Mergers & Acquisitions Law Bulletin
Hart-Scott-Rodino Act Update
The Federal Trade Commission (FTC) has announced increases to the dollar thresholds above which premerger notification is required under the Hart-Scott-Rodino Act (HSR.) The updated thresholds become effective February 28, 2008, and will apply to transactions closing on or after that date. Gun-Jumping Allegations Sustained Against UnitedHealth and PacifiCare. On September 28, 2007, the District Court for the Northern District of Illinois denied UnitedHealth's motion to dismiss in Omnicare v. UnitedHealth Group, in which Omnicare alleges a violation of the Sherman Act through illegal pricing coordination against UnitedHealth and PacifiCare.
Under the “size of the transaction test,” premerger notification of proposed deals must be given to the FTC, regardless of the size of the parties, where those transactions are valued at more than $252.3 million. Both the value of the voting securities and the assets to be held as a result of the proposed merger are included in determining the value of the transaction. In contrast, where the size of the transaction is less than $63.1 million, no notification will be required.
Where the value of the transaction is between $63.1 million and $252.3 million, the notification requirement is determined using the “size of the parties” test. Under the size of the parties test, notification is required where either the acquired or acquiring party has annual net sales or total assets in excess of $126.2 million and the other party has annual net sales or total assets exceeding $12.6 million. However, where the acquired party is not engaged in manufacturing, reporting is only required where its total assets exceed $12.6 million or its sales exceed $126.2 million.
The required reporting thresholds for incremental acquisition of voting securities have also increased. The new thresholds are 25% if valued in excess of $1,261.5 million, and 50% if valued in excess of $63.1 million. While the thresholds have risen, the filing fees have not. In fact, the previous filing fees apply to the updated thresholds, requiring a lower filing fee in some instances.
It must be noted that certain exemptions may apply depending upon the nature of the transaction and the nature and location of the assets and parties involved. As a result, additional analysis is often needed before a final determination regarding filing can be made.
Gun-Jumping Allegations Sustained Against UnitedHealth and PacifiCare
On September 28, 2007, the District Court for the Northern District of Illinois denied UnitedHealth’s motion to dismiss in Omnicare v. UnitedHealth Group, in which Omnicare alleges a violation of the Sherman Act through illegal pricing coordination against UnitedHealth and PacifiCare.
PacifiCare and UnitedHealth agreed to a merger in July of 2005, which was eventually approved by the Department of Justice in May of 2006. Omnicare argued that PacifiCare and UnitedHealth conspired to fix prices after their agreement to merge but prior to the actual merger. Omnicare alleged that PacifiCare, after consulting with UnitedHealth, refused to negotiate terms of its contract, insisting upon minimum services and noncompetitive reimbursement rates. Omnicare agreed to the terms of the contract with PacifiCare. After the merger, UnitedHealth adopted the terms of the PacifiCare contract, taking advantage of the noncompetitive rates and terms that Omnicare accepted in its contract with PacifiCare. The District Court upheld Omnicare’s ability to challenge the agreement as unlawful under Section 1 of the Sherman Act. Additionally, the court rejected UnitedHealth’s argument that parties to a merger agreement have a unity of interest which renders them incapable of conspiring to restrain trade.
This case will be closely followed, as it represents a significant addition to the rather limited guidance on the issue of pre-closing activities and, in particular, gun-jumping.
von Briesen & Roper Legal Update is a periodic publication of von Briesen & Roper, s.c. It is intended for general information purposes for the community and highlights recent changes and developments in the legal area. This publication does not constitute legal advice, and the reader should consult legal counsel to determine how this information applies to any specific situation.