Two recent Federal Trade Commission (FTC) actions confirm the Hart-Scott-Rodino Act (HSR) is not to be ignored. On Dec. 22, the FTC fined both Biglari Holdings and the founder of Werner Enterprises for failure to file with the FTC and the Department of Justice (DOJ) before consummating significant acquisitions of related entities.
Under HSR, parties to mergers and acquisitions that meet certain size thresholds must notify the antitrust enforcement agencies of the pending transaction. Parties also cannot close the transaction until the HSR deadline has passed. Significantly, HSR can apply when an entity acquires additional stock in a company (i.e., in addition to stock it already owns). Therefore, if after the pending acquisition the acquirer’s aggregate holdings would exceed HSR thresholds, the acquirer must file under HSR. Individuals and corporations who fail to abide by these filing requirements are in violation of federal law and subject to significant civil penalties. The maximum civil penalty is $43,792 for each day of non-compliance—that adds up quickly!
Recent Hart-Scott-Rodino fines prove hefty
Biglari Holdings violated HSR when it twice acquired shares of a restaurant chain that put it above the filing threshold. Biglari will pay a $1.4 million civil penalty for making these acquisitions prior to filing. Clarence L. Werner, founder of Werner Enterprises, was fined almost $500,000 in civil penalties. He repeatedly failed to file a Hart-Scott-Rodino form when acquiring shares of Werner Inc., causing him to exceed the $100 million threshold. The FTC’s proposed settlements have been filed with the U.S. District Court for the District of Columbia. There, they await a 60-day public comment period before being considered by the District Court for approval.
The takeaway is obvious — make sure you consult with the HSR Act before making significant acquisitions. Aside from outright mergers and whole-company acquisitions, corporations and individuals who make repeated purchases of a company’s stock must stay informed of HSR rules and current filing thresholds to avoid HSR liability. The FTC has demonstrated its intent to hold corporations and individuals accountable for potential anti-competitive mergers. Maintaining compliance with the Hart-Scott-Rodino Act is a valuable first step to ensuring a smooth acquisition.