Hart-Scott-Rodino Act

AMENDING THE Clayton Act of 1914 (which covers stock acquisition in restraint of trade), the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR) (15 U.S.C. 18a) requires that certain proposed mergers of assets be approved before-hand by the Federal Trade Commission (FTC) and the Antitrust Division of the U.S. Department of Justice, the antitrust authorities in the United States.

Calls for legislation covered by HSR date back to the Dwight Eisenhower administration in the 1950s and Attorney General Robert Kennedy in the early 1960s. Prior to HSR, unfair restraint of trade related to stock acquisition could be prosecuted only after a restraint was found. The first set of rules became effective on July 31, 1978, and has been amended by both antitrust authorities numerous times to improve the program's operations and lessen the paperwork burdens of filing.

Those subject to filing proposed mergers must generally wait 30 days (15 days for cash tender offers and bankruptcy sales) for the antitrust authorities to determine whether the intended merger will adversely affect a marketplace. Whether a given acquisition is subject to HSR depends on its value, and, in some cases, the size of the parties measured by their assets or sales. If either antitrust authority believes that more information is needed to investigate the application, it can extend the 30-day period for another 30 days (10 days for cash tenders and bankruptcy sales), and require a second request for pre-merger documentation. About 3 percent of all proposed mergers involve a second request. When the government believes that a marketplace will be adversely affected—either by increasing consumer prices or decreasing the quality of consumer products or services—it will request in federal court an injunction against the merger.

On February 1, 2001, major changes to HSR took place, including raising the acquisition value for reporting pre-merger activities from greater than $15 million (in acquired assets or voting rights) to greater than $50 million; this threshold also applies to acquisition of foreign assets and voting rights). A much more expensive fee structure was created—$45,000 for transactions valued at less than $100 million, $125,000 for transactions valued at $100 million to less than $500 million, and $280,000 for transactions valued at $500 million or more. The 2001 amendment also contained other technical changes in requirements for HSR reporting.

Beginning in 2005, the minimum acquisition value is adjusted by the percentage increase or decrease in the “gross national product” from the previous year. The 2001 change immediately led to a 50 percent decline in the number of premerger investigations[Page 386] (from 4,926 in 2000 to 2,376 in 2001). Although the number of pre-merger investigations declined substantially, the government still reviews the largest proposed mergers ever, some of which have involved multiple trillions of dollars. Reports of pre-merger stoppages are published annually by the Federal Trade Commission in its FTC HSR Annual Report to Congress, mandated by 15 U.S.C. 18a(7A)(j).

To find pre-merger situations that violate the act based on failures to file an HSR report, the antitrust authorities examine newspaper and industry publications, and rely on complaints from consumers, stockholders, and competitors. Failure to file a required HSR report carries a fine of $11,000 per day. Opponents of HSR claim that the exorbitant fees required charge businesses for services they do not want, and are analogous to fines levied against businesses for crimes they have not committed.

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