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Businesses are having few problems with the revised pre-merger notification rules. Despite the smooth sailing, antitrust experts worry about a quirk in the system that could expose some merging companies to more than $10,000 a day in fines. “People have said the guidance is good, and they are just trying to do the best they can,” said Marian Bruno, a Federal Trade Commission assistant director who runs the pre-merger notification office, which is responsible for processing merger applications. Amendments to the Hart-Scott-Rodino Antitrust Improvements Act of 1976 took effect Feb. 1. They generally exempt small deals from the pre-merger notification process and require companies with larger deals to pay higher fees. Since the changes took effect, the pre-merger office has processed about 100 deals, Bruno said. Most of the applications so far have been filled out correctly, she said. Yet the early compliance may be masking a lurking problem, antitrust lawyers said. The new system raises the filing fee to $125,000 for $100 million to $500 million deals; and to $280,000 for those above $500 million. Deals worth less than $50 million are exempt from the law, while the charge remains $45,000 for deals valued between $50 million and $100 million. Lawyers said this system places added importance on correctly valuing a merger or acquisition. That’s because companies in deals worth $97 million would file applications with a $45,000 fee, compared with a $125,000 fee for those in a $102 million deal. No such complexity existed under the old pre-merger system because all deals valued at more than $15 million incurred a $45,000 fee. Antitrust experts said the problem is that the HSR application typically is filed when merging companies sign a letter of intent, but the deal does not close for several weeks or more. During this waiting period, the value of the deal may change. If a transaction eclipses one of the filing fee thresholds — $50 million, $100 million or $500 million — the law requires the participating companies to file a new application. That would restart the 30-day clock for the FTC to decide whether the deal poses competitive problems. Companies that do not refile could be subject to $11,000 per day in fines until a new HSR form is submitted and the deal is cleared by the government, said Robert S. Schlossberg, a partner in the Washington, D.C., office of the Morgan, Lewis & Bockius LLP law firm. “If you get near the closing and the deal is worth more and crosses the next threshold, you could be in violation of the act,” Schlossberg said. “You didn’t get this under the old structure, because once a deal was worth more than $15 million, it didn’t matter if it was $62 million or $162 million.” Bruno said the agency has identified this as a potential problem and is exploring solutions. “We need a way for people to amend their filings,” she said. “We don’t have a solution yet.” Schlossberg urged the FTC to create a safe harbor exempting companies in deals where valuation rises only marginally from having to refile. Under his plan, any increase in deal value of less than 10 percent would be ignored for HSR purposes. Larger hikes would require the filing of a new application. “You’d have a buffer zone,” Schlossberg said. “Your deal wouldn’t be in violation of the act.” Thomas H. Brock, senior counsel in the Washington, D.C., office of the Proskauer Rose LLP law firm, said he would support the 10 percent safe harbor, but he doubts the agency would adopt it. “They are not going to put themselves in the situation of establishing blanket exemptions that could be the subject of abuse,” Brock said. Instead, he expects the FTC to handle these issues on a case-by-case basis. That situation is workable, Brock averred, because the pre-merger office is experienced in advising the bar on notification problems. “A more practical approach will put the burden back on the practitioner to contact the agency when issues like this arise,” he said. As merging companies grapple with the new rules, the FTC is just finishing processing a deluge of filings made Jan. 31, the notification deadline under the old rules. Bruno said about 130 applications were filed between 3 p.m. and 5 p.m. that day. That compares with fewer than 100 applications filed the following week. The tidal wave was expected. Companies involved in larger mergers could save themselves up to $235,000 by filing before the new rules took effect. Copyright (c)2001 TDD, LLC. All rights reserved.

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