Hart scott rodino act

What Is the Hart-Scott-Rodino Act?

The Hart-Scott-Rodino (HSR) Antitrust Improvements Act of 1976 is a United States federal law that mandates certain large mergers and acquisitions, tender offers, or asset transfers to be reported to the federal antitrust agencies before they are completed. This requirement falls under the broader category of antitrust laws and regulatory compliance. The primary goal of the HSR Act is to provide the Federal Trade Commission (FTC) and the Department of Justice (DOJ) with sufficient time and information to review proposed transactions for potential anti-competitive effects, thereby promoting fair competition in the market.⁴⁵,⁴⁴ Companies contemplating significant deals must adhere to the Hart-Scott-Rodino Act by submitting a pre-merger notification and observing a statutory waiting period before closing their transaction.⁴³

History and Origin

The Hart-Scott-Rodino Act, often referred to as the HSR Act, was signed into law by President Gerald R. Ford on September 30, 1976. It represents a significant amendment to the existing antitrust framework, particularly the Clayton Act of 1914.⁴² Before its enactment, major business combinations could be negotiated and finalized in secret, often making it challenging for antitrust enforcement agencies to analyze and challenge anti-competitive mergers effectively after their completion.⁴¹

The HSR Act addressed these procedural concerns by establishing a federal pre-merger notification program.⁴⁰ Named after its sponsors, Senators Philip Hart and Hugh Scott, and Representative Peter Rodino, the law aimed to give the FTC and the Antitrust Division of the Department of Justice essential information and a crucial timeframe to assess transactions and, if necessary, seek preliminary injunctions to prevent anti-competitive outcomes.,³⁹ This preventative approach was intended to stop potential competitive problems in their incipiency, benefiting consumers and the broader economy.³⁸ The rules implementing the Act became effective in 1978.³⁷

Key Takeaways

• The Hart-Scott-Rodino Act requires companies to file a pre-merger notification with the FTC and DOJ for large transactions like mergers, acquisitions, and joint ventures.³⁶,³⁵
• The law's purpose is to give antitrust agencies time to review proposed deals for potential harm to competition before they close.³⁴
• Compliance with the HSR Act involves meeting specific monetary thresholds for the transaction and the parties involved, which are adjusted annually.³³,³²
• Failure to comply with HSR filing requirements can result in significant civil penalties and delays in transaction closing.³¹

Interpreting the Hart-Scott-Rodino Act

The application of the Hart-Scott-Rodino Act hinges on specific thresholds that determine whether a transaction requires a pre-merger filing. These thresholds are adjusted annually by the FTC based on changes in the gross national product.³⁰ As of early 2025, a transaction may be subject to HSR notification if the acquiring person will hold assets or voting securities valued in excess of $126.4 million.²⁹,²⁸ For transactions falling within a certain range (e.g., between $126.4 million and $505.8 million in 2025), a "size-of-person" test also applies, requiring one party to have annual net sales or total assets of at least $252.9 million and the other party to have at least $25.3 million.²⁷ Transactions exceeding a higher threshold (e.g., over $505.8 million in 2025) are generally reportable regardless of the parties' size, unless specific exemptions apply.²⁶,²⁵

Once a filing is made, a statutory waiting period begins, typically 30 days (or 15 days for all-cash tender offers or acquisitions in bankruptcy).²⁴ During this period, the FTC and DOJ review the transaction to determine if it is likely to harm competition.²³ If competitive concerns arise, the agencies may request additional information, known as a "Second Request," which extends the waiting period.²²,²¹ The parties cannot integrate operations or close the transaction until the waiting period expires or is terminated early by the government.

Hypothetical Example

Consider "Alpha Corp," a large technology company, planning to acquire "Beta Innovations," a smaller software startup. Alpha Corp agrees to purchase Beta Innovations for $180 million in equity.

Given the current HSR thresholds, this transaction value exceeds the minimum size-of-transaction test (e.g., $126.4 million as of early 2025). Alpha Corp and Beta Innovations would both need to determine if they meet the "size-of-person" test. Assuming Alpha Corp has annual sales exceeding $252.9 million and Beta Innovations has assets over $25.3 million, the transaction would trigger an HSR filing.

Both companies would then file the required "Notification and Report Form for Certain Mergers and Acquisitions" with the FTC and DOJ. They would pay the applicable filing fee, which varies based on the transaction's value. A 30-day waiting period would commence. During this time, the companies could conduct further due diligence and plan for post-merger integration but could not formally close the acquisition or begin integrating their operations. If no competitive concerns are raised, the waiting period would expire, allowing Alpha Corp to complete its acquisition of Beta Innovations. If concerns arose, the agencies could issue a Second Request, prolonging the review.

Practical Applications

The Hart-Scott-Rodino Act is a critical component of the regulatory landscape for companies engaging in significant corporate transactions. Its practical application is widespread across various industries, impacting private equity firms, corporations, and even individual investors in certain scenarios. Any proposed mergers and acquisitions, consolidations, or significant purchases of voting securities or assets that meet the annually adjusted thresholds are subject to its requirements.

Companies must meticulously assess potential deals against the HSR thresholds to determine reportability, a process that often involves complex calculations and legal interpretation. The Act ensures that competitive markets are maintained by providing the antitrust enforcement agencies with the opportunity to intervene before a transaction that could harm competition is consummated. For instance, the enforcement agencies can compel the divestiture of certain business lines or assets as a condition of approval to address competitive concerns.²⁰ Compliance teams and legal counsel play a vital role in navigating the HSR filing process, preparing the detailed forms, and managing the waiting period to avoid "gun-jumping" violations, where parties illegally coordinate or integrate before approval.¹⁹,¹⁸

For more insights into the requirements and processes of HSR filings, companies often consult specialized legal resources. For example, Thomson Reuters provides a comprehensive overview of what parties should know before filing under the Act.

Limitations and Criticisms

While the Hart-Scott-Rodino Act has significantly transformed merger enforcement by enabling proactive review, it is not without its limitations and criticisms. One common critique revolves around the substantial burden and costs it places on merging parties, even for transactions that ultimately pose no threat to competition. The HSR filing process requires extensive information disclosure, and preparing the "Notification and Report Form" can be a time-consuming and resource-intensive endeavor.¹⁷ Critics argue that the detailed information requests, particularly a "Second Request," can cause significant delays, potentially disrupting time-sensitive deals and increasing transaction costs.¹⁶

Furthermore, the interpretation of certain exemptions within the HSR Act has drawn criticism. For example, the "Investment-Only" exemption, which aims to exclude passive investments from filing requirements, has been restrictively interpreted by enforcement agencies. This interpretation may inadvertently capture certain investors, like large institutions or hedge funds, requiring them to undertake HSR filings even when their intent is solely for investment and not to influence business decisions, potentially infringing on free speech aspects related to shareholder engagement.¹⁵ Despite efforts to streamline the process, some argue that the complexity of the HSR rules can be challenging to navigate, leading to inadvertent non-compliance.¹⁴ Inadequate or inaccurate filings can result in the rejection of a filing, restarting the waiting period and potentially incurring daily civil penalties for violations.¹³

Hart-Scott-Rodino Act vs. Sherman Antitrust Act

The Hart-Scott-Rodino Act and the Sherman Antitrust Act are both foundational pieces of U.S. antitrust laws, but they serve different primary functions within the regulatory framework.

The Sherman Antitrust Act of 1890 is the oldest federal antitrust law. Its main purpose is to prohibit anti-competitive agreements and unilateral conduct that monopolizes or attempts to monopolize a market. This includes illegal acts like price fixing, bid rigging, and market allocation. The Sherman Act is primarily punitive and reactive; it allows the Department of Justice to bring civil and criminal actions against companies and individuals for past anti-competitive behavior, and private parties can also sue for damages.¹²

In contrast, the Hart-Scott-Rodino Act of 1976 is preventative and procedural. It does not define what constitutes anti-competitive behavior but rather establishes a mandatory pre-merger notification program. The Hart-Scott-Rodino Act requires parties to certain large mergers and acquisitions to notify the FTC and DOJ before closing the transaction. This provides the antitrust agencies with an opportunity to review the proposed deal for potential anti-competitive effects in advance, rather than having to challenge it after it has already occurred. Its aim is to prevent anti-competitive transactions from being consummated in the first place, thus complementing the Sherman Act's power to prosecute existing violations.¹¹,¹⁰

FAQs

What types of transactions are subject to the Hart-Scott-Rodino Act?

The Hart-Scott-Rodino Act applies to mergers, acquisitions of voting securities or assets, and joint venture formations that meet specific monetary thresholds. These thresholds are adjusted annually.⁹,⁸

What happens after a Hart-Scott-Rodino filing is made?

Once a Hart-Scott-Rodino filing is made with the FTC and DOJ, a mandatory waiting period begins, typically 30 days. During this period, the agencies review the proposed transaction for potential anti-competitive issues. The transaction cannot close until this period expires or is terminated early.⁷

What are the penalties for non-compliance with the Hart-Scott-Rodino Act?

Failure to comply with the Hart-Scott-Rodino Act, such as not filing when required or submitting an incomplete form, can result in significant daily civil penalties for each day of violation. In early 2025, these penalties were over $50,000 per day.⁶,⁵ Additionally, regulators can seek court orders to prevent or unwind the transaction.⁴,³

Are there any exemptions to the Hart-Scott-Rodino Act filing requirements?

Yes, the Hart-Scott-Rodino Act includes several exemptions that may exempt a transaction from the filing requirements, even if the monetary thresholds are met. These exemptions cover various scenarios, such as certain acquisitions made "solely for the purpose of investment," intra-company transfers, or acquisitions in the ordinary course of business.²,¹ However, these exemptions are often narrowly interpreted and require careful analysis.