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In a hopeful sign for M&A professionals, merger filings with the U.S. antitrust agencies ticked upward in the final quarter of the government’s 2003 fiscal year. Data provided by the Federal Trade Commission under the Freedom of Information Act shows that companies made 251 Hart-Scott-Rodino Act filings in July, August and September, producing $29.1 million in fees. That is the highest quarterly total since fourth quarter 2002. It also shows that HSR filings have stabilized since hitting a two-year low of 227 in second quarter 2003. The data only covers deals valued at more than $50 million, which means it excludes many of the small transactions that tend to inflate other measures of deal activity. The FTC and the Department of Justice antitrust division collect the information. Antitrust lawyers at several of the more active Washington law firms that handle HSR filings said they have noticed a significant increase in deal activity recently. But this surge has yet to translate into more HSR filings. The lawyers said many of these deals could surface within three months, suggesting that filings may soon return to their 2001 levels, when mergers were more abundant. Yet on a fiscal year-by-year comparison, 2003 had to disappoint antitrust regulators. The 968 filings were only 85 percent of the 1,142 received in 2002. The agencies also collected nearly $25 million less in fee income in 2003 compared with 2002. The overall decline is even more startling when compared against estimates included in President Bush’s latest budget, which was released in February. The administration estimated that HSR collections in 2003 would hit $300 million. This estimate was then used to predict $318 million in 2004 HSR collections. The $111.7 million in actual collections represented only 37 percent of the predicted amount. That also falls about two-thirds short of the funds needed to fund the FTC and the Justice Department antitrust division. Each got about $56 million, which meant the agencies relied on money from the general treasury to cover their operations. David Balto, a partner at law firm White & Case in Washington, said the filing shortfalls prove that it is a mistake to use HSR fee income to fund the operations of the antitrust division and FTC. He also warned that there is no guarantee Congress will continue to fill the gap between collections and spending at the agencies. “Eventually this may lead to budget shortfalls,” Balto warned. Congress revamped the HSR Act in February 2001 by raising the filing threshold for mergers from $15 million to $50 million. To compensate for lost revenue, Congress replaced the flat $45,000 per deal filing fee with one tied to the size of the transaction. Companies in mergers valued at more than $500 million pay $280,000, while those in transactions valued between $100 million and $500 million pay $125,000. Companies in deals between $50 million and $100 million still pay the $45,000 filing fee. Lawmakers intended for the revamped fee schedule to offset the loss of fees on smaller deals with higher collections on large deals. Yet the change coincided with the economic downturn and the dramatic decline in M&A work. Collections dropped so much in 2001, which included eight months under the new regime, that the HSR fees failed for the first time in years to cover spending by the FTC and antitrust division. That imbalance has only gotten worse in the two ensuing fiscal years. Copyright �2003 TDD, LLC. All rights reserved.

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