2023 Annual Updates to the United States Pre-Merger Notification (HSR Act) and Interlocking Directorates Thresholds

HSR Act Thresholds

The HSR Act requires parties to transactions that meet the statutory thresholds to file notification with the FTC and the Department of Justice’s Antitrust Division (“DOJ”) and abide by a waiting period before completing the transaction. The statutory thresholds are revised each year based on a formula related to the size of the U.S. economy and to inflation. In January, the FTC announced the revised thresholds, which will be effective for all transactions closing on or after February 27, 2023. The revised minimum size-of-transaction threshold changes from $101.0 million to $111.4 million, an increase of $10.4 million, which is the largest annual increase since the advent of the $50 million (as adjusted) threshold in 2000.

In a departure from usual practice, the 2023 thresholds also create a significant change in the filing fee structure. Previously, the FTC published three valuation tiers for purposes of calculating the HSR filing fee. A recently enacted statute (which we covered in this blog post) required the FTC to publish six valuation tiers for 2023, detailed in the table below. This six-tier structure will apply to future years, and the fees will be annually adjusted. (For the previous thresholds, see our 2022 HSR thresholds alert.)

An important distinction under the new HSR framework is that the size-of-transaction thresholds are those in effect at the time of closing, while the filing fees are those in effect at the time of filing. Companies negotiating transactions in Q1 of 2023 (and probably in future years’ Q1s, as well) should be mindful of how the annual threshold and fee updates might affect their deal’s reportability or filing fee expenses.

Under the 2023 revised thresholds, there are three general steps to determine whether parties must submit an HSR Act notification and observe a waiting period (“file HSR”):

• Parties to a transaction with a value of $111.4 million or less do not file HSR.¹
• Parties to a transaction valued in excess of $111.4 million, and up to $445.5 million, must file HSR only if they also meet the “size of persons” test: one party to the transaction has annual net sales or assets of at least $222.7 million, and the other party to the transaction has annual net sales or assets of at least $22.3 million.
• Parties to a transaction valued in excess of $445.5 million must file HSR (if not otherwise exempt), regardless of the parties’ sizes. The “size of persons” test is not used for these larger deals.

There is also a requirement that the transaction impact United States commerce.

In table format, the thresholds, valuation tiers, and fees are the following:

Size of Transaction	Filing / Size of Party Requirement
$111.4 million or less	No HSR filing
Greater than $111.4 million, up to $445.5 million	Report if “size of persons” test is met, based on annual sales or assets One party has at least $222.7 million One party has at least $22.3 million
Greater than $445.5 million	Report regardless of party size

Size of Transaction	HSR Fee
Greater than $111.4 million, but less than $161.5 million	$30,000
Not less than $161.5 million, but less than $500 million	$100,000
Not less than $500 million, but less than $1 billion	$250,000
Not less than $1 billion, but less than $2 billion	$400,000
Not less than $2 billion, but less than $5 billion	$800,000
$5 billion or more	$2.25 million

HSR Act exemptions (except where tied to the “as adjusted” thresholds) and waiting periods remain unchanged. Many filing exemptions apply; for example, asset acquisitions of certain types of real property are not subject to HSR filing, and acquisitions of oil, gas, shale, and tar sand reserves and associated exploration and production assets are exempt if their value to be held as a result of the acquisition does not exceed $500 million.² The typical waiting period is 30 days (unless extended), which may be shortened in the case of bankruptcy, tender offers, or discretionary “early termination.” Since early 2021, early termination is not being used by the agencies.

The maximum civil penalties for violations of the HSR Act are similarly indexed and, for 2023, are $50,120 per day (this took effect on January 11, 2023).

Clayton Act Section 8 Thresholds

Section 8 of the Clayton Act, 15 U.S.C. § 19, states that “no person shall, at the same time, serve as a director or officer in any two corporations (other than banks, banking associations, and trust companies) that are [competitors],” if the two corporations are each above a size threshold and they cannot show that their competitive sales are below certain de minimis sales thresholds (explained below). Technically, Section 8 applies only to corporations, but both DOJ and the FTC take the position that they can use their broader antitrust authority to enforce the same concept against non-corporate entities as well.³

Interlocking directorates that violate Section 8 are per se illegal, meaning that antitrust authorities do not need to establish anticompetitive effects for liability to attach. As such, a company cannot escape liability by putting up firewalls or otherwise arguing a lack of effects. Importantly, and particularly relevant for private equity investors, the agencies read the requirement for an interlocking “person” in the statute to mean a “representative,” not an individual person — they take the position that an interlock involving the same individual named person is not required for Section 8 liability to arise. In the agencies’ view, an interlock can exist if different persons serve on the different boards or officer slates, but those different persons are answerable to the same corporation (e.g., both are employees of the same company).

The corporate size threshold for Section 8 is triggered when two competing corporations that share a director or officer have “capital, surplus, and undivided profits” (usually interpreted as total enterprise value) aggregating more than $45,257,000 (for 2023, annually adjusted). Even if the corporations in question meet the combined size threshold, however, the statute allows for certain exceptions in cases where they compete in only a minimal way. These de minimis competitive sales thresholds essentially act as affirmative defenses against what might otherwise be a Section 8 violation. The de minimis sales tests are:

• the competitive sales⁴ of either corporation are less than $4,525,700 (for 2023; annually adjusted);
• the competitive sales of either corporation are less than 2 percent of that corporation’s total sales;⁵ or
• the competitive sales of each corporation are less than 4 percent of that corporation’s total sales.

Even if a company determines that the de minimis competition defense applies to its situation, it is a good idea to keep a paper trail showing that the common director or officer cannot act as a conduit to facilitate price fixing, bid rigging, or customer or geographical allocation, done in secret or by means of fraud on the customer. These types of antitrust violations — described by the U.S. Supreme Court as the “supreme evil” of antitrust⁶ — are not subject to de minimis defenses and can lead to significant and potentially criminal liability. Accordingly, it is a best practice for a common director or officer to recuse himself or herself from any matter in which the companies in question are bidding against, or otherwise directly competing with, each other, head-to-head.

While Section 8’s liability standard is strict, it does not carry an automatic monetary penalty. The usual result of Section 8 liability is merely an order to cease one of the overlapping director or officer positions. That said, investigations can be expensive, and there is always a possibility that a Section 8 violation could determine that an interlock caused an actual reduction of competition for which damages could be imposed under other antitrust statutes, or could expose other wrongdoing that the government would not ignore.

Fortunately, Section 8 provides for a one-year grace period for interlocks that were not problematic when they began, but later became so, when the companies started to compete (or competed more than at a de minimis level, as explained above) after the interlock already existed. Companies that find themselves in this “thrust-upon” infringement of Section 8 have 12 months, measured from when the violation begins, to end the interlock.

¹We say “do not,” rather than “may not,” because there is no concept of an optional HSR filing. Either a transaction trips the thresholds, in which case an HSR filing is mandatory (if not otherwise exempt), or it does not trip the thresholds (or is otherwise exempt), and no HSR filing is required or allowed. The FTC will reject an attempted HSR filing that does not meet the requirements for mandatory submission.

²This number does not adjust annually. Recent proposals to adjust it have not been adopted, as of early 2023.

³In the January 23, 2017 article, Have a Plan to Comply with the Bar on Horizontal Interlocks, Debbie Feinstein of the FTC’s Bureau of Competition stated, “Section 5 of the FTC Act may also reach interlocks that do not technically meet Section 8’s interlock requirements but violate the policy against horizontal interlocks expressed in Section 8. For example, Section 5 can reach interlocks involving banks, which are exempt from Section 8, and competing non-bank corporations.” DOJ shares a similar view (see, e.g., this 2019 speech) based on its authority under the most general of the antitrust laws, Sections 1 and 2 of the Sherman Antitrust Act.

⁴The statute defines “competitive sales” as “the gross revenues for all products and services sold by one corporation in competition with the other, determined on the basis of annual gross revenues for such products and services in that corporation’s last completed fiscal year.”

⁵The statute defines total sales as “gross revenues for all products and services sold by one corporation over that corporation’s last completed fiscal year.”

⁶Verizon Commc’ns Inc. v. Law Offs. of Curtis V. Trinko, LLP, 540 U.S. 398, 408 (2004).