Non M&A Transactions Can Trigger HSR Filing Obligations

Corproate By: Mark J. Tarallo

The Hart-Scott-Rodino Antitrust Improvements Act of 1976 (typically referred to as “HSR”) was enacted to enable government regulators to review business combination transactions prior to completion, to insure that the transaction didn’t have an anti-competitive impact on consumers.  Typically, the parties to the transaction would file a notice with the Department of Justice (“DOJ”) and the Federal Trade Commission (“FTC”) prior to the anticipated closing date, the agencies would review the transaction, and then would either bless the transaction or ask for more information.  In some cases the regulators would file a lawsuit to block the transaction, on the grounds that there would be a significant anti-competitive impact in the marketplace.

Most companies and practitioners focus on HSR as part of the M&A process.  However, it is becoming increasingly necessary to review transactions that don’t fall into typical M&A structures.  In August 2014, Berkshire Hathaway was fined $896,000 for failing to file an HSR notification prior to exercising its conversion rights with respect to convertible debt it held in USG Corporation.  Upon conversion of the debt, Berkshire Hathaway was issued 21.4 million shares of USG stock, with a value in excess of $283.6 million, the reporting threshold at that time for certain HSR filings.  Berkshire Hathaway self-reported the failure to file, but were still hit with the maximum civil penalty for failure to file.

In addition to conversions, other transactions that may require HSR filings are “private” IPOs and stock grants to executives.  Transactions that approach the HSR filing thresholds need to be reviewed even if they don’t resemble traditional M&A transactions, to confirm that a filing is not required.  The FTC and DOJ have shown that even where the party at fault self-reports, they are willing to impose significant penalties, highlighting the need to review transactions for HSR requirements well before they happen.

For more information please contact Mark Tarallo.

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