[Federal Register Volume 66, Number 22 (Thursday, February 1, 2001)]
[Proposed Rules]
[Pages 8723-8729]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-2606]
Federal Register / Vol. 66, No. 22 / Thursday, February 1, 2001 /
Proposed Rules
[[Page 8723]]
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FEDERAL TRADE COMMISSION
16 CFR Parts 801 and 802
Premerger Notification; Reporting and Waiting Period Requirements
AGENCY: Federal Trade Commission.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Commission is proposing amendments to the premerger
notification rules (``the rules'') that require the parties to certain
mergers and acquisitions to file reports with the Federal Trade
Commission (``the Commission'') and the Assistant Attorney General in
charge of the Antitrust Division of the Department of Justice (``the
Assistant Attorney General'') and to wait a specified period of time
before consummating such transactions. The reporting and waiting period
requirements are intended to enable these enforcement agencies to
determine whether a proposed merger or acquisition may violate the
antitrust laws if consummated and, when appropriate, to seek a
preliminary injunction in federal court to prevent consummation. This
document seeks comments on proposed amendments to clarify and improve
the effectiveness of the rules, including corrections, clarifications,
and updates to examples.
DATES: Comments must be received on or before March 19, 2001.
ADDRESSES: Address all comments concerning this proposal to Secretary,
Federal Trade Commission, Room 159, 600 Pennsylvania Avenue, NW,
Washington, DC 20580, or by e-mail to hsr_rules@ftc.gov and the
Director of Operations and Merger Enforcement, Antitrust Division,
Department of Justice, Room 10103, 601 D Street, NW, Washington, DC
20530. With regard to the Paperwork Reduction Act, send a copy of any
comments regarding the burden estimate or any other aspect of the
information collection, including suggestions for reducing the burden,
to: Office of Information and Regulatory Affairs, Office of Management
and Budget, New Executive Office Building, Room 10202, Washington, DC
20503; ATTN.: Edward Clarke, Desk Officer for the Federal Trade
Commission.
FOR FURTHER INFORMATION CONTACT: Karen Berg or Tom Hancock, Attorneys,
Premerger Notification Office, Bureau of Competition, Room 303, Federal
Trade Commission, Washington, DC 20580. Telephone: (202) 326-3100.
SUPPLEMENTARY INFORMATION:
Background
Section 7A of the Clayton Act (``the act''), 15 U.S.C. 18a, as
added by the Hart-Scott-Rodino Antitrust Improvements Act of 1976, Pub.
L. 94-435, 90 Stat. 1390, requires all persons contemplating certain
mergers or acquisitions to file notification with the Commission and
the Assistant Attorney General and to wait a designated period of time
before consummating such transactions. Congress empowered the
Commission, with the concurrence of the Assistant Attorney General, to
require ``that the notification * * * be in such form and contain such
documentary material and information * * * as is necessary and
appropriate'' to enable the agencies ``to determine whether such
acquisitions may, if consummated, violate the antitrust laws.''
Congress similarly granted rulemaking authority to, inter alia,
``prescribe such other rules as may be necessary and appropriate to
carry out the purposes of this section.'' 15 U.S.C. 18a(d).
Pursuant to that section, the Commission, with the concurrence of
the Assistant Attorney General, developed the Antitrust Improvements
Act Rules (``the rules'') and Notification and Report Form for Certain
Mergers and Acquisitions (``the Form''), has amended or revised the
rules and Form on fourteen occasions, and now proposes these rules
changes.
These proposed changes include updating examples in Sections 801.4,
801.14, 801.90 and 802.8; amending Section 801.15 to reflect the $50
million threshold and give proper reference to other rules sections;
modifying Section 802.2 to remove an exemption for associated
agricultural assets; revising Section 802.6(b) regarding federal
regulatory approval; restructuring and revising Sections 802.50 and
802.51 to clarify and refocus exemptions for acquisitions of foreign
assets and voting securities; and amending the example to Section
802.52 to correctly cite restructured Section 802.50.
Statement of Basis and Purpose for the Commission's Proposed
Revision of Its Premerger Notification Rules
Section 801.4 Secondary Acquisitions
Example 5 in section 801.4 will be amended so that it refers to
``B's shareholders'' instead of ``B'', correcting an original drafting
error.
Section 801.14 Aggregate Total Amount of Voting Securities and Assets
The Commission proposes to add clarifying language to Example 2.
This change does not alter the application of the rule, but essentially
fills in gaps and makes the logic of the example easier to follow.
Section 801.15 Aggregation of Voting Securities and Assets the
Acquisition of Which Was Exempt
In conjunction with the modifications to sections 802.50 and
802.51, changes proposed to section 801.15 will correspond with the
proposed $50 million threshold for foreign transactions. The Commission
also proposes amendments to the body of section 801.15 which cites
paragraphs of current sections 802.50 and 802.51 which will no longer
be correct due to our restructuring of these two rules. Accordingly,
Example 4 of section 801.15 is also modified to correct the paragraph
cited and to incorporate the proposed $50 million threshold. Examples
1, 5, 7 and 8 have received the benefit of clarifying language which
will not alter the application of the rule but make the examples easier
to follow.
Section 801.90 Transactions or Devices for Avoidance
As with other rules, the Commission proposes that clarifying
language be added to Example 1. The reference to Section 802.20, which
no longer exists, was deleted. Again, this change does not alter the
application of the rule but makes the example more accurate.
Section 802.2 Certain Acquisitions of Real Property Assets
An amendment is proposed to section 802.2(g) to remove ``associated
agricultural assets'' from the agricultural property exemption.
Associated agricultural assets are defined in paragraph (1) as assets
that are integral to the agricultural business activities conducted on
the property. Such assets include inventory (e.g., livestock, poultry,
crops, fruit, vegetables, milk, eggs); structures that house livestock
raised on the real property; and fertilizer and animal feed. Associated
agricultural assets do not include processing facilities such as
poultry and livestock slaughtering, processing and packing facilities.
Proposed paragraph (1) has been rewritten to eliminate the exemption
for associated agricultural property assets, while continuing to make
clear that processing facilities are not exempt under section 802.2(g),
and to move current paragraph (2) into this section. Proposed paragraph
(1) now specifies two types of property that are not covered by the
agricultural property exemption. Current paragraph (3) has been
renumbered paragraph (2). Parenthetical language has been added
describing assets incidental to the ownership of agricultural property
as ``cash, prepaid taxes or insurance, rentals receivable, and the
like.'' This
[[Page 8724]]
language comes from an earlier incarnation of the rule, 1978 section
802.1(a), but was not included in section 802.2(g) when it was
promulgated in 1996 (see 61 FR 13666, Mar. 28, 1996). The Commission
believes this parenthetical will help define what is meant when such
assets are referenced.
The removal of associated agricultural assets from section 802.2(g)
is proposed because the general increase in the filing threshold to $50
million will itself exclude acquisitions involving associated
agricultural assets that are likely to be of little or no competitive
consequence. Maintaining an exemption for acquisitions where the
associated agricultural assets, such as livestock on the property, are
valued at greater than $50 million seems unnecessary and ill-advised.
The section 802.2 exemption titled ``certain acquisitions of real
property assets'' is based on the rationale that these categories of
assets ``are abundant and used in markets that are generally
unconcentrated''; where associated agricultural assets valued at
greater than $50 million are being acquired in conjunction with
agricultural property, there is little reason to presume that this
justification for their exemption would still apply (see 61 FR at
13669).
In addition, amending the rule to remove ``associated agricultural
assets'' from the exemption as well as making clear that ``agricultural
property'' is limited to real property (by deleting ``and assets'' from
its definition) will eliminate whatever ambiguity may arguably exist in
section 802.2(g). Some parties have contended that the exemption
covers, in addition to real property transferred in an acquisition and
livestock raised on that real property, livestock raised by contract
growers on other real property. The Commission's Premerger Notification
Office (``PNO'') and the Antitrust Division of the Department of
Justice, on the basis of both the rationale of the real property
exemptions created by the antitrust enforcement agencies in 1996 and
the language of the agricultural property exemption itself, have read
the agricultural property exemption as not extending to assets located
elsewhere. The Commission believes that the amendments proposed comport
with the agencies' responsibility to exempt only those categories of
transactions that are not likely to violate the antitrust laws and also
eliminates any ambiguity in the language of the rule.
Section 802.6 Federal Agency Approval
In the 1978 rules (43 FR 33450, July 31, 1978), section 802.6 in
its entirety consisted of what is currently section 802.6(a), namely, a
description of the nature and manner of submission of ``information and
documentary material'' for purposes of sections 7A(c)(6) and (c)(8) of
the act. Section 802.6(b) was added in a 1983 rules change (48 FR
34427). Section 802.6(b)(1) of this new provision exempted acquisitions
of parties involved in aeronautics and air transportation that required
approval by the Civil Aeronautics Board (``CAB'') prior to
consummation. Section 802.6(b)(2) of the 1983 rules made it explicit
that this exemption did not exempt the acquisition of ``assets which
are engaged in a business or businesses other than aeronautics or air
transportation as defined * * *.'' (Emphasis added.) The acquisition of
such assets did not require CAB approval and, accordingly, was not
exempt under section 802.6(b)(1), even though portions of the
acquisition may be exempt.
Pursuant to the Airline Deregulation Act of 1978, the CAB went out
of existence in 1985. As airline deregulation progressed, the
Department of Transportation assumed regulatory authority over airline
mergers, but its authority to approve (and to grant antitrust immunity
for) airline mergers sunsetted on January 1, 1989. See Formal
Interpretation 14 (Nov. 14, 1988). Thus, except for paragraph (a),
section 802.6 has no direct application at this time. This does not
mean that the 1983 version of section 802.6(b) is without significance:
The principle it embodies has been relied on several times. Formal
Interpretation 14, while recognizing that section 802.6(b) would no
longer directly apply to any transactions, recognized the value of
leaving the provision in the rules because of its application to other
regulated industries: `` * * * through informal interpretations * * *,
the Commission's Premerger Notification Office has used the method
reflected in section 802.6(b)(2). * * * The Premerger Notification
Office will continue to apply this method to such other transactions
consummated after December 31, 1989.''
On November 12, 1999, The Gramm-Leach-Bliley Act (``the GLB Act''),
Public Law 106-102, was signed into law. The GLB Act allows bank
holding companies and banks to affiliate with companies in financial
services markets that were previously off limits to such entities.
Section 133(c) of the GLB Act amends subsections (c)(7) and (c)(8) of
section 7A of the Clayton Act, which exempt from premerger notification
certain mergers and acquisitions involving banking institutions and
thrifts that receive advance antitrust review by federal bank
regulatory agencies. The amendments to these subsections make explicit
in certain circumstances that where a transaction includes portions
that receive premerger antitrust review by banking agencies and other
portions that do not, the parts not so reviewed by the banking agencies
must go through the HSR premerger notification process, provided the
size criteria are met and no other exemption applies. In discussing
these amendments, sponsors of the legislation described their approach
as codifying the approach taken in section 802.6. See, e.g., Cong. Rec.
H11276 (Nov. 2, 1999).
On April 3, 2000, the PNO, with the concurrence of the Assistant
Attorney General, published Formal Interpretation 17 describing the
changes in sections 7A(c)(7) and (c)(8) of the Clayton Act mandated by
the GLB Act. Employing the term ``mixed transactions'' to apply to
those that have some portions subject to regulatory premerger
competitive review and other portions not, this Formal Interpretation
gives examples of the analysis under section 7A for certain types of
``mixed transactions'' in the banking industry that were not explicitly
addressed by the GLB Act. Again referring to section 802.6(b), Formal
Interpretation 17 reiterates the PNO's position that the portions of
such mixed transactions not subject to advance competitive review and
approval by a regulatory agency will be subject to the HSR filing and
waiting period requirements if they meet the HSR size criteria and are
not otherwise exempt.
Because of the importance of maintaining a readily accessible
statement of the treatment of mixed transactions in the rules, the
Commission is proposing to revise section 802.6(b) rather than to
remove it. Proposed section 802.6(b) has been revised to state a
general rule regarding mixed transactions rather than one that is
industry specific. Paragraph (b)(1) defines a ``mixed transaction'' as
one that has some portion that is exempt pursuant to subsections
(c)(6), (c)(7), or (c)(8) of the act because it requires regulatory
agency premerger competitive review and approval and another portion
that does not require such review. (Note that subsection (c)(6) also
requires that the regulatory approval grant antitrust immunity for
[[Page 8725]]
the exemption to be effective, and (c)(8) also requires that all
information and documentary material submitted to the regulatory agency
be contemporaneously filed with the Commission and the DOJ at least
thirty days prior to consummation.) Paragraph (b)(2) then states the
principle that the portion of a mixed transaction that does not require
advance competitive review and approval by a regulatory agency is
reportable under HSR as if it were a separate transaction--that is, if
the Act's thresholds are met and there is no other applicable
exemption. Finally, the Example has been amended to concern the
application of section 802.6(b) to the banking industry.
Section 802.8 Certain Supervisory Acquisitions
In section 802.8, the Commission proposes to amend the section to
substitute the word ``if'' for ``it'', correcting a typographical
error.
Sections 802.50 and 802.51 Acquisitions of Foreign Assets and Voting
Securities
The Commission proposes both structural and substantive revisions
to sections 802.50 and 802.51. The structural changes are intended to
make the rules governing foreign transactions easier to understand and
apply. The PNO receives numerous calls each year requesting advice on
the applicability of sections 802.50 and 802.51 of the rules. As global
merger activity has increased, the exemptions for foreign assets and
foreign voting securities have become more relevant to determinations
of a party's HSR reporting requirements. In response to input from the
private sector, the Commission proposes revising these rules for
greater ease of comprehension. The proposals frame the rules more
straightforwardly by organizing the sections by the type of acquisition
they deal with, rather than by the type of acquiring person involved.
Thus, proposed section 802.50 applies to the acquisition of foreign
assets and section 802.51 to the acquisition of foreign voting
securities. Each section begins with general criteria for reportability
for U.S. and foreign acquiring persons and then proceeds to outline
further criteria that exempt a transaction from reporting requirements
in certain circumstances.
The new organization should make the parallels and the differences
between the treatment of assets and voting securities more readily
apparent, and thereby facilitate the application of both rules.
The substantive revisions simultaneously narrow and expand the
reporting requirements so that they apply to those foreign transactions
that are most likely to have an appreciable and direct impact on U.S.
commerce. In addition to the threshold changes discussed below, the
Commission also proposes to add to the rules the longstanding
interpretation by the PNO of requiring the aggregation of U.S. sales
and assets of multiple foreign issuers if controlling interests in such
issuers are being acquired. Additionally, the Commission proposes that
sales in or into the United States be determined by the amount of such
sales in the most recent fiscal year combined with the amount of such
sales since the end of the most recent fiscal year, calculated no more
than sixty days prior to the filing of notification or if notification
is not required, within sixty days prior to the consummation of the
acquisition. This change is intended to ensure that where U.S. sales
generated by foreign assets and voting securities have been trending
steeply upward prior to the acquisition, a filing will be required if
that trend has resulted in over $50 million in U.S. sales. Finally, for
the sake of consistency with the rest of the rules, the Commission has
also changed the measure of the value of assets located in the U.S.
from book value to fair market value.
The first major proposed change to these sections consists of
raising both the $15 million and $25 million thresholds that trigger
reporting obligations for foreign transactions to $50 million. This
change is intended to preserve the principle underlying these sections,
that acquisitions of foreign assets or voting securities should not be
subject to the reporting requirements unless the assets or voting
securities being acquired have a direct impact on U.S. commerce. That
direct impact would be measured by the $50 million threshold amount
established in the new legislation. For asset transactions, the impact
would be reflected by the amount of sales in or into the U.S. For
voting securities transactions, the impact would be reflected either by
the amount of sales in or into the U.S. or by the total value of
assets, measured by fair market value, held by the issuer in the U.S.
Sales or assets of multiple foreign issuers are to be aggregated where
controlling interests in these issuers are being acquired, in
accordance with the PNO's longstanding position. Sales in or into the
United States would be determined by the amount of such sales in the
most recent fiscal year plus the amount of such sales since the end of
the most recent fiscal year, in order to assure that the acquisition of
assets or voting securities that have only recently begun to generate
large U.S. sales not escape notification. Sales since the end of the
most recent fiscal year should be calculated no more than sixty days
prior to the filing of notification or if notification is not required,
within sixty days prior to the consummation of the acquisition. Fair
market value would replace book value of assets in order to harmonize
these sections with the rest of the rules.
The Commission also proposes to exempt an acquisition between
foreign persons that do not meet the $110 million aggregate sales and
assets test only where such acquisition is not valued at over $200
million. The 1978 Statement of Basis and Purpose explains that the $110
million threshold was adopted to approximate the size-of-person
criteria of Section 7A(a)(2), as it seemed appropriate and consistent
with congressional intent not to exempt a transaction involving two
foreign persons with a U.S. presence similar in size to the general
criteria of the act for all persons. 43 FR 33498 (July 31, 1978). Since
the new legislation removes the size-of-person test for acquisitions
valued at over $200 million, the Commission believes it is appropriate
and consistent with congressional intent to require filings from
foreign persons, regardless of the size of their U.S. presence, where
the transaction is valued at over $200 million and the $50 million
threshold of these exemption rules is satisfied.
The remaining substantive proposed change is the extension of
reportability to acquisitions of foreign assets by foreign persons. The
1978 Statement of Basis and Purpose justified the blanket exclusion of
these transactions in existing section 802.51(a) on the grounds that
asset transactions were less likely to affect the U.S. economy than
voting securities transactions. Experience at both agencies has shown
that foreign assets acquisitions can and do have a direct impact on the
U.S. economy. This is more likely to be true where the assets generate
over $50 million in sales in or into the U.S. Thus, it appears to be
appropriate to require that their acquisition be reported where minimum
contacts are present. Finally, the examples to these rules and to
section 802.52 have been revised to reflect these changes.
Section 802.52 Acquisitions By or From Foreign Governmental
Corporations
The proposed change to the example following section 802.52
incorporates the proposed change to section 802.50
[[Page 8726]]
which would raise the threshold of sales in or into the U.S. for
acquisitions of foreign assets. The figure ``$50 million'' has been
substituted for ``$25 million'' in the parenthetical at the end of the
proposed example to reflect the fact that the sale of assets in the
example would also be exempt under Section 802.50 if the aggregate
sales in or into the U.S. were $50 million or less.
Regulatory Flexibility Act
The Regulatory Flexibility Act, 5 U.S.C. 601-612, requires that the
agency conduct an initial and final regulatory analysis of the
anticipated economic impact of the proposed amendments on small
businesses, except where the agency head certifies that the regulatory
action will not have a significant economic impact on a substantial
number of small entities. 5 U.S.C. 605.
Because of the size of the transactions necessary to invoke a Hart-
Scott-Rodino filing, the premerger notification rules rarely, if ever,
affect small businesses. Indeed, the recent amendments to section 7A of
the Clayton Act, which these rule amendments implement, were intended
to reduce the burden of the premerger notification program by exempting
all transactions valued at less than $50 million. Further, none of the
proposed rule amendments expands the coverage of the premerger
notification rules in a way that would affect small business.
Accordingly, the Commission certifies that these proposed rules will
not have a significant economic impact on a substantial number of small
entities. This document serves as the required notice of this
certification to the Small Business Administration.
Paperwork Reduction Act
The Paperwork Reduction Act of 1995, 44 U.S.C. 3501-3518, requires
agencies to submit requirements for ``collections of information'' to
the Office of Management and Budget (``OMB'') and obtain clearance
before instituting them. Such collections of information include
reporting, recordkeeping, or disclosure requirements contained in
regulations. The Hart-Scott-Rodino Premerger Notification rules and
report Form contain information collection requirements, as defined by
the Paperwork Reduction Act, that have been reviewed and approved by
OMB under OMB Control No. 3084-0005. Because the proposed amendments
would affect the information collection requirement of the premerger
notification program, the proposed amendments are being submitted to
OMB for review pursuant to the Paperwork Reduction Act. As noted in the
Supporting Statement accompanying the Request for OMB Review, however,
staff believes that the proposed rules will not pose any net change to
paperwork burden estimates regarding filing entities.
List of Subjects in 16 CFR Parts 801 and 802
Antitrust.
For the reasons stated in the preamble, the Federal Trade
Commission proposes to amend 16 CFR parts 801 and 802 as set forth
below:
PART 801--COVERAGE RULES
1. The authority citation for part 801 continues to read as
follows:
Authority: 15 U.S.C. 18a(d).
2. Amend Sec. 801.4 by revising Example 5 in paragraph (b) to read
as follows:
Sec. 801.4 Secondary acquisitions.
* * * * *
(b) * * *
Examples: * * *
5. In example 4 above, suppose the consideration paid by ``A''
for the acquisition of B is $60 million worth of the voting
securities of ``A.'' By virtue of Sec. 801.2(d)(2), ``A'' is both an
acquiring and acquired person; B is an acquired person and B's
shareholders are acquiring persons. A will still be deemed to have
acquired control of B, and therefore the resulting acquisition of
the voting securities of X is a secondary acquisition. Although B's
shareholders are now also acquiring persons, unless one of them
gains control of ``A'' in the transaction, no B shareholder makes a
secondary acquisitions of stock held by ``A.'' If the consideration
paid by ``A'' is the voting securities of one of ``A''s subsidiaries
and a shareholder of B thereby gains control of that subsidiary, the
shareholder will make secondary acquisitions of any minority
holdings of that subsidiary.
* * * * *
3. Amend Sec. 801.14 by revising Example 2 to read as follows:
Sec. 801.14 Aggregate total amount of voting securities and assets.
* * * * *
Examples: * * *
2. In the previous example, assume that the assets acquisition
occurred first, and that the acquisition of the voting securities is
to occur within 180 days of the first acquisition. ``A'' now looks
to Sec. 801.13(b)(2) and determines that the previously acquired
assets are not treated ``as part of the present acquisition''
because the second acquisition is of voting securities and not
assets; thus, the asset and voting securities acquisitions are not
treated as one transaction. Therefore, the second acquisition would
not be subject to the requirements of the act since the value of the
securities to be acquired does not exceed the $50 million size-of-
transaction test.
4. Amend Sec. 801.15 by revising the introductory text, paragraphs
(a)(2) and (b), and Examples 1, 4, 5, 7, and 8, to read as follows:
Sec. 801.15 Aggregation of voting securities and assets the
acquisition of which was exempt.
Notwithstanding Sec. 801.13, for purposes of determining the
aggregate total amount of voting securities and assets of the acquired
person held by the acquiring person under section 7A(a)(2) and
Sec. 801.1(h), none of the following will be held as a result of an
acquisition:
(a) * * *
(2) Sections 802.1, 802.2, 802.5, 802.6(b)(1), 802.8, 802.31,
802.35, 802.52, 802.53, 802.63, and 802.70;
(b) Assets or voting securities the acquisition of which was exempt
at the time of acquisition (or would have been exempt, had the act and
these rules been in effect), or the present acquisition of which is
exempt, under section 7A(c)(9) and Secs. 802.3, 802.4, 802.50(a),
802.51(a), 802.51(b) and 802.64 unless the limitations contained in
section 7A(c)(9) or those sections do not apply or as a result of the
acquisition would be exceeded, in which case the assets or voting
securities so acquired will be held; and
* * * * *
Examples: 1. Assume that acquiring person ``A'' is
simultaneously to acquire $51 million of the convertible voting
securities of X and $12 million of the voting common stock of X.
Since the overall value of the voting securities to be acquired
(Sec. 801.1 defines convertible voting securities as ``voting
securities'') is greater than $50 million, ``A'' must determine
whether it is obliged to file notification and observe a waiting
period before acquiring the securities. However, because Sec. 802.31
is one of the exemptions listed in paragraph (a)(2) of this section,
``A'' would not hold the convertible voting securities as a result
of this acquisition. Therefore, since as a result of the acquisition
``A'' would hold only the $12 million of common stock, the size-of-
transaction tests of Section 7A(a)(2) would not be satisfied, and
``A'' need not observe the requirements of the act before acquiring
the common stock. (Note, however, that the $51 million of
convertible voting securities would be reflected in ``A''s next
regularly prepared balance sheet, for purposes of Sec. 801.11.)
* * * * *
4. Assume that acquiring person ``B,'' a United States person,
acquired from corporation ``X'' two manufacturing plants located
abroad, and assume that the acquisition price was $160 million. In
the most recent fiscal year and to date since the end of that fiscal
year, sales into the United States attributable to the plants were
$40 million, and thus the acquisition was exempt under
Sec. 802.50(a). Within 180 days of that acquisition, ``B'' seeks to
acquire a third plant from ``X,'' to which United States sales of
$12 million were attributable in the most recent fiscal year and to
date since the end of that fiscal year. Since under
Sec. 801.13(b)(2), as a
[[Page 8727]]
result of the acquisition, ``B'' would hold all three plants of
``X,'' and the $50 million limitation in Sec. 802.50(a) would be
exceeded, under paragraph (b) of this rule, ``B'' would hold the
previously acquired assets for purposes of the second acquisition.
Therefore, as a result of the second acquisition, ``B'' would hold
assets of ``X'' exceeding $50 million in value, would not qualify
for the exemption in Sec. 802.50(a), and must observe the
requirements of the act and file notification for the acquisition of
all three plants before acquiring the third plant.
5. ``A'' acquires producing oil reserves valued at $400 million
from ``B.'' Two months later, ``A'' agrees to acquire oil and gas
rights valued at $75 million from ``B.'' Paragraph (b) of this
section and Sec. 801.13(b)(2) require aggregating the previously
exempt acquisition of oil reserves with the second acquisition. If
the two acquisitions, when aggregated, exceeds the $500 million
limitation on the exemption for oil and gas reserves in
Sec. 802.3(a), ``A'' and ``B'' will be required to file notification
for the latter acquisition, including within the filings the earlier
acquisition. Since, in this example, the total value of the assets
in the two acquisitions, when aggregated, is less than $500 million,
both acquisitions are exempt from the notification requirements. In
determining whether the value of the assets in the two acquisitions
exceed $500 million, ``A'' need not determine the current fair
market value of the oil reserves acquired in the first transaction,
since these assets are now within the person of ``A.'' Instead,
``A'' is directed by Sec. 801.13(b)(2)(ii) to use the value of the
oil reserves at the time of their prior acquisition in accordance
with Sec. 801.10(b).
* * * * *
7. In Example 6, above, assume that ``X'' acquired 30 percent of
the voting securities of M and proposes to acquire 40 percent of the
voting securities of N, another entity controlled by ``Z.'' Assume
also that M's assets at the time of ``X's'' acquisition of M's
voting securities consisted of $90 million worth of producing coal
reserves and non-exempt assets with a fair market value of $39
million, and that N's assets currently consist of $60 million worth
of producing coal reserves and non-exempt assets with a fair market
value of $28 million. Since ``X'' acquired a minority interest in M
and intends to acquire a minority interest in N, and since M and N
are controlled by ``Z,'' the assets of M and N must be aggregated,
pursuant to Secs. 801.15(b) and 801.13, to determine whether the
acquisition of N's voting securities is exempt or whether it is
reportable pursuant to the terms of Sec. 802.4(c). ``X'' is required
to determine the current fair market value of M's assets. If the
fair market value of M's coal reserves is unchanged, the aggregated
exempt assets do not exceed the limitation for coal reserves under
Sec. 802.3(b). However, if the present fair market value of N's non-
exempt assets also is unchanged, the present fair market value of
the non-exempt assets of M and N when aggregated is greater than $50
million. Thus the acquisition of the voting securities of N is not
exempt under Sec. 802.4. If ``X'' proposed to acquire 50 percent or
more of the voting securities of both M and N in the same
acquisition, the assets of M and N must be aggregated to determine
if the acquisition of the voting securities of both issuers is
exempt. Since the fair market value of the aggregated non-exempt
assets exceeds $50 million, the acquisition would not be exempt.
8. ``A'' acquired 49 percent of the voting securities of M and
45 percent of the voting securities of N. Both M and N are
controlled by ``B.'' At the time of the acquisition M held rights to
producing coal reserves worth $90 million and N held a producing
coal mine worth $90 million. This acquisition was exempt since the
aggregated holdings fell below the $200 million limitation for coal
in Sec. 802.3(b). A year later, ``A'' proposes to acquire an
additional 10 percent of the voting securities of both M and N. In
the intervening year, M has acquired coal reserves so that its
holdings are now valued at $140 million, and the value of N's assets
remained unchanged. ``A's'' second acquisition would not be exempt.
``A'' is required to determine the value of the exempt assets and
any non-exempt assets held by any issuer whose voting securities it
intends to acquire before each proposed acquisition (unless ``A''
already owns 50 percent or more of the voting securities of the
issuer) to determine if the value of those holdings of the issuer
falls below the limitation of the applicable exemption. Here, the
holdings of M and N now exceed the $200 million exemption for
acquisitions of coal reserves in Sec. 802.3, and thus do not qualify
for the exemption of voting securities provided by Sec. 802.4(a).
5. Amend Sec. 801.90 by revising Example 1 to read as follows:
Sec. 801.90 Transactions or devices for avoidance.
* * * * *
Examples: 1. Suppose corporations ``A'' and ``B'' wish to form a
joint venture. ``A'' and ``B'' contemplate a total investment of
over $100 million in the joint venture; persons ``A'' and ``B'' each
have total assets in excess of $100 million. Instead of filing
notification pursuant to Sec. 801.40, ``A'' creates a new
subsidiary, A1, which issues half of its authorized shares to ``A.''
Assume that A1 has total assets of $3000. ``A'' then sells 50
percent of its A1 stock to ``B'' for $1500. Thereafter, ``A'' and
``B'' each contribute $53 million to A1 in exchange for the
remaining authorized A1 stock (one-fourth each to ``A'' and ``B'').
``A''s creation of A1 was exempt under Sec. 802.30; its $1500 sale
of A1 stock to ``B'' did not meet the size-of-transaction filing
threshold in Section 7A(a)(2)(B); and the second acquisitions of
stock in A1 by ``A'' and ``B'' were exempt under Sections 7A(c) (3)
and (10), because ``A'' and ``B'' each already controlled A1, based
on their holdings of 50 percent of A1's then-outstanding shares.
Since this scheme appears to be for the purpose of avoiding the
requirements of the act, the sequence of transactions will be
disregarded. The transactions will be viewed as the formation of a
joint venture corporation by ``A'' and ``B'' having over $10 million
in assets. Such a transaction would be covered by Sec. 801.40, and
``A'' and ``B'' must file notification and observe the waiting
period.
* * * * *
PART 802--EXEMPTION RULES
6. The authority citation for part 802 continues to read as
follows:
Authority: 15 U.S.C. 18a(d).
7. Revise Sec. 802.2(g) to read as follows:
Sec. 802.2 Certain acquisitions of real property assets.
* * * * *
(g) Agricultural property. An acquisition of agricultural property
and assets incidental to the ownership of such property shall be exempt
from the requirements of the act. Agricultural property is real
property that primarily generates revenues from the production of
crops, fruits, vegetables, livestock, poultry, milk and eggs
(activities within SIC Major Groups 01 and 02).
(1) Agricultural property does not include either:
(i) Processing facilities such as poultry and livestock
slaughtering, processing and packing facilities; or
(ii) Any real property and assets either adjacent to or used in
conjunction with processing facilities that are included in the
acquisition.
(2) In an acquisition that includes agricultural property, the
transfer of any assets that are not agricultural property or assets
incidental to the ownership of such property cash, prepaid taxes or
insurance, rentals receivable and the like) shall be subject to the
requirements of the act and these rules as if such assets were being
transferred in a separate acquisition.
* * * * *
8. Amend Sec. 802.6 by revising paragraph (b) and the Example to
read as follows:
Sec. 802.6 Federal agency approval.
* * * * *
(b)(1) A mixed transaction is one that has some portion that is
exempt under section 7A(c)(6), (c)(7) or (c)(8) because it requires
regulatory agency premerger competitive review and approval, and
another portion that does not require such review.
(2) The portion of a mixed transaction that does not require
advance competitive review and approval by a regulatory agency is
subject to the act and these rules as if it were being acquired in a
separate acquisition.
Example: Bank ``A'' acquires Bank ``B'', which owns a financial
subsidiary engaged in securities underwriting. ``A''s acquisition of
``B'' requires agency approval by the Office of the Comptroller of
the Currency, the Board of Governors of the Federal Reserve System
[[Page 8728]]
or Federal Deposit Insurance Corporation (depending on whether ``A''
is a national bank, state member bank, or state non-member bank
under section 18(c) of the FDI Act), and therefore is exempt from
filing under section 7A(c)(7). However, the acquisition of the
financial subsidiary is subject to HSR reporting requirements, and
``A'' and ``B'' each must make a filing for that portion of the
transaction and observe the waiting period if the act's thresholds
are met.
9. Revise Sec. 802.8(a) to read as follows:
Sec. 802.8 Certain supervisory acquisitions.
(a) A merger, consolidation, purchase of assets, or acquisition
requiring agency approval under sections 403 or 408(e) of the National
Housing Act, 12 U.S.C. 1726, 1730a(e), or under section 5 of the Home
Owners' Loan Act of 1933, 12 U.S.C. 1464 shall be exempt from the
requirements of the act, including specifically the filing requirement
of section 7A(c)(8), if the agency whose approval is required finds
that approval of such merger, consolidation, purchase of assets, or
acquisition is necessary to prevent the probable failure of one of the
institutions involved.
* * * * *
10. Revise Sec. 802.50 to read as follows:
Sec. 802.50 Acquisitions of foreign assets.
(a) The acquisition of assets located outside the United States
shall be exempt from the requirements of the act unless the foreign
assets the acquiring person would hold as a result of the acquisition
generated sales in or into the U.S. exceeding $50 million during the
acquired person's most recent fiscal year, combined with such sales to
date since the end of that fiscal year.
(b) Where the foreign assets being acquired exceed the threshold in
(a) above, the acquisition nevertheless shall be exempt where:
(1) Both acquiring and acquired persons are foreign;
(2) The aggregate sales of the acquiring and acquired persons in or
into the United States are less than $110 million in their respective
most recent fiscal years, combined with such sales to date since the
end of those fiscal years;
(3) The aggregate total assets of the acquiring and acquired
persons located in the United States (other than investment assets,
voting or nonvoting securities of another person, and assets included
pursuant to Sec. 801.40(c)(2)) are less than $110 million; and
(4) The transaction does not meet the criteria of Section
7A(a)(2)(A).
(c) Any determination of sales in or into the U.S. must be made
within 60 calendar days prior to the filing of notification or if such
notification is not required, within 60 calendar days prior to the
consummation of the acquisition.
Examples: 1. Assume that ``A'' and ``B'' are both U.S. persons.
``A'' proposes selling to ``B'' a manufacturing plant located
abroad. Sales in or into the United States attributable to the plant
totaled $13 million in the most recent fiscal year and to date. The
transaction is exempt under this paragraph.
2. Sixty days after the transaction in example 1, ``A'' proposes
to sell to ``B'' a second manufacturing plant located abroad; sales
in or into the United States attributable to this plant totaled $38
million in the most recent fiscal year and to date. Since ``B''
would be acquiring the second plant within 180 days of the first
plant, both plants would be considered assets of ``A'' held by ``B''
as a result of the second acquisition (see Sec. 801.13(b)(2)). Since
the total sales in or into the United States exceed $50 million, the
acquisition of the second plant would not be exempt under this
paragraph.
3. Assume that ``A'' and ``B'' are foreign persons with
aggregate sales in or into the United States of $200 million. If
``A'' acquires only foreign assets of ``B,'' and if those assets
generated $50 million or less in sales into the United States, the
transaction is exempt.
4. Assume that ``A'' and ``B'' are foreign persons with
aggregate sales in or into the United States and assets located in
the United Sates of less than $100 million. If ``A'' acquires only
foreign assets of ``B'', and those assets generated in excess of $50
million in sales into the United States during the most recent
fiscal year and to date, the transaction is exempt from reporting if
the assets are valued at $200 million or less, but is reportable if
valued at greater than $200 million.
11. Revise Sec. 802.51 to read as follows:
Sec. 802.51 Acquisitions of voting securities of a foreign issuer.
(a) By U.S. persons. The acquisition of voting securities of a
foreign issuer by a U.S. person shall be exempt from the requirements
of the act unless the issuer (including all entities controlled by the
issuer) either:
(1) Holds assets located in the United States (other than
investment assets, voting or nonvoting securities of another person,
and assets included pursuant to Sec. 801.40(c)(2)) having an aggregate
total value of over $50 million; or
(2) Made aggregate sales in or into the United States of over $50
million in its most recent fiscal year, combined with such sales to
date since the end of that fiscal year.
(b) By foreign persons. The acquisition of voting securities of a
foreign issuer by a foreign person shall be exempt from the
requirements of the act unless the acquisition will confer control of
the issuer and the issuer (including all entities controlled by the
issuer) either:
(1) Holds assets located in the United States (other than
investment assets, voting or nonvoting securities of another person,
and assets included pursuant to Sec. 801.40(c)(2)) having an aggregate
total value of over $50 million; or
(2) Made aggregate sales in or into the United States of over $50
million in its most recent fiscal year, combined with such sales to
date since the end of that fiscal year.
(3) If controlling interests in multiple foreign issuers are being
acquired from the same acquired person, the assets located in the
United States and sales in or into the United States of all the issuers
must be aggregated to determine whether the $50 million thresholds are
exceeded.
(c) where a foreign issuer whose securities are being acquired
exceeds the threshold in paragraph (b)(1) or (b)(2) of this section,
the acquisition nevertheless shall be exempt where:
(1) Both acquiring and acquired persons are foreign;
(2) The aggregate sales of the acquiring and acquired persons in or
into the United States are less than $110 million in their respective
most recent fiscal years, combined with such sales to date since the
end of those fiscal years;
(3) The aggregate total assets of the acquiring and acquired
persons located in the United States (other than investment assets,
voting or nonvoting securities of another person, and assets included
pursuant to Sec. 801.40(c)(2)) are less than $110 million; and
(4) The transaction does not meet the criteria of Section
7A(a)(2)(A).
(d) Any determination of sales in or into the U.S. must be made
within 60 calendar days prior to the filing of notification or if such
notification is not required, within 60 calendar days prior to the
consummation of the acquisition.
Examples: 1. ``A,'' a U.S. person, is to acquire the voting
securities of C, a foreign issuer. C has no assets in the United
States, but made aggregate sales into the United States of $77
million in the most recent fiscal year and to date. The transaction
is not exempt under this section.
2. Assume that ``A'' and ``B'' are foreign persons with
aggregate sales in or into the United States of $200 million, and
that ``A'' is acquiring 100% of the voting securities of ``B.''
Included within ``B'' is U.S. issuer C, whose total U.S. assets are
valued at $161 million. Since ``A'' will be acquiring control of an
issuer, ``C'', with total U.S. assets of more than $50 million, and
the parties' aggregate sales in or into the U.S. in the relevant
time period exceeds $110 million, the acquisition is not exempt
under this section.
12. Amend Sec. 802.52 by revising the Example to read as follows:
[[Page 8729]]
Sec. 802.52 Acquisitions by or from foreign governmental agencies.
* * * * *
Example: The government of foreign country X has decided to sell
assets of its wholly owned corporation, B, all of which are located
in foreign country X. The buyer is ``A,'' a U.S. person. Regardless
of the aggregate sales in or into the United States attributable to
the assets of B, the transaction is exempt under this section. (If
such aggregate sales were $50 million or less, the transaction would
also be exempt under Sec. 802.50.)
Dated: January 24, 2001.
By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 01-2606 Filed 1-31-01; 8:45 am]
BILLING CODE 6750-01-P