[Federal Register Volume 67, Number 52 (Monday, March 18, 2002)]
[Rules and Regulations]
[Pages 11898-11904]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-6251]



[[Page 11898]]

=======================================================================
-----------------------------------------------------------------------

FEDERAL TRADE COMMISSION

16 CFR Parts 801 and 802


Premerger Notification; Reporting and Waiting Period Requirements

AGENCY: Federal Trade Commission.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The Federal Trade Commission is amending the premerger 
notification rules, which require the parties to certain mergers or 
acquisitions to file reports with the Commission and with the Assistant 
Attorney General in charge of the Antitrust Division of the Department 
of Justice and to wait a specified period of time before consummating 
such transactions, pursuant to section 7A of the Clayton Act. The 
filing and waiting period requirements 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. 
The rule amendments are necessary to address public comments regarding 
the proposed rules published February 1, 2001, and will increase the 
clarity and improve the effectiveness of the rules.

DATES: These final rules are effective on April 17, 2002.

FOR FURTHER INFORMATION CONTACT: Marian R. Bruno, Assistant Director, 
Karen E. Berg, Attorney, or B. Michael Verne, Compliance Specialist, 
Premerger Notification Office, Bureau of Competition, Room 303, Federal 
Trade Commission, 600 Pennsylvania Avenue, NW., Washington, DC 20580. 
Telephone: (202) 326-3100.

SUPPLEMENTARY INFORMATION: On February 1, 2001, the Commission 
published in the Federal Register interim and proposed rules amending 
the Hart-Scott-Rodino rules (``HSR rules'') contained in 16 CFR parts 
801, 802 and 803. The interim rules took effect upon publication in the 
Federal Register and implemented amendments to section 7A of the 
Clayton Act enacted on December 21, 2000 (``2000 Amendments''). The 
proposed rules recommended other changes improving and updating the HSR 
rules and did not take effect upon publication. Both sets of rules 
invited public comments.
    The Commission, with the concurrence of the Assistant Attorney 
General, is adopting the proposed rules, previously published on 
February 1, 2001, as final with certain further changes in response to 
the public comments, as described below. The Commission received 
eighteen public comments addressing either or both the interim rules 
(66 FR 8679-8721) and the proposed rules (66 FR 8723-8729). Fifteen of 
the eighteen public comments received pertained to the proposed rules.
    The following provided public comments on the proposed rules to the 
Commission:

1. Baker & McKenzie (3/19/01)
2. Dockstader, Robert A. (3/19/01)
3. Ford Motor Company (Bolerjack, Stephen D.) (3/19/01)
4. Fulbright & Jaworski LLP (Wellington, Daniel L.) (3/19/01)
5. Jones, Day, Reavis & Pogue (Smith, Tom D.) (3/19/01)
6. McDermott, Will & Emery (Bloch, Ronald A.) (3/19/01)
8. National Association of Manufacturers (NAM) (3/29/01)
10. Otis, Steve (2/14/01)
11. Paul, Weiss, Rifkind, Wharton & Garrison (Malaquin, Didier) (3/
1/01)
12. Gibson, Dunn & Crutcher (Pfunder, Malcolm R.) (3/19/01)
13. Section of Antitrust Law of the American Bar Association (3/19/
01)
14. Shearman & Sterling (Prince, Kenneth S.) (3/19/01)
15. Skadden, Arps, Slate, Meagher & Flom, LLP (Stoll, Neal R. Esq., 
et al) (3/19/01)
16. Kirkland & Ellis (Sonda, James and Jachino, Dani) (3/19/01)
17. Willkie, Farr & Gallagher (Gartner, Steven J.) (3/19/01)

PART 801--COVERAGE RULES

    No public comments were received concerning Part 801 of the 
proposed rules. These proposed changes include updating examples in 
Secs. 801.4, 801.14 and 801.90; and amending Sec. 801.15 to reflect the 
$50 million nexus with U.S. commerce threshold for foreign transactions 
and give proper reference to other rules sections. The Commission is 
adopting those proposed rules as final without change.

PART 802--EXEMPTION RULES

Section 802.2  Certain acquisitions of real property assets.

    The proposed rules would amend Sec. 802.2(g), mainly by removing 
``associated agricultural assets'' from the agricultural real property 
exemption. Under the current rules, such assets are defined as assets 
that are integral to the agricultural business activities conducted on 
the property, including inventory (e.g., livestock, poultry, crops, 
fruit, vegetables, milk, eggs), structures that house livestock raised 
on the real property, fertilizer, and animal feed.
    Comment 12 questioned the justification for removing the associated 
agricultural assets--particularly structures and inventories of crops, 
animal feed or fertilizer--from the exemption. The comment suggested 
that acquisitions of these assets would not potentially be of 
substantive antitrust interest.
    The Commission has concluded that it is appropriate to remove 
associated agricultural assets from this real property exemption, as 
proposed. As the Statement of Basis and Purpose (``SBP'') to the 
Proposed Rules states, doing so will eliminate whatever ambiguity may 
arguably exist in the definition of ``associated agricultural assets.'' 
It also refocuses the rule on agricultural real property which was the 
initial intent of the exemption when promulgated. The more-than-
threefold increase in the statutory size-of-transaction test to $50 
million will continue to exempt acquisitions of agricultural property 
unless the additional assets being acquired--whether within or beyond 
the definition of ``associated agricultural assets''--are valued in 
excess of $50 million. The Commission believes that the elimination of 
``associated agricultural assets'' from the agricultural property 
exemption simplifies the rule without significantly limiting the 
applicability of that exemption. If a significant number of 
agricultural property transactions are reported under HSR because of 
the ``associated agricultural assets'' conveyed in the transaction, the 
Commission can revisit the language of Sec. 802.2(g).

Section 802.6  Federal agency approval.

    Proposed Sec. 802.6(b) was revised to state a general rule 
regarding mixed transactions rather than one that is industry specific. 
No comments were received regarding this rule revision, therefore the 
Commission is adopting this Proposed Rule as final without change.

Section 802.8  Certain supervisory acquisitions.

    Proposed Sec. 802.8 corrected a typographical error. No comments 
were received regarding this rule revision, therefore the Commission is 
adopting this Proposed Rule as final without change.

Sections 802.50 and 802.51  Foreign acquisitions.

    The Proposed Rules would restructure and amend the exemptions 
contained in Secs. 802.50 and 802.51. The Commission received fifteen 
comments regarding these proposed rules. One proposed amendment to 
these rules increases the thresholds for measuring nexus with U.S. 
commerce to $50 million from $15 million and $25 million. No comments 
were received concerning the increase to $50 million of the $15 million 
and $25 million nexus with U.S. commerce

[[Page 11899]]

thresholds contained in these exemptions. Consequently, these increased 
thresholds will be implemented without change from the Proposed Rules.
    The comments focused on five other aspects of the proposed rules: 
(1) The period used to determine sales in or into the U.S.; (2) the 
method of valuation used for assets located in the U.S.; (3) the 
elimination of the $110 million aggregate U.S. sales and assets 
exemption for transactions valued in excess of $200 million; (4) the 
elimination of the absolute exemption for acquisitions of assets 
located outside of the U.S. by a foreign person; and (5) the 
applicability of aggregation of the sales and assets of multiple 
foreign issuers from the same acquired person to both U.S. and foreign 
acquiring persons.
    The Commission is adopting Proposed Secs. 802.50 and 802.51 as 
final, with two changes in response to these public comments. First, 
the measure of sales in or into the U.S. will be sales of the most 
recent fiscal year, rather than the sum of the most recent fiscal 
year's sales and sales year-to-date, as proposed. The Commission 
believes that the burden on the parties of determining any measure of 
sales in or into the U.S. beyond the most recent fiscal year of the 
parties may well outweigh the benefit to the agencies in capturing 
transactions involving a recent upswing in U.S. sales. Second, 
Sec. 802.51 will be amended to correct a drafting error which resulted 
in aggregation of sales in or into the U.S. and assets located in the 
U.S. being applicable only to foreign persons acquiring multiple 
foreign issuers from the same acquired person. This error was 
discovered shortly after publication and will be corrected with 
additional language in paragraph (a) of the rule. This correction makes 
it clear that this aspect of the rule is intended to apply to 
acquisitions by both U.S. and foreign acquiring persons. These 
provisions, as well as others addressed by the comments, are discussed 
below. Finally, in a technical correction, the reference to 
Sec. 801.40(c)(2) in paragraphs 802.50(b)(3), 802.51(a)(1), 
802.51(b)(1), and 802.51(c)(3), has been changed to Sec. 801.40(d)(2) 
to reflect the renumbering of that section.
(1) The Measure of Sales in or Into the United States
    Comments 1-6 and 10-17 criticized the proposed requirement that 
sales in or into the U.S. be calculated by adding those sales from the 
last fiscal year to such sales generated to date since the end of that 
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 proposed change 
reflected the recognition that sales figures based on a party's most 
recent fiscal year may be several months out of date and was intended 
to ensure that where U.S. sales generated by foreign assets and voting 
securities trend steeply upward prior to the acquisition, a filing 
would be required if that trend resulted in over $50 million in U.S. 
sales. The comments expressed a variety of concerns and offered several 
alternatives.
    Comment 1 stated that this proposed method of calculating combined 
sales would, in many transactions, remove all benefit of the increased 
$50 million threshold for U.S. sales. It further noted that the 
requirement to combine sales could result in a filing obligation even 
where U.S. sales have been stagnating or even declining. The comment 
suggested that the requirement would produce widely disparate results 
based solely on when the transaction closes (i.e., transactions that 
propose to close later in the year will be less likely to be able to 
claim the exemption than those that close early in the year). The 
comment proposed that the agencies' goal could be accomplished by 
requiring the comparison of U.S. sales over a two year period, and 
determining the applicability of an exemption based on the greater of 
U.S. sales for a single year in that period.
    Comments 2, 3, 13 and 15 addressed the same concerns and suggested 
an alternative approach of using the higher of the most recent fiscal 
year's sales or estimated sales for the current year-to-date. Comment 
13 further predicted that the proposed change would substantially 
narrow the exemption previously available and increase the number of 
transactions that are reportable.
    Comment 4 suggested that a more equitable method would be to 
determine sales in the twelve months prior to filing or closing the 
transaction, calculated within sixty calendar days prior to filing 
notification or, if no filing is required, within sixty calender days 
of closing.
    Comment 5 stated that determining the value of sales in or into the 
U.S. is often extraordinarily complex and time-consuming and that the 
proposed revisions do not reduce that burden. It further noted that 
while corporations have methods for analyzing such data, these methods 
are generally geared toward quarterly and annual assessments and are 
virtually never performed on an ad hoc basis. Outside of the audit 
procedures currently in place, it suggested that it is not practical, 
and perhaps not even possible, to take a meaningful snapshot of current 
revenues. The comment recommended deleting the requirement that current 
year sales be analyzed.
    Comment 6 observed that throughout the rules, the determination of 
sales is always on an annual basis and is found in the reporting 
person's last year-end, consolidated statement of operations. It 
further opined that there is no suggestion that anti-competitive 
mergers have escaped review because of sharp upward trends in U.S. 
sales.
    Comment 10 questioned why the rules for a foreign exemption should 
be particularly concerned about changes to sales since the end of the 
last fiscal year, when Sec. 801.11 (measuring net sales for the size-
of-person test) is not. Comment 12 similarly questioned why the change 
seeks to address an issue (a recent increase in U.S. sales) which 
arises in both foreign and domestic transactions, and no similar change 
is proposed for dealing with domestic transactions. It also suggested 
the possible approach of using the greater of the previous year's sales 
or sales year-to-date, but noted that the approach would still suffer 
from inconsistency with other provisions in the rules and further 
observed that current information is often difficult to obtain from 
foreign entities.
    Comments 11, 14, and 16 noted that requiring the aggregation of 
sales since the end of the preceding fiscal year will lead in certain 
cases to uncertainty as to whether or not a transaction is reportable 
and places on the parties to a transaction the added burden of 
monitoring the sales of a foreign target while negotiations are in 
progress. Comment 14 suggested two alternative methods of calculation. 
One method was to determine a twelve month average of sales by adding 
the last fiscal year to the sales year-to-date, dividing the total by 
the number of months included, and multiplying this figure by twelve. 
The second suggested method was to use the most recent twelve months 
calculated within sixty days of filing or closing.
    Finally, Comment 17 asserted that the proposed change, setting 
forth the time in which the calculation must be made, is unclear and 
imposes undue burden upon the parties that could generate delays in 
transactions. It proposed an alternative test of considering the 
greater of sales in the most recent fiscal year or sales over the last 
four available fiscal quarterly periods. It further stated that the 
parties should be entitled to a consistent cut-off date for calculating 
sales in or into the U.S., regardless of whether the transaction proves 
to be subject to notification. The comment

[[Page 11900]]

recommended that the parties measure these sales as of the end of the 
most recent quarterly period available as of the date the parties enter 
into an agreement, so long as no more than 135 days have elapsed since 
the end of that quarterly period. It suggested that this approach would 
provide the parties certainty; allow sufficient time to gather 
information that is not always readily available; minimize the burden 
imposed by requiring sales for a fiscal year that has not yet ended; 
properly take into account sales trends; and allow most parties to rely 
upon their existing reporting practices.
    The Commission recognizes the burden on the parties in determining 
sales in or into the U.S. for any period of time other than the filing 
person's most recent fiscal year. The Commission also agrees with the 
observation that aggregating sales from the most recent fiscal year 
with those year-to-date may have the undesirable result of making 
acquisitions reportable where sales in or into the U.S. in the current 
year may be steady or even declining. The Commission considered the 
many alternative methods suggested in the comments (e.g., most recent 
four quarters, most recent twelve months, greater of two years, greater 
of year-to-date or last fiscal year, twelve-month average) but was 
unable to discern how any of these methods would be significantly less 
burdensome than the approach put forth in the Proposed Rules. All of 
these approaches would also require compilation of data that is not 
captured in the ordinary course of business by many persons filing 
notification. Consequently, in the Final Rules, the measure of sales in 
or into the U.S. for purposes of Secs. 802.50 and 802.51 will be those 
of the most recently completed fiscal year.
(2) Valuation of Assets Located in the United States
    Comments 1, 3, 6 and 13 objected to the proposed change from book 
value to fair market value for measuring assets located in the U.S. The 
Commission believes that this change is appropriate in order to reflect 
more accurately a foreign person's nexus with U.S. commerce, to 
harmonize these sections with the rest of the rules, and to address 
questions frequently asked of the PNO concerning the use of book value 
to make this determination. Specifically, intangible assets such as 
U.S. patents and other intellectual property were often not carried on 
the books of a foreign person, and the question has frequently arisen 
as to what value should be attributed to these intangible assets and 
what method should be used to determine their book value. In these 
instances, the PNO advised parties to use fair market value.
    Comment 1 asserted that the Commission's proposal is inconsistent 
with the rest of the rules and that the implementation of a fair market 
value test would impose a new, substantial burden upon parties in 
voting securities transactions. It argued that the size-of-person test 
is based on an existing balance sheet, not on a market valuation, and 
that it is only for assets that are being acquired that the rules 
require a fair market valuation. The comment suggested that in a stock 
deal, the market value of assets is not easily determinable, and any 
excess over the book value of the assets of the acquired company is 
reflected as goodwill on the balance sheet of the acquired company, 
precisely in recognition of the difficulties of a market value 
appraisal. It further maintained that the competitive significance and 
impact on U.S. commerce of a proposed acquisition will likely not turn 
upon whether the value of the acquired company's assets located in the 
U.S. has increased since its last book value calculation.
    Comment 3 also argued that an additional burden is placed on the 
parties to extract the specific U.S. assets and determine their fair 
market value. It states that fair market valuation may be subject to 
dispute by the agencies, thus subjecting the parties to possible 
penalties, while book value is a simple, readily available value and 
provides certainty to parties seeking to determine whether the 
exemption is available. Comment 13 agreed that an additional burden is 
imposed by fair market valuation and also complained that some measure 
of certainty is lost since the agencies could dispute that valuation.
    Lastly, Comment 6 claimed that the Commission's stated 
justification for the proposed rule change appeared to lack a factual 
foundation, arguing that consistency throughout the rules requires that 
book value be retained as the measure of value. It further submitted 
that book value is readily available and that requiring the acquiring 
person to determine the fair market value of the acquired person's, and 
in some cases its own, U.S. property imposes an unreasonable new 
burden. The comment concluded that, absent compelling evidence that a 
significant number of anticompetitive transactions will escape 
premerger review without this change, the book value of U.S. assets 
should continue to govern.
    The Commission recognizes that in some instances the requirement to 
calculate the fair market value of assets located in the U.S. may 
impose additional burden on the acquiring person. However, in the vast 
majority of cases it will be readily apparent that the value of the 
assets clearly is above or below the $50 million threshold, and 
determination of whether or not the exemption is applicable will 
require a minimal amount of effort by the acquiring person.
    As to the alleged inconsistency with the methodology used in 
determining the size-of-person of a party, the Commission notes that 
the $50 million threshold in Secs. 802.50 and 802.51 is not a size-of-
person test, but rather a ``size-of-nexus with the U.S.'' test. The 
fair market value of assets located in the U.S. is a far more accurate 
assessment of the true nexus with U.S. commerce at the present time. 
The book value may be out of date and may not reflect the true value, 
especially in the case of assets which constitute an ongoing business, 
since a portion of the value of those assets may be carried on the 
books as goodwill. Also, assets may be carried on the books showing 
significant depreciation that does not reflect their actual value.
    For these reasons, the Commission believes that the potential 
burden on a small number of transactions is outweighed by the benefit 
to the agencies in requiring a current and meaningful measure of a 
transaction's nexus with U.S. commerce. Therefore, the Commission will 
adopt the proposed change to fair market value for calculating the 
value of assets located in the U.S.
(3) Elimination of the $110 Million Aggregate U.S. Sales and Assets 
Exemption for Transactions Valued in Excess of $200 Million
    Comments 1 and 13 asserted that the elimination of this exemption 
for transactions valued in excess of $200 million is inappropriate. 
Comment 1 contended that there is no discussion in the 1978 SBP of the 
import now apparently attributed by the Commission to the overall value 
of a transaction in determining whether a transaction may have an 
anticompetitive impact on U.S. commerce. It argued that the result of 
this proposed change is not consistent with the original rationale for 
creating this exemption, and that the value of a transaction outside of 
the U.S. does not indicate in any way the transaction's potential 
anticompetitive effects in the U.S. Comment 13 states that the 
elimination of this portion of the exemption will greatly narrow its 
reach.

[[Page 11901]]

    While this change may marginally narrow the exemptions, the general 
increase in the reporting threshold to over $50 million, together with 
the increase in the $15 million and $25 million nexus tests to $50 
million, will significantly expand the number of exempt foreign 
transactions.
    In the SBP for the Proposed Rules, the Commission referenced the 
1978 SBP which 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 likewise believes that it is appropriate and consistent 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 nexus test of these exemption rules is satisfied.
(4) Elimination of the Absolute Exemption for Acquisitions of Assets 
Located Outside of the U.S. by a Foreign Person
    Comment 13 claimed that the Commission sets forth no explanation as 
to why such transactions are likely to raise competitive issues in the 
U.S. in order to justify removing the exemption. The Commission clearly 
stated in the SBP to the Proposed Rules that experience at both 
agencies has shown that foreign asset acquisitions can and do have a 
direct impact on the U.S. economy and that this is more likely to be 
true where the assets generate over $50 million in sales in or into the 
U.S. Thus, the Commission continues to believe that it is appropriate 
to require that their acquisition be reported where there is a 
substantial nexus to U.S. commerce. This approach makes the rule 
consistent with the treatment of U.S. acquiring persons.
(5) Applicability of Aggregation of the Sales and Assets of Multiple 
Foreign Issuers From the Same Acquired Person to Both U.S. and Foreign 
Acquiring Persons
    Comments 11 and 17 correctly noted a section numbering error in 
Sec. 802.51. The intent was to require the aggregation of sales and 
assets of multiple foreign issuers, which are being acquired from the 
same acquired person, by both foreign and U.S. acquiring persons. This 
numbering error was discovered shortly after publication of the 
Proposed Rules and is corrected by adding paragraph (a)(3) which reads: 
``If 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.'' This 
revision will make the intent of the rule clear. An example has been 
added to illustrate the aggregation requirement.

Section 802.52  Acquisitions by or from Foreign Governmental 
Corporations

    The example in Section 802.52 has been amended to reflect the new 
$50 million threshold for measuring nexus with U.S. commerce.

Other Comments

    In addition to the above noted comments, Comment 8 opposed all 
proposed changes to the foreign exemptions on the grounds that they 
narrowed the scope of the exemptions. It recommended broadening the 
exemptions instead, but offered no suggestions as to how this should be 
accomplished. This comment, as well as Comments 1 and 3, based its 
recommendation on the International Competition Policy Advisory 
Committee (``ICPAC'') (Report to the Attorney General of the 
International Competiton Policy Advisory Committee (February 2000)) 
finding that there were far too many filings in fiscal year 1999 
involving foreign transactions. The ICPAC report dealt with filings 
subject to the prior $15 million size-of-transaction threshold and does 
not take into consideration changes in the level of filings as a result 
of the 2001 Amendments to the statute. Despite the marginal narrowing 
of the exemption in the areas discussed above, the Commission believes 
that the increase in the statutory size-of-transaction threshold to $50 
million and the increase in the dollar thresholds in Secs. 802.50 and 
802.51 will dramatically reduce the number of foreign transaction 
filings overall.

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 $50 million or less. Further, none of the 
rule amendments expands the coverage of the premerger notification 
rules in a way that would affect small business. Accordingly, the 
Commission certifies that these 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 (``PRA''), 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 prior to instituting them. Such collections of 
information include reporting, recordkeeping, or disclosure 
requirements contained in regulations. The HSR premerger notification 
rules and Form contain information collection requirements as defined 
by the PRA that have been reviewed and approved by OMB under OMB 
Control No. 3084-0005 (preceding the latest HSR amendments). Because 
the Final Rules would not affect the information collection 
requirements of the premerger notification program beyond those of the 
proposed rules, they are not being resubmitted to OMB for review 
pursuant to the PRA. The Supporting Statement accompanying the Request 
for OMB Review states that the total burden imposed on the members of 
the public subject to the requirements of the Act, including the final 
rules, is estimated to be 192,089 hours per year (based on fiscal year 
2000 filings). This constitutes approximately a 47% reduction from what 
the burden estimate would be absent the final rules and based on the 
number of fiscal year 2000 filings. The Commission is seeking 3-year 
clearance with the requisite submissions to OMB.

List of Subjects in 16 CFR Parts 801 and 802

    Antitrust, Reporting and recordkeeping requirements.

    Accordingly, for the reasons stated in the preamble, the Federal 
Trade Commission amends 16 CFR Parts 801 and 802 as follows:

[[Page 11902]]

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 acquisition 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 in paragraph (b) to read 
as follows:


Sec. 801.14  Aggregate total amount of voting securities and assets.

* * * * *
    (b) * * *

    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 in paragraph (c), 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 of this chapter;
    (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 of this chapter 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
    (c) * * *

    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 
of this chapter 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, sales into the United States 
attributable to the plants were $40 million, and thus the 
acquisition was exempt under Sec. 802.50(a) of this chapter. 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. Since under 
Sec. 801.13(b)(2), as a result of the acquisition, ``B'' would hold 
all three plants of ``X,'' and the $50 million limitation in 
Sec. 802.50(a) of this chapter 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 sales in or into the United States, would not qualify 
for the exemption in Sec. 802.50(a) of this chapter, 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, exceed 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 
exceeds $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) of this chapter. 
``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) of this chapter. 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 of this chapter. 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

[[Page 11903]]

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) of this chapter. 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 of this chapter, and thus do not qualify for 
the exemption of voting securities provided by Sec. 802.4(a) of this 
chapter.

    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 
has 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 of this chapter; 
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 NAICS sector 11).
    (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 its 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 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.
    (b) Where the foreign assets being acquired exceed the threshold in 
paragraph (a) 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;
    (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(d)(2) of this chapter) are less than $110 
million; and
    (4) The transaction does not meet the criteria of Section 
7A(a)(2)(A).

    Example to Sec. 802.50:   
    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. The transaction is 
exempt under this paragraph (a) of this section.
    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. Since ``B'' would be 
acquiring the second plant within 180 days

[[Page 11904]]

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) of this chapter). 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 (a) of this section.
    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 in or 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 in or into the United States during the most recent 
fiscal year, 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. (1) 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: 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(d)(2) of this chapter) 
having an aggregate total value of over $50 million; or made aggregate 
sales in or into the United States of over $50 million in its most 
recent fiscal year.
    (2) If 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 either $50 million threshold is 
exceeded.
    (b) By foreign persons. (1) 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: 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(d)(2) of this chapter) 
having an aggregate total value of over $50 million; or made aggregate 
sales in or into the United States of over $50 million in its most 
recent fiscal year.
    (2) 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 either $50 million threshold is 
exceeded.
    (c) Where a foreign issuer whose securities are being acquired 
exceeds the threshold in paragraph (b)(1) 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;
    (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(d)(2) of this chapter) are less than $110 
million; and
    (4) The transaction does not meet the criteria of Section 
7A(a)(2)(A).

    Example to Sec. 802.51 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. 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 exceed $110 million, the acquisition is not exempt under this 
section.
    3. ``A,'' a foreign person, intends to acquire 100 percent of 
the voting securities of two wholly owned subsidiaries of ``B'' for 
a total of $65 million. BSUB1 is a foreign issuer with $10 million 
in sales into the U.S. in its most recent fiscal year and with 
assets of $10 million located in the U.S. $20 million of the 
acquisition price has been allocated to BSUB1. BSUB2 is a U.S. 
issuer with $60 million in U.S. sales and $60 million in assets 
located in the U.S. The remaining $45 million of the acquisition 
price is allocated to BSUB2. Since BSUB1 does not exceed the $50 
million limitation for U.S. sales or assets in Sec. 802.51(b), its 
voting securities are not held as a result of the acquisition (see 
Sec. 801.15(b) of this chapter). Since the acquisition price for 
BSUB2 alone would not result in ``A'' holding in excess of $50 
million of voting securities of the acquired person, the transaction 
is non-reportable in its entirety. Note that the U.S. sales and 
assets of BSUB1 are not aggregated with those of BSUB2 for purposes 
of determining whether the limitations in paragraph (b) of this 
section are exceeded. If BSUB2 were also a foreign issuer, such 
aggregation would be required under paragraph (b)(3) of this 
section, and the transaction in its entirety would be reportable.


    12. Amend Sec. 802.52 by revising the Example to read as follows:


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.)

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 02-6251 Filed 3-15-02; 8:45 am]
BILLING CODE 6750-01-P