[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 [email protected] 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