Formal Interpretation No. 9

FORMAL INTERPRETATION PURSUANT TO § 803.30 OF THE
PREMERGER NOTIFICATION RULES, 16 C.F.R. § 803.30:

The Treatment of Accounts Receivable under § 801.21 of the
Premerger Notification Rules, 16 C.F.R. § 801.21

The Hart-Scott-Rodino Antitrust Improvements Act of 1976 ("the Act") established a requirement that persons of a certain size intending to carry out an acquisition exceeding a certain size must file notification with the Federal Trade Commission and with the Department of Justice and wait a specified period of time before consummating the transaction. Whether an acquisition is subject to the premerger notification requirements of the Act is determined by applying two tests. The size-of-person test ascertains whether the parties to the acquisition are of sufficient size to come under the jurisdiction of the Act and the size-of-transaction test determines whether the transaction itself is large enough to be reportable.

Section 7A(d)(2)(B) of the Act directs the Federal Trade Commission, with the concurrence of the Department of Justice, by rule to exempt from the notification requirements of the Act transactions which are unlikely to violate the antitrust laws. The premerger notification rules, 16 C.F.R. Parts 801-803 ("the rules"), promulgated pursuant to the Act eliminate in two ways the reporting requirements for acquisitions of little antitrust interest. First, certain categories of acquisitions such as those made for investment purposes or those which occur as a result of a stock split or stock dividend are entirely exempted from the Act's notification requirements. Second, § 801.21 of the rules, 16 C.F.R. § 801.21, provides that certain kinds of assets are not counted in determining the size of a proposed acquisition and thus whether it is reportable. Assets which are exempt for purposes of determining whether an acquisition meets the size-of-transaction test include cash, investment securities, and mortgages.

In the past, the Commission staff has taken the position in informal interpretations that accounts receivable are assets which are exempt for purposes of the size-of-transaction test pursuant to the provisions of § 801.21. This position was based on the belief that little antitrust significance would generally attach to acquisitions of accounts receivable. A recent court decision implies, however, that such acquisitions may be of antitrust concern under certain circumstances, and a reevaluation of the position that accounts receivable are covered by § 801.21 is thus called for.

The court held in United States v. Household Finance Corp. */ that cash loans by finance companies constitute a line of commerce within the meaning of § 7 of the Clayton Act. Since the assets of finance companies are primarily accounts receivable, an acquisition of accounts receivable could affect competition in a line of commerce and hence be of significance for purposes of antitrust enforcement.

In view of this decision, the staff has decided that its previous position on the treatment of accounts receivable under § 801.21 should no longer be maintained. To assure that premerger notifications are received for all acquisitions which may violate the antitrust laws, accounts receivable will no longer be treated as exempt assets when acquired and will no longer be covered by § 801.21 of the premerger notification rules. The Assistant Attorney General in charge of the Antitrust Division of the Department of Justice has concurred in this formal interpretation.

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Malcolm R. Pfunder
Assistant Director for Evaluation
Bureau of Competition
Federal Trade Commission

March 20, 1980

*/ 602 F.2d 1255 (7th Cir. 1979).