Relevant legislation and statutory standards
Merger Control in the US is governed at the federal level primarily by Sections 7 and 7A of the Clayton Act. The first federal attempt to address anti-competitive conduct by competing firms was the Sherman Act in 1890, which prohibits, among other things, certain contracts, combinations and conspiracies between or among competitors in restraint of trade. However, the Sherman Act proved inadequate to deal with the competitive consequences of mergers and acquisitions, and in 1950 Congress amended the Clayton Act of 1914 to better cope with such transactions.
One of the Sherman Act’s weaknesses lay in its inability to prohibit combinations, such as mergers, in which the competitive harm was uncertain. Thus Section 7, the heart of the Clayton Act’s merger control provision, prohibits those transactions ‘where in any line of commerce or in any activity affecting commerce in any section of the country, the effect of such an acquisition … may be substantially to lessen competition, or to tend to create a monopoly’.
The Clayton Act was further amended in 1976 by the Hart-Scott-Rodino Antitrust Improvements Act (‘the HSR Act’), to require pre-merger notification of certain mergers and acquisitions of voting securities and assets (the HSR Act is also known as Section 7A of the Clayton Act).
Notification requirements and procedures
The parties to a merger transaction must comply with the notification and waiting period provisions of the Clayton Act 1914 (the “Act”) prior to the acquiring person's assuming beneficial ownership of the assets or voting securities from the acquired person. Failure to fully comply with the Act and its regulations may subject any person, or officer, director, or partner of such person, to civil penalties of up to US $11,000, adjusted by a cost-of-living increase every 4 years, for each day of violation. Since its enactment, civil penalties in excess of US $5,000,000 have been obtained from individual non-complying persons.
Criteria for pre-merger notification.
The three threshold criteria are the following:
The acquiring or acquired person must be “engaged in commerce or in any activity affecting commerce” in the USA.
As a result of the transaction, the acquiring person would hold in excess of US $59.8 million of assets or voting securities.
For transactions valued at less than US 239.2 million, at least one person meets the US $12 million “size-of-person” test, and one meets the US $119.6 million “size-of-person” test, meaning, one person must have at least US $12 million of total assets (if engaged in manufacturing, the test is met with US $12 million in total assets or annual net sales), and the other has US $119.6 million of total assets (or net sales, if engaged in manufacturing). If the transaction is valued in excess of US $239.2 million, this size-of-person test does not apply.
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