Friday, May 3, 2013
Posted by D. Daniel Sokol
Bilal Sayyed (Kirkland & Ellis) asks for "Sound Basis” Exists for Revising the HSR Act’s Investment-Only Exemption.
ABSTRACT: The Hart-Scott-Rodino Antitrust Improvements Act of 19762 (HSR Act) requires that acquisitions of voting securities, assets, or non-corporate entities be notified to the Federal Trade Commission and the Department of Justice (the Agencies). The Act’s notification and waiting period requirements have fundamentally changed the process and substance of merger review—the manner in which the government investigates, remedies, and challenges mergers and acquisitions—since coming into force in September 1978. While the Act has had a positive effect on the Agencies’ ability to identify, remedy, and, if necessary, to enjoin anticompetitive mergers, it has also imposed costs, some of which are unnecessary for accomplishing the Act’s purpose. The most easily measurable costs are the filing fees, which are $45,000, $125,000 or $280,000, depending on the size of the transaction. Other important costs are not easily quantified, but arise from the delay inherent in the Act’s reporting and waiting period requirements. The Act may also restrict or discourage shareholders from interacting with management. Because of the narrow reading of the investment-only exemption, such interaction may preclude reliance on the exemption. This disincentive runs counter to policies that encourage more communication between shareholders and management. This article suggests, in accordance with President Obama’s call for regulatory reform, that the “investment-only” exemption should be replaced with a modest exemption for most acquisitions of a de minimis percentage of an issuer’s outstanding voting securities. Specifically, the investment-only exemption should be replaced with an alternative exemption for de minimis investments in issuers that are not competitors of the acquiring person, the acquiring person’s associates, or of entities in which the acquiring person or its associates have substantial holdings.