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In a rare moment of accord, industry and agency lawyers alike applauded changes to a governing law. The changes were made in the 24-year-old Hart-Scott-Rodino Act (HSR), an antitrust law that requires companies contemplating a merger or acquisition to file a notice with the Federal Trade Commission. The reforms, which were passed in late December as part of an appropriations bill, go into effect on Feb. 1. Of the several changes enacted, antitrust experts agreed that the one that will have the most far-reaching impact is the raising of the minimum filing threshold. Under the new rule, HSR filings are necessary only for transactions involving assets or securities of more than $50 million, up from the prior threshold of $15 million. The amendment will “eliminate roughly half the filings,” said William J. Baer, a partner with Arnold & Porter and a former director of the FTC’s Bureau of Competition. Last year’s unofficial tally stands at 4,926 HSR filings. “It’s a big win for industry and a big win for the entrepreneurial community,” said Paul Brownell, vice president of public policy at the National Venture Capital Association (NVCA), a trade group based in Arlington, Va. The move will reduce the cost and delay of an HSR filing, Brownell said. For a small deal, the pre-merger evaluation and filing process can be relatively pricey. “Lawyers tell clients to budget between $50,000 and $100,000″ for costs associated with filing, he said. Delay also presents a concern. “You simply cannot consummate the deal” until termination of the HSR process, Brownell said, adding, “Even delaying things a week or two can complicate a deal.” LESS PAPERWORK Antitrust specialists said the reforms would also help the FTC. Baer, who headed the agency’s Bureau of Competition from 1995 to 1999, said the changes will result in a “tremendous reduction in paperwork,” for the agency, which was getting “overwhelmed.” A three-year deluge of mergers has caused the number of FTC filings to swell dramatically. Last year’s nearly 5,000 filings was more than triple the number of filings in 1991. FTC staffing, however, has not risen accordingly, with only 40 new positions added since 1989. Marion Bruno, assistant director of the FTC’s Pre-Merger Notification Office, agreed that under the new law, the number of filings should drop by half. But, she said, she did not expect it to help the FTC’s workload. “HSR filings are not straining resources,” Bruno said, explaining that the HSR office of about 20 lawyers comprises only a “small portion” of the FTC’s Bureau of Competition. “The bulk of our resources go to litigation and investigation,” she said. NOTIFICATION THRESHOLD Opinions also differed on whether the increased notification threshold will allow violations to slip past the FTC. NVCA’s Brownell contended that the smaller M&A transactions and venture investments now eliminated from pre-merger scrutiny “simply do not pose any HSR concerns.” For such deals, the HSR process was just a matter of “rubberstamping,” he said. Others disagreed: “A small merger can have as large an impact on a locality or a region as a large merger may have on the nation,” said Albert Foer, president of the American Antitrust Institute, a Washington, D.C., non-profit group. If upon reviewing the initial HSR filing, FTC lawyers decide that a deal needs a closer look, they will issue a second request for documents. For transactions below $50 million, this happens about 1 percent of the time, Baer said, “or about a couple of dozen transactions.” On balance, Congress decided it could take these transactions out of the pre-merger notification process without putting consumers at risk, Baer said. He noted that $15 million in 1976, when the threshold was first set, is equivalent to about $45 million today. “You’re comparing apples to apples,” he said. Baer also observed that “eliminating the filing requirement doesn’t change the Clayton Act.” In other words, the FTC may still investigate a completed transaction and require relief if it determines that it violates antitrust laws. Post-merger relief can be complicated. “Going after a merger on the back end is difficult — the eggs are scrambled, it’s harder to remedy,” said Jonathan Baker, the director of the FTC’s Bureau of Economics from 1995 to 1998 and now a professor at American University’s Washington College of Law. “That’s why HSR was passed in the first place,” he added. Nonetheless, Baer predicted that the agency would “go after a few deals very aggressively and try to unwind them,” to show the business community that eliminating the filing requirement will not mean that it can get away with a problematic merger. But Foer downplayed the import of this prospect for the business community. “The chances of the agency going after one of these deals after the fact is virtually nil,” he said. “Companies work on the assumption that the law does not apply to them at all,” he added. And just removing the risk of a getting a second request will have some clients breathing a sigh of relief. SECOND REQUESTS Responding to a second request can be oppressive. Costs can range from $50,000 to several million dollars, and involve hundreds of boxes of documents, one antitrust lawyer said. As a result, “smaller deals will have a little freer rein, which may be good, because smaller deals often cannot sustain the cost of a second request,” said Daniel M. Abuhoff, a partner at Debevoise & Plimpton. Second requests “have killed a lot of deals,” he added. The new law also includes changes on the other end of the spectrum. Where formerly, the size of the parties was part of the filing calculus, this factor has been eliminated for transactions over $200 million. The move “closes a loophole for dot-coms,” Professor Baker said. Several recent high-priced mergers involving high-tech companies had avoided pre-merger scrutiny because the companies themselves had little to no assets, he explained. Larger deals will also be picking up the tab for the revenues lost as a result of the increased minimum filing threshold, through increased filing fees. The $45,000 flat fee for filing has been changed to a graduated system. Under the new law, transactions between $100 million and $500 million will pay $125,000, and deals of $500 million or more will have to pony up $280,000. “Given the cost of one of these big deals, [the increased filing fee is] small potatoes,” Baer said. The changes to Hart-Scott-Rodino have been percolating since Senator Orrin Hatch, R-Utah, introduced a bill a year and a half ago. Baer said there was very little opposition to the bill, but wrangling over details had held up the process.

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