On June 13, 2012, the Federal Trade Commission and the Department of Justice published their Hart-Scott-Rodino Annual Report Fiscal Year 2011 for the period from October 1, 2010 to September 30, 2011.  The Annual Report summarizes Federal Trade Commission and Department of Justice actions conducted under the Hart-Scott-Rodino Antitrust Improvements Act, or HSR Act, in fiscal year 2011.  The number of HSR filings in fiscal 2011 increased by 24% over the number of filings in 2010.  And the agencies continue to enforce the HSR Act's notification requirements with respect to acquisitions of company stock by corporate officers and directors, often in an inadvertent "failure to file" situation.

This Update provides key highlights of the Annual Report and offers practical advice.

The Annual Report Shows a Slight Decrease in Percentage of Deals Investigated

In fiscal 2011, 1,450 transactions were reported under the HSR Act, a 24% increase from the 1,166 transactions reported in fiscal 2010.  The Federal Trade Commission or the Department of Justice investigated approximately 18% of those 1,450 transactions (compared to approximately 20% of the 1,166 transactions investigated in 2010).  Of the transactions investigated in fiscal 2011, about 23% resulted in the issuance of second requests, a very slight increase over those in 2010.  And of those transactions that were issued second requests, 64% resulted in an abandoned or restructured deal, a consent decree requiring the parties to divest assets, or litigation in federal district court (compared to 87% in 2010).


2007 2008 2009 2010 2011 Change from
 Transactions Reported  2,201 1,726 716 1,166 1,450 24% 
 Investigated  14% 18% 23% 20% 18% -8% 
 Investigated – 2nd Request Issued  21% 14% 20% 21% 23% 9% 
 2nd Requests Resulting in Challenge  54% 90% 100% 87% 64% -27% 

Agencies Continue to Cast a Broader Net in Investigations.
  Although the number of acquisition transactions in fiscal 2011 increased 24% over fiscal 2010, the total is still markedly below the average of approximately 1,960 transactions reported for the fiscal years 2007 and 2008.  With fewer transactions being reported under the HSR Act, the agencies are investigating and challenging more transactions that are too small to require reporting under the HSR Act, many of which have already been consummated.  And reported transactions that raise competition issues are more likely to be investigated than in earlier years.  As always, issuance of a second request jeopardizes a transaction or requires major restructuring of it to address agency concerns.

Practical Tip

Address Antitrust Concerns Early in the Process.  A company considering an acquisition transaction that is likely to raise agency concerns should confer with its antitrust counsel early in the negotiation process.  It  should prepare to address those potential anti‑competitive concerns with counsel during the preparation and filing of reports under the HSR Act and engage with antitrust authorities as soon as possible in the waiting period in order to avoid a second request. 

Corrective Filings.
  The statistics cited above do not include agency actions in connection with post-consummation "corrective filings."  During fiscal year 2011, 16 corrective filings for violations were received, but the agencies did not bring any new civil penalty enforcement actions.  The antitrust agencies examine the circumstances of each violation to determine whether penalties should be sought.

    • Prompt Corrective Filings May Help Companies Avoid Penalties.  When the parties inadvertently fail to file, the enforcement agencies generally do not seek penalties if the parties
      • promptly make corrective filings after discovering the failure to file;
      • submit an acceptable explanation of their failure to file; and
      • have not previously violated the Act.
    • Failures to File Often Involve Executives Who Exercised Stock Options.  Although there are many different circumstances under which the failure to file may occur, one of the most common scenarios involves corporate executives exercising a very small number of options or warrants to purchase their company's stock.  The failure to file often results in such a situation because, although the purchase price of the stock acquired through the exercise of the option or warrant typically falls well below the size-of-transaction threshold (currently $68.2 million), the executives fail to aggregate the value of those shares with their existing holdings when determining whether a filing is necessary.

Practical Tip

When Executives Exercise Stock Options, Consider Effect on HSR Thresholds. Companies whose executives receive part of their compensation in the form of options or warrants to purchase company stock are advised to first determine whether the aggregate value of the company stock to be held by the executive as a result of an option exercise meets or exceeds the HSR size-of-transaction threshold, and if so, to undertake a complete HSR threshold analysis to determine whether an HSR filing is required prior to issuing any shares.

Additional Information

This update is intended only as our summary of the Hart-Scott-Rodino Annual Report for Fiscal Year 2011. Click here for the full text of the report.

© 2012 Perkins Coie LLP


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