FTC Reverses Course on Treatment of Debt Payoff Under HSR Act

On August 26, 2021, the Federal Trade Commission (FTC) announced (in a blog post) that its prior informal interpretations permitting parties, under certain conditions, to exclude the retirement of debt when calculating the “size-of-transaction” in sales of voting securities no longer represent its view, and that effective September 27, 2021, it will recommend enforcement action for individuals and entities that fail to file based on the exclusion of retired debt.


The Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “HSR Act”) requires parties to transactions—e.g., mergers, joint ventures, acquisitions of assets, or voting securities—that meet certain thresholds to file premerger notifications with both the FTC and the United States Department of Justice (DOJ), and to observe a statutory waiting period prior to closing. One of the thresholds for determining whether an HSR filing is required is the “size-of-transaction”—which is currently set at $92 million. Unless otherwise exempted, acquisitions that will result in the acquiring person holding more than $92 million of the acquired person’s voting securities, assets, or non-corporate interests, will require an HSR filing (assuming the size-of-person thresholds are also met).

Historically, the FTC took the position through informal interpretations that in acquisitions of voting securities where part of the consideration paid to the seller would be used to retire the seller’s existing debt at closing, the amount of the debt retired could be excluded when calculating the “size-of-transaction” for HSR purposes. 

Newly Announced Treatment of Debt Payoff

In its August 26, 2021 announcement, the FTC expressed concern that some merging parties, in reliance on the FTC’s informal interpretations, have structured equity transactions to involve debt payoff in order to avoid HSR filings. The FTC observed: “Target companies may be incentivized to take on debt just before an acquisition, so that the acquiring company can retire the debt as part of the deal. These deals then are not being reported to the FTC and the DOJ, which means that merging parties are effectively sidestepping the law and avoiding accountability.” Moving forward, the FTC clarified that it no longer considers its prior informal interpretations permitting the exclusion of all debt payoff in stock transactions to be the correct approach. Rather, the FTC noted that the full or partial retirement of debt should be included in the “size-of-transaction” analysis “in any instance where selling shareholder(s) benefit from the retirement of that debt.”

The FTC stated that effective September 27, 2021, it will “begin to recommend enforcement action for companies that fail to file when retirement of debt is part of the consideration for the deal.”


While the FTC’s recently announced change in its treatment of debt payoff has not yet been memorialized in an informal interpretation or formal rule, parties contemplating stock deals should take heed when calculating the “size-of-transaction” moving forward, particularly given the FTC’s admonishment that it will begin recommending enforcement action effective September 27, 2021 for parties that fail to include the retirement of debt in their calculations. The maximum civil penalty for failure to comply with the HSR Act is currently set at $43,792 per each day of the violation. 

It is widely expected that the FTC’s new approach to the treatment of debt will increase the number of HSR filings. Notably, the FTC announced on August 3, 2021 that it had “been hit by a tidal wave of merger filings” that was straining its capacity to rigorously investigate deals within the statutory 30-day waiting period. As a consequence of the volume of filings, the FTC announced that for deals it could not fully investigate within the requisite timeframes, it would begin sending form letters alerting merging parties that its investigations remain open, and that companies that choose to proceed with closing transactions that have not been fully investigated do so at their own risk.

Lewis Rice has extensive experience navigating the HSR Act and assisting clients with HSR filings. If you have any questions regarding the HSR Act, including whether or not a contemplated transaction will require an HSR notification, please contact Richard B. Walsh, Jr., David W. Brown, Oliver H. Thomas, Sarah A. Milunski, or a member of our Antitrust Practice Group.