Source: https://www.srz.com/resources/proposed-hsr-act-rules-to-increase-reporting-for-funds-making.html
Timestamp: 2020-05-27 02:20:40
Document Index: 127695341

Matched Legal Cases: ['§\u2009801', '§\u2009802', '§ 802', '§ 802', '§ 802', '§ 801']

Schulte Roth & Zabel LLP - Proposed HSR Act Rules to Increase Reporting for Funds Making Minority Investments in Foreign Issuers
In determining whether 50% or more of the UPE’s or issuer’s assets are located in the U.S., the proposed amendments rely on the fair market value of the relevant entity’s assets, determined in accordance with § 801.10(c)(3) of the Rules. This includes both tangible and intangible assets.[15]
In sum, the proposed regulations (1) repeal the current PNO guidance and re-designate U.S.-managed foreign-domiciled LP funds as U.S. persons; and (2) require a foreign investor making a minority acquisition of a foreign issuer’s voting securities to obtain and evaluate a new list of information about the foreign issuer, its officers and directors in order to determine whether the § 802.51(b) exemption applies.
To view Exhibit — A Comparison of the Current and Proposed Rules, click here.
Authored by Peter Jonathon Halasz and Gregory L. Kinzelman.
[1] Transactions that give a U.S. or foreign person control (50% or greater ownership) over a foreign person or issuer will continue to be potentially subject to HSR notification, as at present.
[2] However, a U.S.-managed Cayman fund organized as a “Limited” company (regardless as to whether it elects to be taxed as a partnership) could still be considered foreign if it has a majority of non-U.S. officers and directors. See PNO Informal Interpretation 1412010, Dec. 30, 2014, annotated April 1, 2015, available here.
[3] 84 Fed. Reg. 58348 (Oct. 31, 2019).
[4] While there is an HSR exemption for parties that acquire less than 10% of an issuer’s voting securities “solely for purposes of investment” (16 CFR § 802.9), that exemption does not apply to activist funds, funds with a board seat, and funds meeting other criteria. Further, the FTC has aggressively challenged parties’ reliance on this exemption. Given the chilling effect of the $42,530 per day civil penalty for failing to file under HSR, parties may be reluctant to rely on the § 802.9 exemption if there is a risk that the FTC disagrees with its application to a particular transaction.
[5] 43 Fed. Reg. 33497, 33498 (July 31, 1978).
[6] See 43 Fed Reg. 33461.
[7] See ABA Premerger Notification Practice Manual, 5th Edition (2015), at 275-6.
[8] Because the § 802.51(b) exemption applies to any position under 50%, the intent of the investor is not relevant.
[9] To be codified as a new 16 CFR § 801.1(e )(1)(i) and (ii), and (2)(i) and (ii).
[10] A 50% — 50% tie, or greater than 50% of any of these criteria being U.S. renders the entity or issuer.
[11] 84 Fed. Reg. 58352.
[12] 84 Fed. Reg. 58350.
[15] Ibid. (emphasis supplied).
[16] Dissenting Statement of Commissioners Maureen K. Ohlhausen and Joshua D. Wright, In the Matter of Third Point, April 24, 2015, available here.
[18] We can find no record of an investment fund’s minority investment that has been challenged as a violation of substantive antitrust law. In FY2018 and FY2017, for HSR filings where the acquiring person reported the NAICS code for “funds, trusts and other financial vehicles,” out of 160 reported transactions, none resulted in either agency seeking clearance to investigate, no second requests were issued, and no transactions were challenged. See HSR Annual Reports available here. Indeed, over the past decade, there have only been two second request investigations out of 434 transactions where the acquiring person filed under the investment fund NAICS code.
[19] If a foreign investor relies on the foreign to foreign exemption and previously acquired $90 million of the voting securities of an issuer newly meeting the new “foreign” criteria without filing under the HSR Act, the change of the status of the foreign issuer to U.S. would mean that the purchase of a single additional share would potentially trigger the need for HSR reporting.