Question
(redacted)
February 15, 1983
John Sipple, Esquire
Premerger Notification Office
Federal Trade Commission
7th and Pennsylvania Avenue, N.W.
Washington, D.C. 20580
Re:Premerger Notification Requirements
and Employee Savings Plans
Dear Mr. Sipple:
Enclosed please find a copy of the Discussion
Memorandum that I submitted to you last summer and that
I discussed at a meeting with you and Ms. Baruch, and that
I have subsequently discussed with you from time to time.
I would appreciate it if you could confirm my
understanding of the Commissions response to the hypo-
thetical set out in the Discussion memorandum namely
that:
(1) Where a companys Savings plan pur-
chases shares sufficient to exceed a thresh-
old for which a Premerger Notification and
Report form has been filed (and where the
Company does not believe the Savings Plan will
acquire shares sufficient to breach any other
threshold) then the Commission will deem
Section 802.21, as continuing to apply, thus
giving a reporting firm another fiv3e-year
grace period beyond the initial such period,
provided another form is filed with respect
to the threshold exceeded.
(2) Where a companys Saving Plan does
not purchase shares sufficient to breach the
notification threshold for where the shares
owned by the Saving plan fluctuate above and
below the notification threshold) then the
Commission will deem Section 802.21 as con-
tinuing to apply, thus giving a reporting
firm another five-year grace period beyond
the initial such period.
In short, the Commissions view of the hypothetical
set forth in the Discussion Memorandum is that the five-year
grace period provided by Section 802.21(b) will again apply
after a company files its 1983 Premerger Notification and
Report form, provided that the threshold respecting which a
form is filed is (a) exceeded within a year after the filing,
or (b) exceeded at the time the 1983 form is filed.
I look forward to hearing from you on this.
(redacted)
Enclosure
DISCUSSION MEMORANDUM
Re:Premerger Notification Requirements
And Employee Saving Plans
The regulations as they apply to employee savings
plans produce a result that would appear to be unintended and,
in any event, wasteful both in terms of the point of view of
the government and the private sector. The problem can be
gleaned from the following hypothetical situation which is
doubtless very real to scores of companies.
A Company files a premerger notification report form
in the fall of 1978, relating to the acquisition of its stock
by its own Employee Savings Plan. That notice advised that
the Companys Savings Plan intended to acquire in excess of
25 percent of the shares of the Company withing the succeeding
twelve month period (e.g., by the fall of 1979).
Rule 803.7 provides that:
Notification with respect to an acquisi-
tion shall expire 1 year following the expira-
tioin of the waiting period. (Thus), if the
acquiring persons holding do not meet or
exceed the notification threshold with respect
to which the notification was filed, the
requirements of the act must thereafter be
observed with respect to any notification
threshold not met or exceeded.
By the fall of 1979, the Companys savings plan had acquired
in excess of 25 percent of the then outstanding common shares
of the Company. Specifically, the saving Plan ownership then
constituted 25.07 percent of the then outstanding common shares
of the Company. thus, the acquisition of stock exceeded the
notification threshold of 25 percent within a year of the
filing.
A problem now is created because of the operation
of 802.21 of the rules, which established (or fails to
establish) certain exemptions. Section 802.21 exempts acquisi-
tions of voting securities if:
(a) The acquiring person and all other
persons required by the Act in these rules
to file notification, filed notification with
respect to an earlier acquisition of voting
securities of the same issuer;
(b) The waiting period with respect to
the earlier acquisition has expired, or been
terminated pursuant to Section 803.11 and the
acquisition will be consummated within five
years of such expiration or termination; and
(c) The acquisition will not increase
the holding of the acquiring person to meet
or exceed a notification threshold greater
than the greatest notification threshold met
or exceeded in the earlier acquisition. 1/
The relevant notification thresholds are defined in Section
101.1 (h) (3) and (4) and are respectively, 25 percent and 50
percent of the outstanding voting securities.
______________
1/ The Statement of Basis and Purpose indicates that
The final version of Section 802.21(c)
also accommodates the insertion of Section
803.7 into the final rules. Its phrasing,
the greatest notification threshold met or
exceeded in the earlier acquisition means
the greatest threshold met or exceeded within
the one year period before the notification
expires under Section 803.7 See the example
to the rule.
43 Fed. Reg. 33,493 (July 31, 1978).
The Companys Savings Plan now holds about 27 percent
of the Companys outstanding common stock, which is held by a
bank as trustee under the Companys Saving Plan. Many employees
can elect to contribute up to 8 percent of their salary to the
Saving Pan. The employees contribution can go to one of
several funds held by the trustee, which for present purposes
can be considered to be similar to mutual funds. One is a
diversified stock fund, one a bond fund, one a Company stock
fund, etc. For each dollar that an employee contributes, the
Company will contribute $.75 of its common stock into a separate
stock fund.. It is this latter fund, together with the contribu-
tory Company stock fund, that representing this 27 percent holding
of the Companys common stock by the Saving Plan trustee.
The number of shares in the fund fluctuates, tending
to decrease as a result of employees retiring or leaving the
Company and the resultant transfer from the fund to the individuals
of the stock to which they have become eligible. On the other
hand, the number of shares will tend to increase each month as
a result of the Companys matching the monthly payroll deductions
for the Saving Plan for its eligible employees. The rate at
which any increase takes place will vary depending upon fluctu-
ations in the number of eligible employees, The number of eligible
employees may increase either through employees becoming eligible
through seniority advances or as a result of an increase in the
Number of employees due to the expansion of the total work force.
Conversely, a reduction in the work force will result in a
decrease in the number of shares purchased each month and
distribution of shares to retiring employees.
A further variable is the total number of outstanding
common shares. They will decrease should the Company repur-
chase its own common shares; they will increase through the
conversion of preferred shares to common shares, the exercise
of stock options, or the issuances of new common shares incident
to an acquisition (thereby decreasing the percentage represented
by the Savings Pans holdings).
The problem presented to the Company in 1983 is that
the five year grace period provided by section 802.21(b) from
its 1978 filing will expire. With a current base holding of
27 percent, the next threshold with respect to which the
Company can file is the 50 percent threshold. It will be
impossible for the Company to exceed that threshold within the
year succeeding its 1983 filing. In fact, it is doubtful that
The Saving Plan holding will ever exceed the 50 percent thresh-
old simply because of the effect of ebb and flow of shares into
and out of the plan and fluctuations in the overall number of
outstanding shares, all as previously described. Since the
Company will not meet or exceed any new threshold within the year
after it files in 1983, Section 802.21 will not apply, and the
effect of the notification will, pursuant to Section 803.7
Expire one year following the expiration of the waiting period.
As a result, for the Saving Plan to purchase shares after
September 30, 1984, it will have been necessary to file a
further notification by August 31, 1984. An annual filing
will continue to be thereafter required forever it would
appear.
This unfortunate effect of the rule has no apparent
beneficial effect whatsoever insofar as the government is
concerned. For the Company to file this report annually will
be a waste of time for it, as will as for the personnel of
the Antitrust Division and the Federal Trade Commission.
For these reasons, and given the likelihood that a
substantial number of companies face a similar prospect, dis-
cussion about the nature of some suitable relief would appear
to be in order.
July 16, 1982