The HSR Rules for “Select” 801.30 Transactions
Overview of Concept
The Hart-Scott-Rodino (HSR) Act applies not only to traditional, arms-length M&A transactions — e.g., where one company buys another company – but also to transactions where the “acquired person” (the target) might not have any meaningful role in the transaction itself — e.g., tender offers, exercises of stock options, or open-market acquisitions of stock. These sorts of “non-consensual” transactions are listed in Section 801.30 of the HSR Rules. The HSR rules create different procedures for Section 801.30 transactions than for other kinds of transactions.
Recognizing that many of the “non-consensual” transactions listed in Section 801.30 tend to be competitively harmless and usually do not require an in-depth reporting of information to assess their competitive effects, the Federal Trade Commission and Department of Justice (“Agencies”) created the concept of “Select” 801.30 transactions. As a rule, executive compensation awards qualify as Section 801.30 transactions so long as the executive acquires voting securities by exercising benefits awarded pursuant to a compensation package. Outside of executive compensation awards, there are four requirements for an acquisition to qualify as a Select 801.30 transaction:
- The acquisition must be one of the varieties of transactions listed in Section 801.30 (i.e., tender offers, certain exercises of options or warrants, acquisitions from third-party investors, open-market purchases, conversions, or secondary acquisitions);
- The acquisition must not result in the acquirer obtaining “control” over the target (i.e., the acquisition must only be for a minority interest);
- The acquirer must not have, and will not obtain, the right to either serve as, appoint, veto, or approve any board members (or members of any similar body) for the target, the target’s subsidiaries, or any general partner or management company of the target or the target’s subsidiaries; and
- There must not be any agreement or contemplated agreement between the acquiring person and the acquired person (or any of their subsidiaries).
For executive compensation awards and other acquisitions that meet all four of these conditions, the HSR form has simplified reporting requirements. Specifically, parties in Select 801.30 transactions are relieved of the obligations (i) to provide “doing business as” names and describing the organization structure of controlled entities, (ii) to describe the rationale for the transaction, (iii) to provide a transaction diagram, (iv) to submit copies of any ordinary-course business plans or reports, (v) to submit copies of transaction-related agreements, (vi) to describe any overlap relationships with the target and the top customers for same, (vii) to describe any supply relationships with the target and the top customers/suppliers for same, and (viii) to identify certain defense or intelligence contracts. Additionally, sellers in Select 801.30 transactions often will have no “Transaction-Related Documents” to produce in response to the Business Documents section of the HSR form.
How This Information Gets Used
The Agencies have determined that Select 801.30 transactions “often carry low antitrust risk” and therefore warrant simpler reporting requirements than other forms of transactions. In practice, the Agencies are likely to review Select 801.30 transactions only briefly, to ensure that there are no unusual circumstances at stake that might raise competitive concerns.
Illustration
“Activist Investor” plans to acquire 5% of the stock of “Corporation” through open-market purchases, for a purchase price that exceeds the HSR threshold. Corporation has no knowledge or involvement in Activist Investor’s plans. Activist Investor intends to influence Corporation’s management but will not have any right to serve, appoint, veto, or approve board members. Accordingly, the acquisition qualifies as a “Select 801.30 transaction.”
Under the HSR Rules, Activist Investor must inform Corporation of certain details about its acquisition plans, including (i) informing Corporation that Activist Investor will be making an HSR filing for the acquisition and (ii) advising Corporation that it may be required to do so as well. Because the acquisition qualifies as a Select 801.30 transaction, both parties’ respective HSR filings will be simpler than they otherwise would need to be.
In terms of timing, assume that Activist Investor sends the required notice to Corporation on Day 1 and makes its HSR filing that same day. Under the HSR rules, Corporation must make its own HSR filing no later than 15 calendar days later (with extensions for holidays or weekends), i.e., by Day 16. In this situation, the HSR waiting period will begin to run on Day 1, with the receipt of Activist Investor’s HSR filing. The waiting period will expire 30 calendar days later (with extension or holidays or weekends), i.e., by Day 31, unless the Agencies grant early termination or request additional information.
Frequently Asked Questions
Q. What kinds of transactions are subject to Section 801.30 of the HSR rules?
A. Section 801.30 of the HSR rules applies to:
- Acquisitions made via national stock exchanges or registered interdealer quotation systems;
- Tender offers;
- “Secondary acquisitions” (e.g., if Corporation A holds 10% of the stock of Corporation B, then an acquisition of 100% of the stock of Corporation A would entail a “secondary” acquisition of 10% of the stock of Corporation B);
- Acquisitions from third-party investors (e.g., if Investor A owns stock of Corporation B, which Investor A then sells to Investor C);
- “Conversions” (e.g., converting debt into voting securities); or
- Certain exercises of options or warrants.
Q. If a transaction is subject to Section 801.30, can I assume the transaction qualifies as a “Select” 801.30 transaction?
A. Only some acquisitions that are subject to Section 801.30 will qualify as a “Select” 801.30 transaction. For example, if the acquirer will obtain a 50%-or-greater interest in the target as a result of the acquisition, then the acquisition will confer “control” over the target and thus will not qualify as a “Select” 801.30 transaction. Additionally, if the acquirer has (or will attain) rights to appoint or veto board members, then that right will defeat “Select” 801.30 status.
Additionally, if there is an agreement in place or contemplated between the buyer and the target, then that agreement can defeat “Select” status. For example, take a transaction where Investor A owns stock of Corporation B, which Investor A intends to sell to Investor C. Sometimes, a deal like this might be negotiated directly between Investor A and Investor C, with no involvement by Corporation B. But other times, Corporation B might be intimately involved in negotiating this transaction. In that case, where Corporation B is a party to the agreement whereby Investor A will sell its interest to Investor C, then Corporation B’s involvement in the agreement will defeat “Select” status.
Q. What kind of agreement would there need to be between buyer and target to defeat “Select” 801.30 status?
A. As written, the HSR rules suggest that any agreement (or contemplated agreement) in place between any entity within the acquiring person and acquired person will defeat “Select” status. But it is unclear how closely the Agencies will follow this language. If the target has a role in executing the acquisition, then that will tend to suggest that the acquisition is not a “Select” 801.30 transaction. But if the buyer happens to have an unrelated, ordinary-course agreement in place with the target (e.g., if the buyer happens to be a minor customer of the target), there is an argument that “Select” 801.30 status should still remain appropriate. The FTC will likely provide guidance on this issue on an individualized basis as specific questions arise.
If you have questions about “Select” 801.30 transactions or related issues, contact the author or your Foley & Lardner attorney. Click here to access all of the Foley Antitrust & Competition Practice Group’s HSR Primers.
