[Billing Code: 6750-01P]
FEDERAL TRADE COMMISSION
Premerger Notification: Reporting and Waiting Period Requirements
AGENCY: Federal Trade Commission
ACTION: Notice of Issuance of Formal Interpretation 17
SUMMARY: The Premerger Notification Office ("PNO") of the Federal Trade Commission ("FTC"), with the concurrence of the Assistant Attorney General in charge of the Antitrust Division of the Department of Justice ("DOJ"), is adopting a Formal Interpretation of the Hart-Scott-Rodino Act, ("the HSR Act," "the Act"), which requires persons planning certain mergers, consolidations, or other acquisitions to report information about the proposed transactions to the FTC and DOJ in order to allow for effective premerger antitrust review. The Act exempts from Hart-Scott-Rodino premerger review certain classes of acquisitions that require premerger competitive review by a specialized regulatory agency. This Interpretation describes the PNO's position regarding transactions that may occur under the recently enacted Gramm-Leach-Bliley Act that have some portions subject to advance competitive review by a banking agency and other, non-bank portions that are not subject to such review. Under the Interpretation, the non-bank portion of such a transaction is subject to the reporting requirements of the HSR Act regardless of whether the non-bank business is housed in an affiliate of a financial holding company or a financial subsidiary of a bank. The Interpretation also addresses HSR treatment of certain transactions in which portions of the transaction require approval under different sections (section 3 and section 4) of the Bank Holding Company Act. This Interpretation does not address questions concerning how to apply the HSR rules to the portion of a mixed transaction that is subject to the HSR Act. These issues will be addressed by the PNO on a case-by-case basis.(1)
DATES: Formal Interpretation 17 is effective on April 3, 2000.
FOR FURTHER INFORMATION CONTACT: Marian R. Bruno, Assistant Director, telephone (202) 326-2846, or Thomas F. Hancock, Attorney, telephone (202) 326-2946; Premerger Notification Office, Bureau of Competition, Room 301, Federal Trade Commission, Washington, DC 20580.
SUPPLEMENTARY INFORMATION: The text of Formal Interpretation Number 17 is set out below:
FORMAL INTERPRETATION 17, PURSUANT TO § 803.30 OF THE PREMERGER NOTIFICATION RULES, 16 CFR § 803.30, REGARDING FILING OBLIGATIONS FOR CERTAIN ACQUISITIONS INVOLVING BANKING AND NON-BANKING BUSINESSES UNDER THE (c)(7) AND (c)(8) EXEMPTIONS OF THE HART-SCOTT-RODINO ACT AS AMENDED BY THE GRAMM-LEACH-BLILEY ACT
Pursuant to § 803.30 of the Hart-Scott-Rodino premerger notification rules ("the rules"), the Premerger Notification Office ("PNO") of the Federal Trade Commission ("FTC"), with the concurrence of the Assistant Attorney General in charge of the Antitrust Division of the Department of Justice ("DOJ", collectively, "the enforcement agencies"), issues this formal interpretation of the Hart-Scott-Rodino Act, as amended.
The Gramm-Leach-Bliley Act
The Gramm-Leach-Bliley Act, Public Law 106-102, was signed into law by President Clinton on November 12, 1999. Title I of Gramm-Leach-Bliley, Facilitating Affiliation Among Banks, Securities Firms and Insurance Companies, generally became effective March 11, 2000. Under the new law, bank holding companies and banks are allowed to affiliate with companies that participate in financial services markets that were previously off limits to such entities. In particular, Gramm-Leach-Bliley repeals the restrictions on banks affiliating with securities firms contained in sections 20 and 32 of the Glass-Steagall Act. The statute creates a new "financial holding company" category under section 4(k) of the Bank Holding Company Act ("BHCA"). Such holding companies can engage in a statutorily provided list of financial activities, including insurance and securities underwriting and agency activities, merchant banking and insurance company portfolio investment activities. Other financial activities and activities incidental to financial activities may be approved if the Federal Reserve Board and the Treasury Department agree. Activities that are "complementary" to financial activities are also authorized and such activities may be specified by the Federal Reserve Board at a later date. A bank holding company that does not become a financial holding company can continue to engage in activities closely related to banking, such as trust services, data processing services, investment advising and ATM network ownership, under section 4(c)(8) of the BHCA.
Gramm-Leach-Bliley also allows a national bank that meets certain standards to engage in the same new financial activities in "financial subsidiaries," except for insurance underwriting, merchant banking (which may be approved as a permissible activity beginning five years after enactment), insurance company portfolio investments, and, unless permitted by other law, real estate development and real estate investment. Other financial activities and activities incidental to financial activities may be approved if the Federal Reserve Board and the Treasury Department agree. The aggregate assets of all financial subsidiaries must not exceed 45% of the parent bank's assets or $50 billion, whichever is less. National banks may continue to have traditional operating subsidiaries. Gramm-Leach-Bliley prohibits operating subsidiaries of national banks from doing anything that a bank cannot do directly.(2)
Amendments to the HSR Act Made by Gramm-Leach-Bliley
The HSR Act exempts from HSR premerger antitrust review several classes of acquisitions that are "already subject to advance antitrust review" by other agencies, thus avoiding duplicative reporting. See H.R. Rep. No. 1373, 94th Cong., 2d Sess. 6 (1976).
Section 133(c) of Gramm-Leach-Bliley amended the HSR Act's (c)(7) exemption, pertaining to transactions which require agency approval under section 3 of the BHCA, section 18(c) of the Federal Deposit Insurance Act ("FDI Act"), or section 10(e) of the Home Owners' Loan Act, and the HSR Act's (c)(8) exemption, pertaining to transactions which require agency approval under section 4 of the BHCA or section 5 of the Home Owners' Loan Act. Specifically, the HSR Act's (c)(7) exemption, 15 USC § 18a(c)(7), as amended by section 133(c)(1) of Gramm-Leach-Bliley, provides an exemption from HSR requirements for "transactions which require agency approval under . . . section 1828(c) of title 12 [section 18(c) of the FDI Act], or section 1842 of title 12 [Section 3 of BHCA], except that a portion of a transaction is not exempt under this paragraph if such portion of the transaction (A) is subject to section 4(k) of the Bank Holding Company Act of 1956; and (B) does not require agency approval under section 3 of the Bank Holding Company Act of 1956." (Language added by section 133(c)(1) is italicized.)
The HSR Act's (c)(8) exemption, 15 USC § 18a(c)(8), pertaining to transactions which require agency approval under section 4 of the BHCA, is amended in a parallel fashion by section 133(c)(2) of Gramm-Leach-Bliley. Section (c)(8) of the HSR Act exempts such transactions provided that the materials filed with the agency are contemporaneously submitted to the enforcement agencies at least thirty days prior to consummation.
Treatment of Mixed Bank and Non-Bank Transactions
It has always been the case that some transactions are "mixed," that is, have some aspects or portions subject to regulatory agency premerger competitive review and approval and other aspects or portions not. Such mixed transactions can and have occurred involving all regulated industries, including banking, as discussed below. The PNO's longstanding position has been to treat the portion of a mixed transaction not subject to advance competitive review and approval by a regulatory agency as being subject to the HSR Act.(3) Moreover, when the Commission (with the concurrence of the Department of Justice) promulgated § 802.6(b) of the rules in 1983 to exempt from the HSR Act "any transaction which requires approval by the [CAB] prior to consummation," the agencies made clear in the rule that the non-aeronautic part of a transaction -- which did not require such approval -- was essentially to be treated as a separate transaction potentially reportable under the HSR Act.
The PNO views the amendments of the HSR Act made by section 133(c) of the Gramm-Leach-Bliley Act as confirming that the PNO's longstanding treatment of mixed transactions is to be applied to transactions involving the banking industry. As described below, the non-bank portion of a transaction is subject to the reporting requirements of the HSR Act, regardless of whether the non-bank business is housed in an affiliate of a financial holding company or a financial subsidiary of a bank.(4)
The Joint Explanatory Statement of the Committee of Conference contained in the Conference Report demonstrates that Congress considered section 133(c) of Gramm-Leach-Bliley to be a clarification and affirmation of the existing treatment of mixed transactions under HSR:
Cong. Rec. H11296 (Nov. 2, 1999).
The PNO's interpretation of the HSR exemptions amended by Gramm-Leach-Bliley is further guided by the explanatory Floor Remarks of House Judiciary Committee Chairman Hyde:
Cong. Rec. H11549 (Nov. 4, 1999).
The HSR Act (c)(7) exemption, as amended, expressly addresses acquisitions in which a bank and its financial affiliate are being acquired by a financial holding company (the affiliate structure). The financial affiliate portion of that transaction is not exempt from the HSR Act, because it is subject to section 4(k) and does not require Federal Reserve Board approval under section 3 of the BHCA. Gramm-Leach-Bliley does not expressly address acquisitions of a bank with a financial subsidiary by another bank or holding company (the subsidiary structure). Chairman Hyde explained the absence of an express clarification regarding the subsidiary structure similar to the clarification that expressly addresses the affiliate structure:
Cong. Rec. H11549, Floor Statement of Chairman Hyde (Nov. 4, 1999).
Accordingly, consistent with the intent of Congress, the PNO interprets the HSR Act, as amended by section 133(c) of Gramm-Leach-Bliley, as reaching the non-bank portion of a transaction when housed in a financial subsidiary of a bank as well as when housed in an affiliate of a financial holding company. Thus, in acquisitions of a bank with a financial subsidiary (or of a holding company in which a bank has a financial subsidiary) by another bank or holding company, the acquisition of the financial subsidiary will be reportable under the HSR Act if the applicable size-of-person and size-of-transaction tests are met and no other exemption applies.
A Related Point
As noted above, the HSR Act (c)(7) exemption covers transactions which require agency approval under section 3 of the BHCA. The HSR Act (c)(8) exemption applies to transactions which require agency approval under section 4 of the BHCA if copies of materials filed with such agency are contemporaneously filed with the enforcement agencies at least 30 days prior to consummation. If a bank holding company acquired another bank holding company that has one or more so-called "4(c)(8) affiliates,"(5) approvals would be required under both section 3 and section 4 of the BHCA.(6) The question has arisen -- and may continue to arise with Gramm-Leach-Bliley in effect -- whether parties to such a transaction need comply with the copies/waiting conditions of the (c)(8) exemption for the section 4 part of the transaction or may instead regard (c)(7) as covering the entire transaction. Based on discussions with Federal Reserve Board staff, we believe that in this type of transaction, the Federal Reserve Board review and approval under section 3 of the BHCA does not entail competitive review and approval of the section 4 portion of the transaction. Accordingly, parties to a transaction that involves approvals under section 3 and section 4 of the BHCA should comply with the copies/waiting conditions of the HSR Act (c)(8) exemption for the section 4 part of the transaction.(7)
The following Examples illustrate the application of this Formal Interpretation. In these Examples, "subject to HSR" means that the parties will have to comply with HSR notification and waiting requirements if applicable size criteria and thresholds are met and no other exemption applies.
Donald S. Clark
1. Parties wishing to determine the application of the HSR Act and the Rules to a particular set of facts will find source materials on the FTC Web site at www.ftc.gov. Parties may also call the PNO for advice at (202)326-3100.
2. Gramm-Leach-Bliley also recognizes that state banks may have subsidiaries that engage in the same activities as financial subsidiaries, subject to certain restrictions. It does not eliminate existing authority for subsidiaries of state banks to engage in state-authorized activities not permissible for national banks or their subsidiaries, subject to approval by the Federal Deposit Insurance Corporation.
3. This PNO position has been noted by HSR practitioners and commentators. See, e.g., American Bar Association Section of Antitrust Law, Premerger Notification Practice Manual (1991 ed.) Interpretations 33, 36; S. Axinn, Acquisitions Under the Hart-Scott-Rodino Antitrust Improvements Act (1996) §6.06[b].
4. Of course, a comparable approach to mixed transactions also applies to transactions involving thrifts or thrift holding companies.
5. A bank holding company can acquire a company engaged in activities closely related to banking if it gets approval under section 4 of the BHCA.
6. By way of contrast, when a financial holding company acquires another financial holding company that has section 4(k) financial affiliates, the acquisition of the financial affiliates does not require Federal Reserve Board approval.
7. In the past, the PNO informally advised that the (c)(7) exemption could be relied on exclusively in such a transaction. This advice was based on the belief that all portions of the transaction were reviewed by the Federal Reserve Board under section 3. This view is no longer held by the PNO.