By Scott Gant, Andrew Michaelson, and Ted Normand
The Hart-Scott-Rodino Antitrust Improvements Act is a centerpiece of federal antitrust law. Designed to aid enforcement of Clayton Act Section 7, which prohibits mergers and acquisitions that “may…substantially…lessen competition” or “tend to create a monopoly,” the statute requires purchasers of an issuer’s voting securities exceeding a certain amount to notify the Federal Trade Commission and the Antitrust Division of the Department of Justice of the potential acquisition, pay a filing fee, and observe a 30-day waiting period before proceeding. The FTC or DOJ may thereafter issue to the proposed acquirer a “second request” for additional information about the acquisition, and then conduct an investigation, take testimony, and seek to prevent the acquisition. Investors that have acquired shares without complying with these requirements are subject to civil penalties up to $40,000 per day.
Because the HSR Act is supposed to concern itself only with transactions which may lessen competition, when Congress enacted the statute in 1976 it exempted eleven types of transactions from its filing requirement, and also authorized the FTC to exempt other acquisitions “not likely to violate the antitrust laws.” The most prevalent and important exemption is the “Investment-Only” carve-out, which applies to “acquisitions, solely for the purpose of investment, of voting securities, if, as a result of such acquisition, the securities acquired or held do not exceed 10 [percent] of the outstanding voting securities of the issuer.” More