The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "Act") was adopted to provide the Federal government with the opportunity to review the potential effects on competition of certain mergers, acquisitions and other consolidations that meet the Act's size and other tests (briefly described below) before such transactions are completed. Once all parties to a transaction submit completed filings and pay the filing fee there is a 30 day waiting period before the transaction may be completed. The government has the option of extending the waiting period by making a formal request for additional information if the transaction appears to them to present anticompetitive concerns. The waiting period may also be terminated prior to the end of the 30 days if the parties request early termination at the time of filing and if the government elects in its discretion to do so. The filing fee in most cases ranges from $45,000 to $280,000 depending on the size of the transaction, and is imposed upon the acquiring person.

Each of the following tests must be met in order for premerger notification filings under the Act to be required. The terms "control group" and "control" are defined below.

  1. The Commerce Test. This test is met if any party to the proposed transaction is engaged in commerce or any activity affecting commerce. Due to the broad interpretation that courts have applied in determining what activities affect commerce, this test will be met in virtually all situations.
  2. The Size-of-Transaction Test. The value of the assets or voting securities being acquired in the proposed transaction must be greater than $53.1 million.
  3. The Size-of-Person Test. One party's control group must have total assets or annual net sales of $106.2 million or more and another party's control group must have total assets or annual net sales of $10.7 million or more (if the party being acquired is not engaged in manufacturing, only the total assets of such party's control group are considered for purposes of determining if the $10.7 million test is met). Annual net sales are determined by looking at the last regularly prepared annual statement of income and expense and total assets are determined by looking at the last regularly prepared balance sheet. If the value of the assets or voting securities being acquired in the proposed transaction is greater than $212.3 million, this test is deemed to be met regardless of the actual size of the parties.

The Act defines "control" as follows:

  1. Either holding 50 percent or more of the outstanding voting securities of an issuer, or in the case of an entity that has no outstanding voting securities, having the right to 50 percent or more of the profits of the entity, or having the right in the event of dissolution to 50 percent or more of the assets of the entity; or
  2. Having the contractual power presently to designate 50 percent or more of the directors of a corporation, or in the case of unincorporated entities, of individuals exercising similar functions.
The term "control group" means the ultimate control person and all entities controlled by it. The ultimate control person is the person or entity within a control group who is not controlled by any other person or entity.

The Act provides for a variety of exemptions that must be considered before concluding that a transaction is reportable. In addition, there are numerous regulations and interpretations that impact how the tests are applied in each individual circumstance. As a result, it is critical that parties to a transaction seek legal assistance in determining whether the Act will apply to the transaction.