UNITED STATES

Get in contact or get a price estimation from our partner in United States Get in contact
Due to the COVID-19 pandemic, certain merger control processes may be affected. We suggest to contact our local partners for more information.
Content last updated: 18-01-2021

Choose the type of information you seek

  • Merger Control Regime
  • Merger Screening
  • Merger Filing

2. Nature of merger control regime

2.1 Mandatory or voluntary

2.1.1 Is filing mandatory or voluntary?

Mandatory.

2.2 Suspensory effect

2.2.1 Must completion of the transaction await clearance by the relevant authorities?

Yes, completion of a notifiable transaction must await clearance by the Federal Trade Commission.

1. What type of transactions are caught by the merger control regime?

1.1 Concentrations

1.1.1 Type of transactions that are caught by the merger control rules?

Any acquisition of assets, voting securities, non-corporate interests, or the formation of a joint venture is subject to merger control. However, not-for-profit joint ventures are generally exempt.

For a transaction to be caught by the merger control rules at least one of the undertakings concerned must have commercial activity in the United States or otherwise be active in a way that affects commerce in the United States.

Change of control is not a prerequisite for the applicability of United States merger control law.

The following kinds of transactions are exempt from merger control:

  • certain foreign-to-foreign mergers;
  • the acquisition of non-voting shares;
  • certain acquisitions of ordinary voting shares solely for the purpose of investment;
  • certain acquisitions that require the prior approval of another federal agency;
  • certain acquisitions by securities underwriters, creditors, insurers, and institutional investors;
  • certain financing transactions where the acquirer contributes only cash to a non-corporate entity and does not retain control over the entity post realisation of its preferred return.

1.2 Joint ventures

1.2.1 What types of joint ventures are caught by the merger control rules?

Joint ventures that qualify as a notifiable transaction under the criteria set out under Section 1.1.1 above are subject to merger control.

Joint ventures that involve the formation of a new entity are also notifiable if they trigger the jurisdictional thresholds. In the formation of a new entity, all of the contributors to the new entity are deemed acquiring parties, and the new entity is considered the acquired party.

Joint ventures formed on a purely contractual basis are not subject to merger control but may be reviewed under the Clayton Act if they are suspected to substantially lessen competition.

1.3 Definition of "control"

1.3.1 How are the concepts of "control" and "change of control" defined?

Change of control is not a prerequisite for the applicability of United States merger control law.

“Control” is defined, however, under the Hart-Scott-Rodino regulations as it applies to other important provisions, including the provisions on the scope of what entities are considered held by another undertaking, i.e. belonging to the same group and the set of acquisitions that may be treated as on.

For corporate entities, “control” means i) owning 50% or more of the voting shares of the entity or ii) having the contractual right to appoint 50% or more of the directors of the entity.

For non-corporate entities, "control" means i) having the right to 50% or more of the profits, ii) having the right to 50% or more the assets upon dissolution, or iii) having the contractual right to appoint 50% or more of the directors of the entity.

1.4 Minority shareholdings

1.4.1 Are minority and other interests less than control caught by the merger control rules?

Yes, the acquisition of minority interests is caught by the merger control rules if the transaction qualifies for merger control as set out in Section 1.1.1 above.

2. Establishing jurisdiction for notification of mergers

2.3 General thresholds

2.3.1 Threshold(s) for when a concentration must be notified under the general merger control regime?

Merger control filing is required if either the Size-of-Person Test or the Size-of-Transaction Test is satisfied.

The Size-of-Person Test:

  • the total value of the acquirer’s voting shares, assets, and/or non-corporate interests that will be held in the target as a result of the transaction amount to at least USD 94,000,000 (including pre-transaction holdings); and
  • the global turnover or asset value of at least one of the undertakings concerned is at least USD 188,000,000; and
  • the global turnover or asset value of one of the other undertakings concerned is at least USD 18,800,000.

According to the Introductory Guide II of the Federal Trade Commission’s Premerger Notification Office, all voting securities, non-corporate interests, and assets currently being acquired are held as a result of the acquisition. Previous acquisitions must be aggregated in the present transaction. For information on valuation of voting shares, assets, and/or non-corporate interests, including pre-existing holdings, please see Section 3.6.1 below.

For the Size-of-Person test, filing is again required if, through subsequent acquisitions, the total value of the acquirer’s voting shares, assets, and/or non-corporate interests that will be held in the target crosses the following thresholds:

i) USD 188,000,000;

ii) USD 940,100,000;

iii) 25% of the voting shares if the 25% stake is valued at greater than USD 1,880,200,000;

iv) 50% of the voting shares if the 50% stake is valued at greater than USD 94,000,000 (after acquiring 50%, subsequent acquisitions of shares in the target are exempt).

After 5 years following the submission of a notification for a minority acquisition of voting securities, the thresholds reset and a transaction exceeding USD 94,000,000 must be notified.

The Size-of-Transaction Test:

  • The total value of the acquirer’s voting shares, assets, and/or non-corporate interests that will be held in the target amount to at least USD 376,000,000 (including pre-transaction holdings).

The above thresholds have been rewritten to ease their applicability. The thresholds as actually stated can be found in the Introductory Guide II of the Federal Trade Commission’s Premerger Notification Office at https://www.ftc.gov/sites/default/files/attachments/premerger-introductory-guides/guide2.pdf

2.3.2 For each threshold, can the threshold be triggered by only one undertaking having local turnover?

Please see Section 2.5.1 below for exemptions to the thresholds.

2.3.3 For each threshold, can the threshold be triggered without any undertaking having local turnover?

Please see Section 2.5.1 below for exemptions to the thresholds.

2.3.4 Are there any circumstances where transactions falling below these thresholds may be still investigated?

Even if the transaction does not reach the thresholds and trigger notification requirements, the competition authority may choose to review and prohibit it if it results in an adverse competitive effect violation of the competition law.

2.4 Other national thresholds for ex ante merger control (e.g. sector-specific rules)

2.4.1 Relevant thresholds for sector-specific or other ex ante merger control rules?

Certain sectors have specific rules, e.g. banking, telecommunications and media, transport and energy.

Transactions that have an element of national security may require notification to the Committee on Foreign Investment in the United States.

2.5 Foreign-to-foreign mergers

2.5.1 Do any exemptions, special thresholds etc. apply to foreign-to-foreign mergers, i.e. where none of the undertakings concerned is domiciled in the jurisdiction?

Target must have sufficient local nexus to be caught by the US merger control rules.

Acquisitions of foreign assets are exempt from filing unless the foreign assets to be held as a result of the acquisition generated turnover in the US exceeding USD 94,000,000 during the acquired person’s most recent fiscal year.

Share acquisitions of foreign entities are exempt unless the target’s asset value in the US or turnover in the US exceeds USD 94,000,000.

Exemption

Even if exceeding either threshold, acquisitions are not fileable if:

• both the acquiring and acquired persons are foreign;

• both the turnover in the US in the last financial year and the total assets in the US of the acquirer and the target are less than USD 206,800,000; and

• the value of the assets (for asset acquisitions) / the value of the shares (for share acquisitions) that will be held as a result of the transaction does not exceed USD 376,000,000.

3. Calculation and allocation of turnover, asset value, transaction value etc.

3.1 Relevant turnover

3.1.1 How is turnover defined (e.g. is income from other sources than "ordinary activities to be included, and how are rebates, taxes, internal turnover etc. treated)?

Turnover is the undertaking’s “annual net sales” as stated in the audited annual report of the latest financial year.

3.2 Relevant period for calculation of turnover

3.2.1 Which financial year(s) is relevant for the calculation of turnover?

The latest financial year for which a regular annual report has been prepared.

3.2.2 Should adjustments be made for e.g. divestitures, acquisitions, closings and other changes of the economic reality of the undertaking concerned made after or during the relevant financial year?

Previous acquisitions must be aggregated in the present transaction. For information, please see Sections 2.3.1 and 3.6.1.

In order to determine whether a transaction meets the size of transaction test, one must compute the value of the voting securities, NCI, and assets, which you will hold as a result of the acquisition. The phrase “held as a result of the acquisition” has a technical meaning under the US Premerger Notification Rules. It includes not only those securities, non-corporate interests, and assets that are currently being acquired, but also voting securities, non-corporate interests, and, in some circumstances, assets previously acquired from the same person.

3.3 Relevant undertakings for the calculation of turnover

3.3.1 The undertakings whose turnover is taken into account?

Turnover is measured on a group level including financial information on a consolidated basis. If the parent’s financial report is not consolidated, consolidation must be done.

3.3.2 Shall the turnover of the existing seller be included in the target's group turnover?

Yes.

3.4 Geographical allocation of turnover

3.4.1 The principles for the geographical allocation of turnover?

Geographical allocation of turnover is not relevant for the calculation of turnover applied under the jurisdictional thresholds.

However, the geographical allocation of turnover is important for the calculations of turnover used for the exemptions in connection with acquisition of foreign entities and assets described under Section 2.5.1 above.

For these exemptions, turnover is generally sales to customers located in the United States.

3.5 Valuation and allocation of assets

3.5.1 The principles for valuation and allocation of assets?

Asset value is measured on a group level including financial information on a consolidated basis. If the parent’s financial report is not consolidated, consolidation must be done.

3.6 Calculation of other thresholds

3.6.1 The principles for calculation of metrics for other thresholds (e.g. transaction value, market share, share of supply etc.)?

According to the Introductory Guide II of the Federal Trade Commission’s Premerger Notification Office, all voting securities, non-corporate interests, and assets currently being acquired are held as a result of the acquisition.

Current and pre-existing acquisitions of voting shares, assets, and/or non-corporate interests (NCI) are measured at fair market value. This means that the current acquisition must be aggregated with the previously acquired holdings, valuing the latter at the current market price or fair market value rather than historical cost.

After 5 years following the submission of a notification for a minority acquisition of voting securities, the thresholds reset and a transaction exceeding USD 94,000,000 must be notified.

Different principles apply to asset, voting securities, and non-corporate interest acquisitions.

(1) Aggregating previously-acquired voting shares or NCI:

You must add any voting shares that you currently hold of the same undertaking to any voting shares that you propose to acquire to determine what voting shares of that undertaking will be held as a result of the planned acquisition. There are some special circumstances, however, in which the prior, simultaneous, or subsequent acquisition is exempt from notification and need not be included in the calculation.

You must also aggregate the value of all of the voting shares of all of the undertaking included within the target that you will hold as a result of the acquisition. Thus, if you hold less than 50% of the voting shares of one subsidiary and plan to acquire voting shares of the parent or a different subsidiary of the same parent, you would aggregate these holdings to determine the value of the shares held. This requires that you add any NCI that you currently hold of the same non-corporate entity to any NCI that you propose to acquire to determine what NCI will be held as a result of the planned acquisition.

You must also aggregate the value of all NCI included within the target that you will hold as a result of the acquisition. An acquisition of NCI which does not confer control of the unincorporated undertaking is not aggregated with any other assets or voting securities that have been or are currently being acquired from the same target.

(2) Aggregating assets and voting shares:

In some circumstances, the size of transaction test requires acquiring persons to add the value of an undertaking’s voting securities that it holds and will hold with the value of assets that have been acquired or will be acquired from that issuer or the person controlling that issuer. Whether the acquisitions of assets and voting securities are both to be considered “held as a result of the transaction” depends on the order of the transactions. If a non-controlling percentage of voting shares were purchased in a nonreportable transaction and will be held at the time assets are to be acquired, then both the voting shares and assets are held as a result of the transaction. Their combined value is included to determine if the size of transaction test is satisfied. If, however, the asset transaction precedes the voting securities transaction, then the assets are not held as a result of the later acquisition of voting shares and the value of the assets is not included. The Commission explained the exclusion of assets in the second instance when it promulgated Rule 801.13: “once assets are sold, they confer no continuing ability to participate in the affairs of the target, and so prior acquisitions of assets need not be considered for purposes of subsequent acquisitions of voting securities.”

(3) Aggregating previously-acquired assets:

Generally, the acquisition of assets from the same target is not aggregated unless: the second acquisition is made pursuant to a signed letter of intent or agreement, and within the previous 180 days the acquirer has signed a letter of intent or agreement in principle to acquire assets from the same target, which is still in effect but has not been consummated; or the acquirer has acquired assets from the same target which it still holds; and the previous acquisition (whether consummated or still contemplated) was not subject to the requirements of the Clayton Act. If the previous asset acquisition (or aggregated asset acquisitions) was reported properly to the enforcement agencies, aggregation is not required. In addition, if a single agreement calls for multiple closings on purchases of assets from the same person, the purchases must be aggregated to the extent that those closings are within one year.

1. Practical information

1.2 Deadlines for filing

1.2.3 What are the sanctions for not filing a notifiable transaction?

Failure to notify a notifiable transaction is sanctionable by a fine of up to USD 43,280 per violation per day each violation persists (adjusted annually for inflation). Fines have been seen to run into the millions of dollars.

The courts may also on application order the parties to roll the transaction back.

This content was delivered
and last updated 18-01-2021 by

Legal Cross Border has itself provided all input about merger control in the United States. This information has been gathered and validated by our in-house lawyers to guarantee the highest quality outcome. This said, we are currently looking for a local partner to cover Merger Control US - please contact us if you would like to be our new partner.