[Federal Register Volume 65, Number 66 (Wednesday, April 5, 2000)]
[Notices]
[Pages 17880-17883]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-8426]


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FEDERAL TRADE COMMISSION


Premerger Notification: Reporting and Waiting Period Requirements

AGENCY: Federal Trade Commission.

ACTION: Notice of issuance of Formal Interpretation 17.

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SUMMARY: The Premerger Notification Office (``PNO'') of the Federal 
Trade Commission (``FTC''), with the concurrence of the Assistant 
Attorney General in charge of the Antitrust Division of the Department 
of Justice (``DOJ''), is adopting a Formal Interpretation of the Hart-
Scott-Rodino Act, (``the HSR Act,'' ``the Act''), which requires 
persons planning certain mergers, consolidations, or other acquisitions 
to report information about the proposed transactions to the FTC and 
DOJ in order to allow for effective premerger antitrust review. The Act 
exempts from Hart-Scott-Rodino premerger review certain classes of 
acquisitions that require premerger competitive review by a specialized 
regulatory agency. This Interpretation describes the PNO's position 
regarding transactions that may occur under the recently enacted Gramm-
Leach-Bliley Act that have some portions subject to advance competitive 
review by a banking agency and other, non-bank portions that are not 
subject to such review. Under the Interpretation, the non-bank portion 
of such a transaction is subject to the reporting requirements of the 
HSR Act regardless of whether the non-bank business is housed in an 
affiliate of a financial holding company or a financial subsidiary of a 
bank. The Interpretation also addresses HSR treatment of certain 
transactions in which portions of the transaction require approval 
under different sections (section 3 and section 4) of the Bank Holding 
Company Act. This Interpretation does not address questions concerning 
how to apply the HSR rules to the portion of a mixed transaction that 
is subject to the HSR Act. These issues will be addressed by the PNO on 
a case-by-case basis.\1\
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    \1\ Parties wishing to determine the application of the HSR Act 
and the Rules to a particular set of facts will find source 
materials on the FTC Web site at www.ftc.gov. Parties may also call 
the PNO for advice at (202) 326-3100.

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DATES: Formal Interpretation 17 is effective on April 3, 2000.

FOR FURTHER INFORMATION CONTACT: Marian R. Bruno, Assistant Director, 
telephone (202) 326-2846, or Thomas F. Hancock, Attorney, telephone 
(202) 326-2946; Premerger Notification Office, Bureau of Competition, 
Room 301, Federal Trade Commission, Washington, DC 20580.

SUPPLEMENTARY INFORMATION: The text of Formal Interpretation Number 17 
is set out below:
    FORMAL INTERPRETATION 17, PURSUANT TO Sec. 803.30 OF THE PREMERGER 
NOTIFICATION RULES, 16 CFR Sec. 803.30, REGARDING FILING OBLIGATIONS 
FOR CERTAIN ACQUISITIONS INVOLVING BANKING AND NON-BANKING BUSINESSES 
UNDER THE (c)(7) AND (c)(8) EXEMPTIONS OF THE HART-SCOTT-RODINO ACT AS 
AMENDED BY THE GRAMM-LEACH-BLILEY ACT
    Pursuant to Sec. 803.30 of the Hart-Scott-Rodino premerger 
notification rules (``the rules''), the Premerger Notification Office 
(``PNO'') of the Federal Trade Commission (``FTC''), with the 
concurrence of the Assistant Attorney General in charge of the 
Antitrust Division of the Department of Justice (``DOJ'', collectively, 
``the enforcement agencies''), issues this formal interpretation of the 
Hart-Scott-Rodino Act, as amended.

The Gramm-Leach-Bliley Act

    The Gramm-Leach-Bliley Act, Public Law 106-102, was signed into law 
by President Clinton on November 12, 1999. Title I of Gramm-Leach-
Bliley, Facilitating Affiliation Among Banks, Securities Firms and 
Insurance Companies, generally became effective March 11, 2000. Under 
the new law, bank holding companies and banks are allowed to affiliate 
with companies that participate in financial services markets that were 
previously off limits to such entities. In particular, Gramm-Leach-
Bliley repeals the restrictions on banks affiliating with securities 
firms contained in sections 20 and 32 of the Glass-Steagall Act. The 
statute creates a new ``financial holding company'' category under 
section 4(k) of the Bank Holding Company Act (``BHCA''). Such holding 
companies can engage in a statutorily provided list of financial 
activities, including insurance and securities underwriting and agency 
activities, merchant banking and insurance company portfolio investment 
activities. Other financial activities and activities incidental to 
financial activities may be approved if the Federal Reserve Board and 
the Treasury Department agree. Activities that are ``complementary'' to 
financial activities are also authorized and such activities may be 
specified by the Federal Reserve Board at a later date. A bank holding 
company that does not become a financial holding company can continue 
to engage in activities closely related to banking, such as trust 
services, data processing services, investment advising and ATM network 
ownership, under section 4(c)(8) of the BHCA.
    Gramm-Leach-Bliley also allows a national bank that meets certain 
standards to engage in the same new financial activities in ``financial 
subsidiaries,'' except for insurance underwriting, merchant banking 
(which may be approved as a permissible activity beginning five years 
after enactment), insurance company portfolio investments, and, unless 
permitted by other law, real estate development and real estate 
investment. Other financial activities and activities incidental to 
financial activities may be approved if the Federal Reserve Board and 
the Treasury Department agree. The aggregate assets of all financial 
subsidiaries must not exceed 45% of the parent bank's assets or $50 
billion, whichever is less. National banks may continue to have 
traditional operating subsidiaries. Gramm-Leach-Bliley prohibits 
operating subsidiaries of

[[Page 17881]]

national banks from doing anything that a bank cannot do directly.\2\
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    \2\ Gramm-Leach-Bliley also recognizes that state banks may have 
subsidiaries that engage in the same activities as financial 
subsidiaries, subject to certain restrictions. It does not eliminate 
existing authority for subsidiaries of state banks to engage in 
state-authorized activities not permissible for national banks or 
their subsidiaries, subject to approval by the Federal Deposit 
Insurance Corporation.
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Amendments to the HSR Act Made by Gramm-Leach-Bliley

    The HSR Act exempts from HSR premerger antitrust review several 
classes of acquisitions that are ``already subject to advance antitrust 
review'' by other agencies, thus avoiding duplicative reporting. See 
H.R. Rep. No. 1373, 94th Cong., 2d Sess. 6 (1976).
    Section 133(c) of Gramm-Leach-Bliley amended the HSR Act's (c)(7) 
exemption, pertaining to transactions which require agency approval 
under section 3 of the BHCA, section 18(c) of the Federal Deposit 
Insurance Act (``FDI Act''), or section 10(e) of the Home Owners'' Loan 
Act, and the HSR Act's (c)(8) exemption, pertaining to transactions 
which require agency approval under section 4 of the BHCA or section 5 
of the Home Owners' Loan Act. Specifically, the HSR Act's (c)(7) 
exemption, 15 USC Sec. 18a(c)(7), as amended by section 133(c)(1) of 
Gramm-Leach-Bliley, provides an exemption from HSR requirements for 
``transactions which require agency approval under * * * section 
1828(c) of title 12 [section 18(c) of the FDI Act], or section 1842 of 
title 12 [Section 3 of BHCA], except that a portion of a transaction is 
not exempt under this paragraph if such portion of the transaction (A) 
is subject to section 4(k) of the Bank Holding Company Act of 1956; and 
(B) does not require agency approval under section 3 of the Bank 
Holding Company Act of 1956.'' (Language added by section 133(c)(1) is 
italicized.)
    The HSR Act's (c)(8) exemption, 15 USC Sec. 18a(c)(8), pertaining 
to transactions which require agency approval under section 4 of the 
BHCA, is amended in a parallel fashion by section 133(c)(2) of Gramm-
Leach-Bliley. Section (c)(8) of the HSR Act exempts such transactions 
provided that the materials filed with the agency are contemporaneously 
submitted to the enforcement agencies at least thirty days prior to 
consummation.

Treatment of Mixed Bank and Non-Bank Transactions

    It has always been the case that some transactions are ``mixed,'' 
that is, have some aspects or portions subject to regulatory agency 
premerger competitive review and approval and other aspects or portions 
not. Such mixed transactions can and have occurred involving all 
regulated industries, including banking, as discussed below. The PNO's 
longstanding position has been to treat the portion of a mixed 
transaction not subject to advance competitive review and approval by a 
regulatory agency as being subject to the HSR Act.\3\ Moreover, when 
the Commission (with the concurrence of the Department of Justice) 
promulgated Sec. 802.6(b) of the rules in 1983 to exempt from the HSR 
Act ``any transaction which requires approval by the [CAB] prior to 
consummation,'' the agencies made clear in the rule that the non-
aeronautic part of a transaction--which did not require such approval--
was essentially to be treated as a separate transaction potentially 
reportable under the HSR Act.
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    \3\ This PNO position has been noted by HSR practitioners and 
commentators. See, e.g., American Bar Association Section of 
Antitrust Law, Premerger Notification Practice Manual (1991 ed.) 
Interpretations 33, 36; S. Axinn, Acquisitions Under the Hart-Scott-
Rodino Antitrust Improvements Act (1996) Sec. 6.06[3][b].
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    The PNO views the amendments of the HSR Act made by section 133(c) 
of the Gramm-Leach-Bliley Act as confirming that the PNO's longstanding 
treatment of mixed transactions is to be applied to transactions 
involving the banking industry. As described below, the non-bank 
portion of a transaction is subject to the reporting requirements of 
the HSR Act, regardless of whether the non-bank business is housed in 
an affiliate of a financial holding company or a financial subsidiary 
of a bank.\4\
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    \4\ Of course, a comparable approach to mixed transactions also 
applies to transactions involving thrifts or thrift holding 
companies.
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    The Joint Explanatory Statement of the Committee of Conference 
contained in the Conference Report demonstrates that Congress 
considered section 133(c) of Gramm-Leach-Bliley to be a clarification 
and affirmation of the existing treatment of mixed transactions under 
HSR:
    This clarification for the new [financial holding company] 
structure is consistent with, and does not disturb, existing law and 
precedents under which mergers involving complex corporate entities, 
some parts of which are in industries subject to merger review by 
specialized regulatory agencies and other parts of which are not, are 
considered according to agency jurisdiction over their respective 
parts, so that normal H-S-R Act requirements apply to those parts that 
do not fall within the specialized agency's specific authority. See 16 
C.F.R. Sec. 802.6.

Cong. Rec. H11296 (Nov. 2, 1999).
    The PNO's interpretation of the HSR exemptions amended by Gramm-
Leach-Bliley is further guided by the explanatory Floor Remarks of 
House Judiciary Committee Chairman Hyde:
    Under current law, bank mergers are reviewed under special bank 
merger statutes, and they do not go through the Hart-Scott-Rodino 
merger review process that covers most other mergers. Now banks will be 
able to get into other businesses which they have not been able to do 
before.
    The principle that we have followed is that when mergers occur, the 
bank part of that merger will be judged under the current bank merger 
statutes, and we do not intend any change in that process or in any of 
the agencies' respective jurisdictions. The non-bank part of that 
merger will be subject to the normal Hart-Scott-Rodino merger review by 
either the Justice Department or the Federal Trade Commission.
    This is, in all likelihood, the result that would have been 
obtained anyway. Hybrid transactions involving complex corporate 
entities--some parts of which are in industries subject to merger 
review by specialized regulatory agencies and other parts of which are 
not--have occurred in the past. In those cases, the various parts of 
the consolidation were considered according to agency jurisdiction over 
the respective parts, so that normal Hart-Scott-Rodino Act requirements 
applied to those parts that did not fall within the specialized 
agency's specific authority. See, e.g., 16 CFR Sec. 802.6. I think the 
precedents would have already dictated the desired result here.
    In short, under this bill and the precedents, no bank is treated 
differently than it otherwise would be because it has some other 
business within its corporate family. Likewise, no other business is 
treated differently than it otherwise would be because it has a bank 
within its corporate family.

Cong. Rec. H11549 (Nov. 4, 1999).
    The HSR Act (c)(7) exemption, as amended, expressly addresses 
acquisitions in which a bank and its financial affiliate are being 
acquired by a financial holding company (the affiliate structure). The 
financial affiliate portion of that transaction is not exempt from the 
HSR Act, because it is subject to section 4(k) and does not require 
Federal Reserve Board approval under section 3 of the BHCA. Gramm-
Leach-Bliley does not expressly address acquisitions of a bank with a 
financial subsidiary by another bank or holding

[[Page 17882]]

company (the subsidiary structure). Chairman Hyde explained the absence 
of an express clarification regarding the subsidiary structure similar 
to the clarification that expressly addresses the affiliate structure:
    As the shape of the new activities in which banks were going to be 
permitted to engage through operating subsidiaries became clear in 
conference, the conferees ideally would have further revised the House 
language to make a similar clarification, regarding consolidations of 
non-banking entities that are operating subsidiaries of merging banks. 
But the operating subsidiary situations so closely parallels the 
precedents I have mentioned that a clarification for that situation was 
probably unnecessary.
    Of course, whatever aspect of a banking merger is not subject to 
normal Hart-Scott-Rodino premerger review will be subject to the 
alternative procedures set forth in the Bank Merger Act and the Bank 
Holding Company Act, including the automatic stay. So one way or 
another, there will be some avenue for effective premerger review by 
the antitrust agencies. These alternative procedures would be in some 
ways more potentially disruptive to the merging banking entities, 
particularly when the antitrust concern involves non-banking entities. 
But it is our intent that the precedents will be followed.

Cong. Rec. H11549, Floor Statement of Chairman Hyde (Nov. 4, 1999).
    Accordingly, consistent with the intent of Congress, the PNO 
interprets the HSR Act, as amended by section 133(c) of Gramm-Leach-
Bliley, as reaching the non-bank portion of a transaction when housed 
in a financial subsidiary of a bank as well as when housed in an 
affiliate of a financial holding company. Thus, in acquisitions of a 
bank with a financial subsidiary (or of a holding company in which a 
bank has a financial subsidiary) by another bank or holding company, 
the acquisition of the financial subsidiary will be reportable under 
the HSR Act if the applicable size-of-person and size-of-transaction 
tests are met and no other exemption applies.

A Related Point

    As noted above, the HSR Act (c)(7) exemption covers transactions 
which require agency approval under section 3 of the BHCA. The HSR Act 
(c)(8) exemption applies to transactions which require agency approval 
under section 4 of the BHCA if copies of materials filed with such 
agency are contemporaneously filed with the enforcement agencies at 
least 30 days prior to consummation. If a bank holding company acquired 
another bank holding company that has one or more so-called ``4(c)(8) 
affiliates,'' \5\ approvals would be required under both section 3 and 
section 4 of the BHCA.\6\ The question has arisen--and may continue to 
arise with Gramm-Leach-Bliley in effect--whether parties to such a 
transaction need comply with the copies/waiting conditions of the 
(c)(8) exemption for the section 4 part of the transaction or may 
instead regard (c)(7) as covering the entire transaction. Based on 
discussions with Federal Reserve Board staff, we believe that in this 
type of transaction, the Federal Reserve Board review and approval 
under section 3 of the BHCA does not entail competitive review and 
approval of the section 4 portion of the transaction. Accordingly, 
parties to a transaction that involves approvals under section 3 and 
section 4 of the BHCA should comply with the copies/waiting conditions 
of the HSR Act (c)(8) exemption for the section 4 part of the 
transaction.\7\
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    \5\ A bank holding company can acquire a company engaged in 
activities closely related to banking if it gets approval under 
section 4 of the BHCA.
    \6\ By way of contrast, when a financial holding company 
acquires another financial holding company that has section 4(k) 
financial affiliates, the acquisition of the financial affiliates 
does not require Federal Reserve Board approval.
    \7\ In the past, the PNO informally advised that the (c)(7) 
exemption could be relied on exclusively in such a transaction. This 
advice was based on the belief that all portions of the transaction 
were reviewed by the Federal Reserve Board under section 3. This 
view is no longer held by the PNO.
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    The following Examples illustrate the application of this Formal 
Interpretation. In these Examples, ``subject to HSR'' means that the 
parties will have to comply with HSR notification and waiting 
requirements if applicable size criteria and thresholds are met and no 
other exemption applies.
    1. Financial Holding Company A acquires Bank B. B does not own any 
financial subsidiaries. This is a transaction which requires Federal 
Reserve Board approval under section 3 of the BHCA and there is no non-
bank part of this merger. The transaction is exempt from the HSR Act 
under (c)(7).
    2. Financial Holding Company A acquires Securities Company B. This 
transaction does not require banking agency approval under any of the 
relevant banking statutes, and is thus not covered by the HSR Act 
(c)(7) or (c)(8) exemptions. The acquisition is subject to the HSR Act.
    3. Financial Holding Company A acquires Financial Holding Company 
B. B owns banks and financial affiliates, including insurance companies 
and securities companies. While A's acquisition of B's banks is exempt 
under HSR section (c)(7), the acquisition of the financial affiliates 
is subject to HSR. This situation is expressly addressed by the 
language of section (c)(7) as amended by Gramm-Leach-Bliley. The 
acquisition of the financial affiliates is a portion of a transaction 
that is subject to section 4(k) of the BHCA and does not require agency 
approval under section 3 of the BHCA. If in this Example B owned 
4(c)(8) affiliates such as thrifts in addition to banks and financial 
affiliates, A's acquisition of B's 4(c)(8) affiliates would require 
Federal Reserve Board approval under section 4 of the BHCA. HSR Act 
section (c)(8) as amended by Gramm-Leach-Bliley would exempt A's 
acquisition of B's 4(c)(8) affiliates (provided that A complied with 
the requirements of that section--see Example 7), but the acquisition 
of the financial affiliates would still be subject to HSR. Under HSR 
Act sections (c)(7) and (c)(8) as amended, the acquisition of the 
financial affiliates would be a portion of a transaction that is 
subject to section 4(k) of the BHCA and does not require agency 
approval under section 3 or section 4 of the BHCA.
    4. Securities company A will acquire Bank B. B does not own any 
financial subsidiaries. In order to make the acquisition, A must apply 
to become a financial holding company. Because the acquisition of B 
requires Federal Reserve Board approval under section 3 of the BHCA and 
there is no non-bank business being acquired, this transaction is 
exempt under HSR Act section (c)(7). See Example 1.
    5. Bank A acquires Securities Company B as a financial subsidiary 
under Gramm-Leach-Bliley. This transaction does not require banking 
agency approval under any of the banking statutes referenced in the HSR 
Act, and is thus not exempted by HSR Act sections (c)(7) or (c)(8). The 
acquisition is subject to HSR. See Example 2. Note that if Bank A, 
instead of acquiring a financial subsidiary, had acquired Mortgage 
Company B as a traditional operating subsidiary, either before or after 
the Gramm-Leach-Bliley Act takes effect, that transaction also would 
not require banking agency approval under any of the relevant banking 
statutes specified in the HSR Act (c)(7) and (c)(8) exemptions, and 
thus would be subject to HSR.
    6. Bank A from Example 5, which now holds Financial Subsidiary B, 
is acquired by Bank C. While C's acquisition of A requires agency 
approval (by the Office of the

[[Page 17883]]

Comptroller of the Currency, Federal Reserve Board or Federal Deposit 
Insurance Corporation, depending on whether C is a national bank, state 
member bank, or state non-member bank) under section 18(c) of the FDI 
Act and is exempt under HSR section (c)(7), the acquisition of 
financial subsidiary B is subject to HSR. If in this example C is not a 
Bank but rather a financial holding company, bank holding company or a 
securities firm, the result is the same. The non-bank portion of a 
merger is subject to HSR regardless of whether the non-bank business is 
housed in an affiliate of a financial holding company or a financial 
subsidiary of a bank.
    7. A and B are bank holding companies that have not become 
financial holding companies under Gramm-Leach-Bliley. They may engage 
in activities closely related to banking under section 4(c)(8) of the 
BHCA, but not in the broader array of activities allowed under section 
4(k). A acquires B, including the banks owned by B and non-bank section 
4(c)(8) affiliates. The acquisition of the banks requires Federal 
Reserve Board approval under section 3 of the BHCA and is exempt under 
HSR Act section (c)(7). The acquisition of the non-bank affiliates 
requires Federal Reserve Board approval under section 4 of the BHCA and 
is exempt under HSR Act section (c)(8) if copies of all information and 
documents filed with the Federal Reserve Board are filed 
contemporaneously with the FTC and DOJ at least 30 days prior to 
consummation. Although the parties need not make HSR filings, (c)(7) 
does not exempt the entire transaction, and the copies/30-day 
requirements of the (c)(8) exemption must be observed for the non-
banking affiliates.
    8. A is a national bank that has one or more operating subsidiaries 
but does not have any financial subsidiaries. Under Gramm-Leach-Bliley, 
A's operating subsidiaries cannot engage in any activities that A 
cannot engage in directly. If A is to be acquired by another entity, 
the PNO will view this for purposes of HSR as a purely banking 
transaction that requires agency approval under section 3 of the Bank 
Holding Company Act or section 18(c) of the FDI Act and not as a mixed 
transaction. The entire transaction will be exempt under HSR Act 
section (c)(7).
    9. Ten entities plan to form and each have a 10% interest in a new 
corporation, A, which will own and operate an ATM network. Formation of 
joint venture corporations is generally analyzed under Sec. 801.40 of 
the rules, which may require one or more of the contributors to the 
joint venture to file under the HSR Act for the acquisition of voting 
securities of the joint venture. For HSR purposes, the formation of A 
involves ten potentially reportable acquisitions. Each contributor that 
is a bank holding company will require Federal Reserve Board approval 
for its acquisition under section 4 of the BHCA, and accordingly, each 
such acquisition is exempt under HSR Act section (c)(8). In addition, a 
special rule, Sec. 802.42, applies, if at least one of the ten entities 
forming A is a bank holding company whose acquisition of A is exempt 
pursuant to the (c)(8) exemption. In that case, under Sec. 802.42, the 
contributors that are not bank holding companies and whose acquisitions 
of A are not exempted by HSR Act section (c)(8) receive a partial 
exemption. These entities can file the affidavits described in Rule 
802.42(a) in lieu of filing HSR Forms, but otherwise remain subject to 
the Act and Rules (e.g., waiting period; second requests).
    10. Corporation A from Example 9, an ATM network owned by ten 
entities, now plans to acquire another ATM network, B. For HSR 
purposes, there will be one acquisition with A as the acquiring person. 
If any of the ten entities that own A is a bank holding company, it 
will need Federal Reserve Board approval under section 4 of the BHCA. 
The PNO will apply the rationale of the HSR Act section (c)(8) and 
Sec. 802.42 in such an instance. Accordingly, the PNO will treat A's 
acquisition of B as exempt under HSR Act section (c)(8) if: (i) At 
least one of the entities owning A must get Federal Reserve Board 
approval under section 4 of the BHCA; and (ii) each such entity that 
must get such Federal Reserve Board approval complies with the 
requirements of HSR section (c)(8) by filing copies of all information 
and documentary material filed with the Federal Reserve Board with the 
FTC and DOJ contemporaneously and at least 30 days prior to 
consummation of the proposed transaction. If A's acquisition of B does 
not require any approval under section 4 of the BHCA (because none of 
the owners of A is a bank holding company), then A's acquisition of B 
will be subject to HSR. The PNO believes that this treatment of mergers 
of ATM networks assures effective premerger competitive review while 
avoiding duplicative review and minimizing burdens and costs for the 
parties.

Donald S. Clark,
Secretary.
[FR Doc. 00-8426 Filed 4-4-00; 8:45 am]
BILLING CODE 6750-01-P