For Official Use DAF/COMP/WP3/WD(2013)9
Organisation de Coopération et de Développement Économiques
Organisation for Economic Co-operation and Development 04-Jun-2013
___________________________________________________________________________________________
English - Or. English
DIRECTORATE FOR FINANCIAL AND ENTERPRISE AFFAIRS
COMPETITION COMMITTEE
For Official Use
DAF/COMP/WP3/WD(2013)9
Working Party No. 3 on Co-operation and Enforcement
DEFINITION OF TRANSACTION FOR THE PURPOSE OF MERGER CONTROL REVIEW
-- United States --
18 June 2013
The attached document is submitted to Working Party No. 3 of the Competition Committee FOR DISCUSSION
under item IV of the agenda at its forthcoming meeting on 18 June 2013.
Please contact Mr. Antonio Capobianco if you have any questions regarding this document [phone
number: + 33 1 45 24 98 08 -- E-mail address: [Link]@[Link]].
English - Or. English
JT03340941
Complete document available on OLIS in its original format
This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of
international frontiers and boundaries and to the name of any territory, city or area.
DAF/COMP/WP3/WD(2013)9
1. Introduction
1. The Hart-Scott-Rodino (“HSR”) Act, 15 U.S.C. §18a, requires that parties to certain mergers or
acquisitions notify the Federal Trade Commission and the Department of Justice (collectively, “the
Agencies”) before consummating the proposed acquisition. In general, the HSR Act requires premerger
notification for acquisitions of “voting securities” or “assets” that meet a certain size of transaction
threshold – that is, if, as a result of the acquisition, the acquiring person will hold in excess of $50 million
(as adjusted1) in assets or voting securities of the acquired person.2 In addition, if the acquisition is valued
between $50 million (as adjusted) and $200 million (as adjusted), a “size of person” test must also be met
under which one party has sales or assets of $100 million (as adjusted) or more and another party has sales
or assets of $10 million (as adjusted) or more.3 Thus, coverage of a transaction under the U.S. premerger
notification system does not depend on whether control or material influence is obtained.
2. Although the U.S. premerger notification system subjects most mergers of significant size to
premerger competitive review, a transaction does not have to be subject to such review for the Agencies to
be able to challenge it under the antitrust laws. Under Section 7 of the Clayton Act,4 the Agencies can
challenge almost any acquisition of stock or assets, without regard to whether the acquisition requires
premerger notification under the HSR Act, and such challenges can be brought either before or after a
transaction is consummated. Indeed, the Agencies have investigated and challenged a number of
transactions that were not reportable under the HSR Act.5
2. Responses to Suggested Issues and Questions for Consideration
2.1 Acquisitions of Shares
3. As noted above, for acquisitions of voting securities, premerger reporting requirements do not
hinge on whether “control” or “material influence” of the issuer is obtained. Acquisitions of minority
interests may be reportable if they result in an acquiring person holding greater than $50 million (as
adjusted) in voting securities of an issuer. The HSR Act and Rules do, however, exempt acquisitions that
result in holding 10 percent or less of an issuer’s voting securities if made solely for the purpose of
investment.6 Under the authority that the HSR Act grants the Agencies to promulgate rules, including to
1
Since 2005, the jurisdictional thresholds are adjusted annually to reflect changes in gross national product.
The current thresholds ([Link] are approximately 42 percent
above the 2005 thresholds. For example, the size of transaction threshold that had been $50 million in the
baseline year is now $70.9 million.
2
15 U.S.C. §18a(a)(2)(B)(i).
3
15 U.S.C. §18a(a)(2)(B)(ii).
4
15 U.S.C. §18.
5
There have been a number of recent examples. See, e.g., FTC and State of Idaho v. St. Luke’s Health Sys.,
Ltd., 1:12-cv-00560-BLW-REB (D. Id. filed March 13, 2013), [Link]/opa/2013/03/[Link]; U.S.
v. Bazaarvoice, Inc., C13-0133 (N.D. Cal., filed Jan. 10, 2013),
[Link]/atr/public/press_releases/2013/[Link]; U.S. and State of New York v. Twin America
LLC, 12 CV 8989 (S.D.N.Y., filed Dec. 11, 2012),
[Link]/atr/public/press_releases/2012/[Link].
6
15 U.S.C. §18a(c)(9) and 16 CFR §802.9.
2
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define terms used in the statute, the HSR Rules provide that “[v]oting securities are held or acquired
‘solely for the purpose of investment’ if the person holding or acquiring such voting securities has no
intention of participating in the formulation, determination, or direction of the basic business decisions of
the issuer.”7
4. Suggestions have from time to time been made to the Agencies that this “investment only”
exemption as defined and applied by the Agencies is too narrow, subjecting too many acquisitions of ten
percent or less of an issuer’s voting securities that are not likely to raise competitive issues to premerger
reporting. As described below in response to question 4, the Agencies have the authority to exempt from
premerger reporting classes of transactions that are not likely to violate the antitrust laws, and have,
through rulemaking, created such exemptions for various classes of transactions.
5. Interlocking directorates are not acquisitions of voting securities or assets under the HSR Act and
do not trigger any reporting requirements. Section 8 of the Clayton Act, as amended by the Antitrust
Amendments Act of 1990, however, prohibits certain director and officer interlocks between competing
business corporations.
2.2 Acquisitions of Assets
6. In addition to acquisitions of securities, the HSR Act explicitly covers acquisitions of assets. The
acquired assets may include an entire business unit, tangible assets that do not comprise an entire business
unit and/or intangible assets such as patents or licenses.
7. Questions sometimes arise as to whether certain types of business arrangements involving assets
(such as leases, management contracts, and exclusive licenses of intellectual property), constitute
acquisitions of assets. Such questions are often resolved through informal interpretations rendered by the
Premerger Notification Office of the FTC,8 and in some instances through rulemaking.9
8. Exemptions from premerger reporting, as described in response to question 4 below, have proved
to be an important way of assuring that premerger reporting is not required for categories of asset
acquisitions that are unlikely to raise significant antitrust issues. The HSR Act, for example, exempts
acquisitions of goods or realty transferred in the ordinary course of business.10 And the Agencies have
used their authority to exempt other classes of transactions unlikely to violate the antitrust laws, including
acquisitions of unproductive real property, office buildings and residential property, hotels and motels, and
agricultural property.11
7
16 C.F.R. §801.1(i)(1).
8
The Premerger Notification Office (PNO) answers thousands of inquiries each year and is prepared to
provide prompt informal advice concerning the potential reportability of a transaction. See
[Link] Many of the PNO’s informal interpretations are available on its
website at [Link]
9
An example of a recent rulemaking can be found at [Link]/opa/2012/08/[Link].
10
15 U.S.C. §18a(c)(1).
11
See 16 C.F.R. §802.2.
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2.3 Joint Ventures
9. Premerger reporting may be required for the formation of certain types of joint ventures. Section
801.40 of the HSR Rules provides specific rules regarding the formation of corporate joint ventures,
treating such formations as acquisitions of voting securities of the venture by the venturers.12
10. Section 801.50 provides specific rules regarding formations of non-corporate joint ventures, such
as partnerships and limited liability companies (LLCs).13 Premerger reporting of the formation of non-
corporate joint ventures is required only when one of the venturers will “control” the new entity – in which
case, it is deemed to be acquiring the assets of the joint venture that it did not previously hold. Although
change of control of an entity is generally not a prerequisite for reportability of a voting securities or asset
transaction, it is a key factor in determining when an acquisition of an interest in an unincorporated entity
must be reported. “Control” is defined in Section 801.1(b) of the HSR rules.14 In the case of an entity that
has no voting securities (e.g., a partnership or LLC), control means having the right to 50 percent or more
of the profits of an entity, or having the right in the event of dissolution to 50 percent or more of the assets
of the entity.15
11. The rules regarding acquisitions of interests in existing corporate and non-corporate joint
ventures build on the concepts involved in determining reportability of joint venture formations in that the
acquisition of an interest in a partnership or LLC is unreportable if it does not convey control of the entity.
12. Although there is some difference in the treatment of joint venture formations and acquisitions of
joint venture interests depending on whether the venture is corporate or non-corporate in nature, those
differences flow from the HSR Act’s coverage of acquisitions of “voting securities” and “assets,” and the
Agencies have not deemed interests in partnerships or LLCs to be either voting securities or assets within
the meaning of the HSR Act. The Agencies treat joint ventures – whether corporate or non-corporate – as
consistently as possible, as reflected by the 2005 rulemaking involving noncorporate entities described in
the answer to question 6 below.
2.4 Exemptions
13. Exemptions from HSR play an important role in refining the parameters of the United States
premerger notification program. Some of these exemptions are mandated by the HSR Act.16 These
statutory exemptions are based on either of two broad rationales: the transactions are of a category unlikely
12
16 C.F.R. §801.40.
13
16 C.F.R. §801.50.
14
16 C.F.R. §801.1(b).
15
For corporate entities, control is defined as either holding 50 percent or more of the outstanding voting
securities of an issuer or having the contractual power presently to designate 50 percent or more of the
directors of a corporation. The concept of control, while generally not relevant to the question of whether a
transaction is reportable under HSR, is relevant, in addition to reportability of non-corporate joint venture
formations, to determining what entities are included in the acquiring and acquired persons when
calculating whether the statutory size-of-person test is met. It also is relevant to determine whether the
Section 802.30 exemption for intraperson transactions applies. (The “intraperson” exemption exempts
acquisitions in which the acquiring person and at least one of the acquired persons are the same by reason
of control. 16 C.F.R. §802.30. Examples of exempted transactions include an acquiring person who already
holds 50 percent or more of the voting securities of an issuer acquiring the remaining shares, and the
merger of, or the transfer of assets between, two subsidiaries controlled by the same parent.)
16
See 15 U.S.C. §18a(c).
4
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to raise significant antitrust issues (e.g., acquisitions of goods or realty in the ordinary course of business);
or the transactions are subject to premerger competitive review by another federal agency (e.g., bank
mergers, which are reviewed by one of the bank regulatory agencies).
14. In addition to creating statutory exemptions from premerger reporting, Congress built additional
flexibility into the premerger notification system for determining which transactions must be notified by
granting the Agencies the rulemaking authority to exempt from premerger notification classes of
transactions “which are not likely to violate the antitrust laws.”17 The Agencies, with input from the
public, have used this authority in several important areas.18 For example, exemptions have been created
through agency rulemaking for acquisitions of foreign voting securities or foreign assets that lack a
sufficient nexus with U.S. commerce,19 certain types of real property such as office and residential
property, agricultural property and hotels,20 and acquisitions of voting securities of issuers holding assets
the acquisition of which would be exempt.21
2.5 Objective Criteria and “Gaming the System”
15. The U.S. premerger notification program is based on clear and objective criteria and thresholds,
enabling parties to determine whether the transaction they are planning requires premerger notification.
16. “Gaming the system” by structuring transactions to avoid premerger reporting has not been a
systemic or widespread problem in the United States. Parties recognize that even if their transaction does
not require premerger reporting, it can still be subject to substantive antitrust challenge by the Agencies,
and the Agencies recognize that transactions are often structured primarily for tax or other business reasons
rather than to avoid premerger reporting. The HSR Rules address potential instances of gaming the system
by providing that “[a]ny transaction(s) or other device(s) entered into or employed for the purpose of
avoiding the obligation to comply with the requirement of the act shall be disregarded, and the obligation
to comply shall be determined by applying the act and [the] rules to the substance of the transaction.”22
The Agencies can seek civil penalties for failures to make premerger filings, and a handful of such cases
brought over the 35 years that the HSR system has been in place have been based on this avoidance rule
and have resulted in substantial civil penalties.23
2.6 Changes in the Merger Regime
17. What constitutes a transaction requiring premerger reporting is largely dictated by the HSR
statute – “assets” and “voting securities” are statutory terms, and a number of HSR exemptions are
17
15 U.S.C. §18a(d)(2)(B).
18
See generally 16 CFR Part 802.
19
For the acquisition of foreign assets to be reportable, the assets must have generated sales of more than $50
million (as adjusted) into the United States in the most recent fiscal year. For an acquisition of voting
securities of a foreign issuer to be reportable, the issuer must have either $50 million (as adjusted) in assets
located in the United States or $50 million (as adjusted) in sales in or into the United States in the most
recent fiscal year; an additional requirement, if the acquiring person is foreign, is that a controlling interest
must be acquired in the issuer. See 16 CFR §§802.50-51.
20
See 16 CFR §802.2.
21
See 16 CFR §802.4.
22
16 CFR 801.90.
23
See, e.g., U.S. v. Sara Lee Corp., 1996-1 Trade Cas. (CCH) ¶ 71,301 (D.D.C. 1996); U.S. v. Honickman,
1992-2 Trade Cas. (CCH) ¶ 70,018 (D.D.C. 1992).
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contained in the statute. Although Congress has not changed these basic underpinnings regarding the type
of transactions that may require premerger reporting, it has changed the thresholds for premerger reporting.
The centerpiece of those amendments, which took effect in February 2001, was an increase in the “size of
transaction threshold” to $50 million, from $15 million.24 The legislation also created an annual automatic
adjustment mechanism, which took effect in 2005, whereby the thresholds are adjusted annually to reflect
the percentage change in gross national product.
18. As described in response to question 4 above, the Agencies have created a number of premerger
reporting exemptions that play an important part in determining the types of transactions requiring
premerger reporting.
19. In addition, the Agencies have on occasion promulgated rules, after notice to and comment from
the public, that affect the types of transactions for which premerger reporting may be required.
20. For example, in 2004-2005, the Agencies solicited comments and adopted a series of rules aimed
at addressing, to the extent possible under the statute, the disparate treatment or corporate and non-
corporate entities, such as partnerships or limited liability companies, particularly in the areas of formation
of these entities, acquisitions of interests in them, and the application of certain exemptions.25 The central
thrust of these rules changes, as discussed in response to question 3 above, is that meaningful antitrust
review should occur at the point at which control of an unincorporated entity changes. In adopting these
rules, the Agencies agreed to track their impact on premerger notifications received and, over the next two
years, found that the changes worked very well.26 The Agencies’ experience since the adoption of these
rules in 2005 is that although they do not capture every formation of an LLC or partnership that may raise
antitrust issues, they have done a better job at doing so than had the previous rules and interpretations.
21. The rulemaking process that is required for creating exemptions or adopting other types or rules
involves a notice and public comment period, after which the Agencies must address points raised in the
comments. The rulemaking must also include an analysis of the impact of the rulemaking under various
other statutes, such as the Paperwork Reduction Act, which requires that information collected from the
public minimizes burden and maximizes public utility. Thus, the Agencies implicitly engage in a
cost/benefit analysis in every rulemaking.
2.7 Alternatives
22. As is highlighted in the Introduction above, an important feature of the United States system is
the Agencies’ ability under section 7 of the Clayton Act to reach transactions that are not reported under
the premerger reporting program. In addition, the Agencies can challenge transactions as agreements in
restraint of trade under Section 1 of the Sherman Act.
24
15 U.S.C. 18a(a)(2).
25
69 FR 18686 (April 8, 2004) (proposed rules); 70 FR 11502 (March 8, 2005) (final rules).
26
See HSR Annual Reports, Fiscal Year 2006, p.9 ([Link]/os/2007/07/[Link]) and
Fiscal Year 2007, pp.8-9 ([Link]/os/2007/07/[Link]).
