FTC Releases New Hart-Scott-Rodino Filing Thresholds

The Federal Trade Commission (FTC) recently released updated, increased filing thresholds for premerger notification filings under the Hart-Scott-Rodino Antitrust Improvements Act (HSR Act).

The HSR Act requires participants in certain mergers, sales of stock and sales of assets (or similar transactions) to notify the FTC and Department of Justice before consummating a transaction that meets the “size of person” and “size of transaction” thresholds.  This premerger notification is designed to permit the FTC and DOJ to assess the antitrust implications of the transaction.  Filing thresholds are adjusted annually to reflect changes in the level of the U.S. gross national product.

The “size of transaction” threshold increased to $70.9 million, meaning that the voting securities and assets held as a result of the transaction must be valued at greater than $70.9 million for the transaction to be subject to premerger notification under the HSR Act.

The “size of the parties” thresholds increased to $14.2 million and $141.8 million, respectively.  This means that the ultimate parent entity of at least one of the parties must have annual sales or total assets of $14.2 million, and the ultimate parent entity of the other party must have annual sales or total assets of $141.8 million, or the transaction will not be subject to premerger notification; unless the size of the transaction exceeds $283.6 million, in which case the transaction is reportable regardless of the size of the parties.

Premerger notification filing fee amounts did not change.  However, fee thresholds were modified as follows:

Size of Transaction

Filing Fee

Greater than $70.9 million and less than  $141.8 million

$45,000

At least $141.8 million and less than $709.1 million

$125,000

$709.1 million or more

$280,000

 

The new thresholds were announced January 10, 2013, and will apply to all transactions closing on or after February 11, 2013.

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CFIUS in the News – December 2012

We at BME had no inside information on these announcements, but there have been several interesting developments over the last few weeks that make our blog post on CFIUS timely.

The Exon-Florio Amendment to the Defense Production Act of 1950 authorizes the President to review acquisitions of U.S. companies by non-U.S. entities.  The President is able to suspend or prohibit the acquisition, or order divestment of the acquisition after consummation, if the President finds credible evidence that the non-U.S. business might take action that threatens to impair U.S. national security.  The Committee on Foreign Investment in the U.S. (CFIUS), as the President’s designee, has the power to investigate subject transactions upon a voluntary filing by a party to the transaction or upon initiation of the committee.  For more information on Presidential review and CFIUS, read “CFIUS & Executive Branch Review of Foreign Investment in the U.S.

Just this week, A123 Systems (a maker of high-tech batteries) announced a sale out of bankruptcy to Wanxiang Group, a Chinese firm.  Also, the Canadian government approved the sale of Nexen (an energy company) to the China National Offshore Oil Corporation (Cnooc) for $15 Billion.   A Chinese consortium has also agreed to buy ILFC, AIG’s aircraft leasing business, for up to $4.8 Billion.  All of these deals are reported to be subject to CFIUS review.  Reuters reports that the dollar volume of Chinese overseas acquisitions is up 28% from the same period in 2011.  News of CFIUS reviews is likely to be more common with increased Chinese and other foreign acquisition activity in the U.S.

Also, the Ralls Corporation’s CFIUS lawsuit against the President contiues.  The suit challenges the government’s order that required Ralls (an entity ultimately owned by  Chinese nationals) to divest windfarms it acquired in Oregon, which we discuss here.  However, the Exon-Florio Amendment states that such Presidential orders are not subject to judicial review.  Whether that principle itself will survive judicial scrutiny hinges on Constitutional questions of national security priorities, due process and government taking authority, and the ultimate decision is likely to be of great interest to M&A professionals and Constitution buffs alike.

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Delaware Supreme Court Declines to Impose Default Fiduciary Duties on LLC Managers

Does the Delaware Limited Liability Act impose “default” fiduciary duties on LLC managers? Gently shakes magic 8-ball.  “Ask again later.”

In a recent case, the Delaware Supreme Court declined to recognize “default” fiduciary duties as applying to LLC managers under the Delaware Limited Liability Company Act.  The court, however, did allow that LLC agreements may impose such duties as a contractual matter—even without explicit references to “fiduciary duties” or the like.  In contrast, Indiana courts have found that “Indiana LLCs impose a common law fiduciary duty on their officers and members in the absence of contrary provisions in the LLC operating agreements.” Purcell v. S. Hills Investments, LLC, 847 N.E.2d 991, 996 (Ind. Ct. App. 2006). Continue reading

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Confidentiality Agreements Between Competitors and Proof that Purpose Provisions Actually Work – Martin Marietta Materials, Inc. v. Vulcan Materials Co.

It happens all the time:  two competitors want to merge, form a joint venture, or engage in some other transaction they both believe will yield fantastic results and allow at least some of the principals to sip umbrella drinks sea-side for the rest of their perceived eternities.  Immediately dampening the excitement, we lawyers intervene at the outset and quite properly insist on a Confidentiality Agreement (a/k/a  Non-Disclosure Agreement or NDA) before any hint of confidential information is exchanged.

We lawyers also insist (again quite properly) that the NDA contain a provision restricting use of the disclosed confidential information for a defined purpose.  The purpose is often expansively and eloquently defined but ultimately limited to consideration and negotiation of the proposed transaction.  This is sometimes called a “Purpose” provision, and is intended to ensure that competitors do not use the confidential information they receive to compete.

Of course they do use it to compete if the transaction does not go through.  Without judicially administered concussions, competitors’ personnel can no more “unknow” the more general confidential information they review than they can “unring” the proverbial bell.  Consciously or not, purposefully or not, and regardless of the honesty and integrity of the parties involved, that knowledge is likely to affect the competitors’ post-disclosure actions.  The only real questions are ones of degree and whether mutual disclosure yields mutual and off-setting benefits.

This is why attorneys haggle over NDA provisions dealing with return and destruction of confidential information, time limits on confidentiality obligations, and other sundry terms, including the Purpose provision.  We hope to limit the competitive impact of this knowledge.  This is also why experienced M&A lawyers advise their clients to be mindful of the timing of disclosures – to save the most competitively sensitive information for last, when a deal seems relatively more certain to close.

But what happens when a competitor tries to gain a significant advantage from a competitor’s confidential information?  Does a Purpose provision really work to stop that from happening?  Yes, Virginia, it does. Continue reading

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CFIUS & Executive Branch Review of Foreign Investment in the U.S.

Although not as widely known or understood as other regulatory schemes providing for U.S. government review of mergers and acquisitions, the executive branch has sweeping powers to review, stop, or even reverse foreign investment in the U.S. when national security is implicated.  This power affects U.S. M&A activity in both obvious and subtle ways.

Section 721 of Title VII of the Defense Production Act of 1950 (as amended) authorizes the President to review certain acquisitions, mergers and takeovers of U.S. companies by non-U.S. entities.  It applies to any transaction that could result in foreign control of a U.S. company.  The President is able to suspend or prohibit such an acquisition, or order divestment of the acquisition after consummation, if the President finds credible evidence that the non-U.S. business might take action that threatens to impair U.S. national security. Continue reading

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Web Operators and Developers Face Increased Scrutiny and Stiff Penalties Over Privacy Issues

“Ignorance of the law excuses no man: not that all men know the law, but because ‘tis an excuse every man will plead, and no man can tell how to refute him.” – John Selden

If your company is operating or developing software applications, including mobile applications, be warned.  Application developers face increased scrutiny, legal challenges and potentially stiff penalties for non-compliance with state privacy laws designed to protect online consumers.

In February 2012, California Attorney General Kamala D. Harris warned mobile application developers that her office would aggressively enforce California’s Online Privacy Protection Act.  If online services or website operators collect personal identifiable information from California residents, the Act requires the services to post their privacy policies conspicuously.

Think you don’t need to worry about California laws?  Think again.  The California Online Privacy Protection Act applies to any operator whose app is downloaded by a California consumer, regardless of the physical location of the operator’s business. Continue reading

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