, regardless of the size of the parties. For all other transactions in excess of $94 million, to be reportable, one party must have assets or revenues in excess of $18.8 million and the other party must have assets or revenues in excess of $188 million
Section 8 of the Clayton Act prohibits certain interlocking directors between competing corporations because of their potential to result in anticompetitive effects, such as allowing competitors to coordinate business decisions and exchange competitively sensitive information. For section 8, the “$10 million” threshold in the statute will be $38,204,000, and the “$1 million” threshold will be $3,820,400. For section 8’s prohibition on interlocking directors to apply, the competing corporations must have capital, surplus and undivided profits in the aggregate of more than $38,204,000 and the extent of competitive overlap between the two corporations must satisfy one of three tests: (1) Each company has competitive sales of at least $3,820,400; or (2) each company has competitive sales of at least 2 percent of its respective total sales; or (3) the competitive sales of either of the two companies is at least 4 percent of its total sales.
Because the section 8 thresholds change annually and the exceptions require an assessment of relative competitive sales levels, any company with an interlock will need an effective compliance program to monitor the firm’s capital position, as well as each firm’s sales of overlapping products. Moreover, if the section 8 jurisdictional thresholds are met and no safe harbor applies, the ban on interlocks is absolute; section 8 does not require proof that the interlock results in harm to competition.