Hart Scott Rodino HSR
What Is Hart Scott Rodino HSR?
The Hart-Scott-Rodino (HSR) Antitrust Improvements Act of 1976 is a federal statute in the United States that requires companies to notify the government of certain large Mergers and Acquisitions before they are completed. This requirement falls under the broader umbrella of Antitrust Law and regulation, designed to promote market Competition and prevent the formation of Monopoly or undue concentration of power. The HSR Act ensures that the relevant antitrust agencies, primarily the Federal Trade Commission (FTC) and the Department of Justice (DOJ), have the opportunity to review proposed transactions for potential anti-competitive effects before they are consummated. The act mandates a premerger notification process, providing a Waiting Period during which the agencies can investigate.
History and Origin
The Hart-Scott-Rodino Antitrust Improvements Act of 1976 was enacted as an amendment to the Clayton Antitrust Act of 1914.47, 48 It was signed into law by President Gerald R. Ford on September 30, 1976. Before the HSR Act, agencies often had to challenge mergers in court after they had already taken place, a process that was difficult and often ineffective in unwinding anti-competitive deals.46 Congress sought to remedy this issue by providing the FTC and DOJ with a mechanism to review significant transactions before they closed, thus preventing "Saturday Night Specials"—mergers that were negotiated and finalized in secret without prior government oversight. T45he law is named after its principal sponsors: Senators Philip Hart and Hugh Scott, and Representative Peter W. Rodino. The HSR Act dramatically altered the landscape of antitrust merger enforcement by creating a mandatory Premerger Notification program.
- The Hart-Scott-Rodino (HSR) Act requires companies to file premerger notifications with the FTC and DOJ for certain large mergers and acquisitions.
- It introduces a mandatory waiting period, usually 30 days (or 15 for all-cash tender offers), before a transaction can be completed, allowing for antitrust review.
*42 The necessity of filing depends on three main tests: the commerce test, the size-of-person test, and the size-of-transaction test, which are adjusted annually.
*40, 41 Non-compliance with the HSR Act can lead to substantial civil penalties, potentially tens of thousands of dollars per day of violation.
*38, 39 The HSR Act aims to prevent anti-competitive transactions, such as the creation of a Monopoly, before they harm competition and consumers.
36, 37## Interpreting the HSR
The Hart-Scott-Rodino Act is interpreted through specific monetary thresholds and rules that determine which transactions require Premerger Notification. These thresholds are adjusted annually based on changes in the U.S. Gross National Product (GNP). G34, 35enerally, a transaction is subject to HSR filing if it satisfies three statutory tests:
- Commerce Test: At least one party to the proposed transaction must be engaged in commerce or an activity affecting commerce. This condition is broadly interpreted and almost always met.
233. Size-of-Person Test: This test involves the annual net sales or total Assets of the "ultimate parent entities" of both the acquiring and acquired parties. As of January 2025, one party must generally have sales or assets of at least $252.9 million, and the other party must have sales or assets of at least $25.3 million.
332. Size-of-Transaction Test: This test is met if the value of the Voting Securities, assets, or non-corporate interests being acquired exceeds a certain threshold. As of January 2025, this threshold increased to $126.4 million. Furthermore, if the transaction value exceeds $505.8 million, an HSR filing is typically required regardless of the size of the parties.
31If a proposed Acquisition meets these criteria and no specific exemptions apply, the parties must submit a detailed "Notification and Report Form for Certain Mergers and Acquisitions" to both the FTC and DOJ and observe the statutory Waiting Period. D29, 30uring this period, the agencies assess whether the transaction is likely to substantially lessen competition.
28## Hypothetical Example
Imagine "TechGiant Corp." (a large technology company) plans to acquire "AI Innovations Inc." (a smaller, specialized artificial intelligence firm). To determine if a Hart-Scott-Rodino filing is necessary, they would evaluate the current HSR thresholds.
Let's assume, for this example, the thresholds are:
- Size-of-Transaction: $120 million
- Size-of-Person: Acquiring party $240 million, Acquired party $24 million
- Assess Parties' Sizes: TechGiant Corp. has annual revenues exceeding $1 billion, and AI Innovations Inc. has assets of $50 million. Both satisfy the "size-of-person" test.
- Assess Transaction Size: TechGiant Corp. plans to acquire AI Innovations Inc. for $150 million. This value ($150 million) exceeds the "size-of-transaction" threshold ($120 million).
- Check for Exemptions: Assuming no specific exemptions (e.g., certain types of investment-only acquisitions) apply.
Since all applicable thresholds are met, TechGiant Corp. and AI Innovations Inc. would be required to submit a Premerger Notification form to the FTC and DOJ. They would then observe the statutory Waiting Period (typically 30 days) before they can legally close the acquisition. This allows regulators to conduct Due Diligence and review the transaction for potential anti-competitive effects.
Practical Applications
The Hart-Scott-Rodino Act is a critical component of regulatory oversight in the Mergers and Acquisitions landscape. It applies to various transaction types, including corporate mergers, Acquisition of Voting Securities or Assets, and certain Joint Venture formations.
25, 26, 27The premerger notification program administered by the FTC and DOJ allows these agencies to:
- Identify potential antitrust concerns: Regulators can proactively identify transactions that might harm competition before they occur.
*24 Request additional information (Second Request): If initial filings raise concerns, agencies can issue a "Second Request" for more detailed information, extending the waiting period and allowing for a deeper investigation.
*23 Negotiate remedies: Agencies may negotiate settlements with parties, which could include the Divestiture of certain business lines or assets, to resolve competitive concerns.
*22 Challenge transactions: In cases where anti-competitive harm is likely and no sufficient remedy can be reached, the agencies can file suit in federal court to block the transaction.
21For example, in fiscal year 2023, 1,805 transactions were reported under the HSR Act, with nearly a quarter valued at over $1 billion. The FTC and DOJ together filed 28 merger enforcement actions in that fiscal year. T20his demonstrates the continuous application of the HSR Act in maintaining competitive markets. The Federal Trade Commission publishes annual reports detailing the number of HSR filings and enforcement actions, providing transparency on its activities related to the HSR Act.
18, 19## Limitations and Criticisms
While the Hart-Scott-Rodino Act is widely regarded as successful in enabling pre-merger review, it has faced certain criticisms. One common critique revolves around the burden of compliance, particularly with proposed rule changes. In June 2023, the FTC and DOJ proposed significant amendments to the HSR rules and the premerger notification form, which critics argue would substantially increase the time, expense, and regulatory burden on companies, potentially costing businesses hundreds of millions of dollars in additional legal costs.
14, 15, 16, 17Concerns have also been raised that the expanded information requirements, though intended to close "informational gaps," might not always align with identifying genuinely anti-competitive mergers, especially for smaller businesses involved in transactions that pose little threat to competition. S12, 13ome argue that these changes could potentially delay or deter legitimate merger activity, even for deals that are ultimately pro-competitive or competitively neutral. A11dditionally, interpretations of certain HSR exemptions, such as the "investment-only" carve-out, have been critiqued for being overly restrictive, potentially coercing investors to comply with filing requirements even when their intent is purely passive.
10## Hart Scott Rodino HSR vs. Antitrust Law
The Hart-Scott-Rodino (HSR) Act is a specific piece of legislation that operates within the broader framework of Antitrust Law. Antitrust law is a comprehensive body of statutes and regulations designed to prevent anti-competitive practices, such as cartels, price-fixing, and monopolies, and to promote fair competition in the marketplace. Key federal antitrust laws include the Sherman Act, the Clayton Antitrust Act, and the Federal Trade Commission Act.
The HSR Act, however, specifically addresses the pre-merger notification aspect of antitrust enforcement. Its primary function is procedural: it mandates that parties to certain large Mergers and Acquisitions provide advance notice to the FTC and DOJ. This enables these agencies to review transactions for potential antitrust violations before they are completed, rather than having to challenge them retroactively. Therefore, while all HSR Act filings are a component of antitrust law enforcement, antitrust law encompasses a much wider range of activities, including civil and criminal enforcement against anti-competitive behavior, beyond just merger review.
FAQs
What kind of transactions are covered by the HSR Act?
The HSR Act covers significant mergers, acquisitions of voting securities or assets, and certain Joint Venture formations that meet specific monetary thresholds and involve parties of a certain size. T8, 9hese thresholds are adjusted annually.
7### What happens if companies don't comply with the HSR Act?
Failure to comply with the Hart-Scott-Rodino Act can result in severe penalties, including civil penalties of tens of thousands of dollars per day for each day of non-compliance. I5, 6n some cases, the government can also seek orders to Divestiture assets of the acquiring entity.
4### Can the waiting period be shortened?
Yes, parties can request early termination of the Waiting Period. Historically, agencies could grant early termination if they concluded there were no competitive concerns. H3owever, the practice of granting early termination has been suspended since February 2021, except in specific circumstances where parties enter a consent order or agency concerns are resolved before compliance with a Second Request.
2### What is a "Second Request" under the HSR Act?
A "Second Request" is an official demand from either the FTC or DOJ for additional information from the merging parties after their initial Premerger Notification filing. This request signifies that the agencies have identified potential antitrust concerns and require more detailed documents and data to conduct a thorough investigation, which also extends the statutory Waiting Period.1