As background, the HSR Act requires that certain transactions be reported to the U.S. antitrust authorities prior to closing, unless an exemption applies. Whether a particular transaction is subject to these requirements depends, among other things, upon the value of the transaction and the size of the parties as measured by their sales and assets. After the parties submit their HSR filings, the HSR Act prohibits them from closing their transaction until they observe a statutory waiting period (usually 30 days) during which the U.S. antitrust authorities can review the transaction. Unless the U.S. antitrust authorities extend the initial waiting period by requesting additional information (known as a “second request”), the parties are permitted to consummate their transaction following the expiration of the waiting period.
Compliance with the reporting requirements of the HSR Act is usually associated with transactions that involve a payment at closing. However, recent FTC guidance describes the following transactions that may be reportable under the HSR Act even where no traditional payment is involved.
- Exchange of One Type of Interest for Another: The exchange of one type of interest in a company, such as convertible notes, for a different type of interest in the same company, such as voting securities, may require an HSR filing and observance of the statutory waiting period prior to closing. For example, in 2014, Berkshire Hathaway Inc. paid a civil penalty of $896,000 for failing to file in connection with its 2013 exchange of convertible notes of USG Corporation for voting securities.
- Backside Acquisitions: When one corporation acquires another corporation, shareholders of the target may receive voting securities of the buyer. The receipt of the buyer’s voting securities by target’s shareholders, known as a “backside” acquisition, may trigger an HSR reporting obligation and observance of the statutory waiting period prior to closing. It should be noted that these types of transactions may sometimes require two notifications, one for the acquisition of the target corporation by buyer and one for the “backside” acquisition of buyer’s voting securities by target’s shareholders.
- Consolidations: In a consolidation where two corporations combine to form a new corporation that is its own ultimate parent entity, shareholders of the combining corporations may receive shares in the new corporation in exchange for their old shares. This acquisition of shares in the new corporation by the shareholders may trigger an HSR filing obligation and observance of the statutory waiting period prior to closing, even though no money changed hands and the shareholder took no direct action to cause the acquisition or to exchange the shares.
- Reorganization: The reorganization of a non-corporate entity, such as a partnership or limited liability company, into a corporation, or vice versa, may require an HSR filing and observance of the statutory waiting period prior to closing, even if no money changed hands and the person receiving voting securities or non-corporate interests in the new entity did not take any action to effect the reorganization.
- Employee Compensation: Employees may receive a portion of their compensation in the form of voting securities of the company they work for. The receipt of those securities may be a reportable transaction. For example, if the compensation consists of voting securities or restricted share awards that entitle the holder to vote the shares and receive dividends, an HSR filing and observance of the statutory waiting period may be required prior to receiving the shares. On the other hand, the receipt of restricted stock units which do not carry the right to vote will not be immediately reportable, but an HSR filing and observance of the statutory waiting period may be required before the shares vest. In 2011, Brian L. Roberts, the Chief Executive Officer of Comcast Corporation, paid a civil penalty of $500,000 because he failed to file a notification prior to his restricted stock units vesting.
It is important that businesses implement adequate antitrust compliance policies and procedures to take into account potentially reportable transactions under the HSR Act, such as the ones described. Failure to file for reportable transactions can result in substantial penalties.
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If you have any questions concerning the foregoing, or HSR generally, please contact your Seward & Kissel relationship attorney or Nick Katsanos in the firm’s Business Transactions Group.
