Seeing the Whole Picture on Avoidance Devices

By Pre-Merger Notification Staff (FTC)

Under the Hart-Scott-Rodino (HSR) Act and Rules, parties cannot use a transaction structure for the purpose of avoiding or delaying their premerger filing obligation.  If they do, the Commission must ignore the structure and review the substance of the transaction as a whole to determine whether an HSR filing is required. Premerger Notification Office (PNO) staff have recently rethought some prior advice, and today PNO is withdrawing a 2003 informal interpretation relating to special dividends. Our 2003 guidance excluded special dividends categorically from consideration as an avoidance device. Today, we announce that PNO will no longer take the view that such dividends can never be avoidance devices.

First, some background. The HSR Act provides that “no person shall acquire, directly or indirectly, any voting securities or assets of any other person” without first complying with the notification requirements if certain conditions are met. If an acquisition satisfies the size of transaction test and, in certain cases, the parties meet the size of person test (and assuming an exemption does not apply), an acquirer must file an HSR notification and observe a waiting period prior to executing the activities that transfer beneficial ownership. Sometimes, parties mistakenly fail to file; other times, parties purposely fail to file.

Section 801.90 of the HSR Rules states that parties cannot use a transaction structure for the purpose of avoiding or delaying their filing obligation. As noted in a blog post from last fall, restructuring a deal to avoid or delay an HSR filing may subject the merging parties to substantial penalties if the restructured transaction still results in an acquisition.