A 'Sound Basis' Exists for Revising the HSR Act's Investment-Only Exemption

Abstract

The Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act) requires that acquisitions of voting securities, assets, or non-corporate entities be notified to the Federal Trade Commission and the Department of Justice (the Agencies). While the Act has had a positive effect on the ability of the Agencies to identify, remedy, and, if necessary, to enjoin anticompetitive mergers, it has also imposed costs, some of which are unnecessary for accomplishing the Act’s purpose. The Act may also restrict or discourage shareholders from interacting with management. Because of the narrow reading of the investment-only exemption, such interaction may preclude reliance on the exemption. This disincentive runs counter to policies that encourage more communication between shareholders and management. This article suggests that the “investment-only” exemption should be replaced with a modest exemption for most acquisitions of a de minimis percentage of an issuer’s outstanding voting securities. Specifically, the investment-only exemption should be replaced with an alternative exemption for de minimis investments in issuers that are not competitors of the acquiring person, the acquiring person’s associates, or of entities in which the acquiring person or its associates have substantial holdings.

Keywords: Hart-Scott-Rodino, HSR, Passive Investor, Investment Only, Minority Acquisitions, Antitrust Policy, Federal Trade Commission, Regulatory Reform

JEL Classification: K21