New law increases HSR filing fees and adds foreign subsidy disclosure obligation to HSR rules

HSR Filing Fees

Under the HSR Act, parties to certain acquisitions of assets, voting securities, or interests in noncorporate entities (such as partnerships or limited liability companies) that meet applicable threshold tests and do not qualify for an exemption must file premerger notifications with the Federal Trade Commission (FTC) and Department of Justice (DOJ), pay a filing fee, and observe a waiting period before closing.

The Filing Fee Modernization Act implements the first changes to HSR filing fees since 2001. It reduces the filing fee for some lower valued transactions, but significantly increases the filing fee for higher valued transactions.  For example, filing fees will reach $2.25 million for transactions valued at $5 billion or more, a considerable increase over the previous maximum filing fee of $280,000.

The FTC annually adjusts HSR thresholds each year based on changes to the gross national product.  The Filing Fee Modernization Act also requires the FTC to make annual adjustments to the filing fees themselves based on changes in the consumer price index. Thus, the FTC will adjust annually both the transaction values and the filing fee levels in the 2023 chart below. The FTC is required to publish annual adjustments to filing fees by 31 January of each year.

The 2023 HSR filing fees will be as follows once the FTC confirms they are effective:

For comparison, current filing fees are as follows:

The significant increase in filing fees could affect when parties make their HSR notifications. For example, parties to HSR reportable merger or acquisition agreements cannot file until they have an executed binding agreement or an executed non-binding letter of intent or term sheet. Going forward, some parties may be less likely to file their HSR notifications and pay the significantly higher filing fees until they have an executed binding agreement because they cannot recover their filing fee when they file with a non-binding letter of intent or term sheet even if the transaction is abandoned and the parties never execute a binding agreement.

There is only one filing fee for each reportable acquisition and under the HSR rules, the acquiring person pays the HSR filing fee unless the parties agree otherwise.  For example, the parties may agree that the acquired person will pay the HSR filing fee or the parties may agree to split it.  Who pays the filing fee is likely to become a more important issue in deal negotiations given the significantly higher filing fee levels.

Foreign Subsidy Disclosure Requirements

The Filing Fee Modernization Act also adds a foreign subsidy disclosure requirement to the premerger notification process. Any party submitting a premerger notification filing pursuant to the HSR Act that received a subsidy from a “foreign entity of concern” will be required to disclose information regarding that subsidy as part of their HSR notification. “Subsidy” is defined to include grants, loans, loan guarantees, tax concessions, preferential government procurement policies, and government ownership or control. “Foreign entity of concern” is defined by section 40207 of the Infrastructure Investment and Jobs Act (42 U.S.C. 18741(a)) and includes entities controlled by the governments of China, Russia, Iran, and North Korea, among other entities.

Formal rulemaking will determine the scope and form of the foreign subsidy disclosure obligation. The disclosure requirement will not take effect until rules are issued.

Authored by Robert Baldwin, Michele Harrington and John Hamilton.