Question
From: (Redacted)
Sent: Friday, March 11, 2011 11:55AM
To: Verne, B.Michael
Cc: (Redacted)
Subject: HSRAdvice
Hi Mike,
As we discussedearlier this week, we represent a public institution ("Institution")that is wholly-owned by a foreign sovereign nation (Sovereign") which is interestedin acquiring a reportable amount of voting securities of a U.S. issuer. The Institution, which was established as an independent legal body, has theauthority to invest funds allocated for investment by the Sovereign. For thereasons stated below, we believe that for the purposes of the HSR Act, theInstitution is an "agency" of the Sovereign, and therefore not an"'entity" subject to the HSR Act.
Under the HSR Actand Rules, a government "agency" is not subject to the Act, even ifit is in corporate form; however, a corporation that is engaged in commerce butcontrolled by a foreign governmental "agency" is an entity subject tothe Act. (''"A corporation controlled by an agency, which itself is not anagency, is an entity. An agency which is a corporation is not [anentity]." Informal Staff Opinion 0008001 (Aug. 8, 2000).)
In informalinterpretations, the PNO has looked to the corporation's enabling legislationto determine whether it was created as an '''agency'' of the government or acorporation engaged in commerce. (Interpretation 11, ABA Premerger NotificationPractice Manual (4th ed. 2007) ("Premerger Manual") The PNO hasagreed that entities with similar independent legal personality are governmentagencies where they are formed under specific legislation (Informal StaffOpinion 08 I 1007 (Nov. 17,2008); Informal Staff Opinion 9503021 (Mar.23,1995)); their Boards of Directors are largely appointed by the government(Informal Staff Opinion 0903003 (Mar. 4, 2009); Informal Staff Opinion 9302006(Feb. 18, 1993)); their Chief Executives are appointed by the government (Id.);their government must approve their investment plans and budgets (Id.); theyare chartered for the purpose of pursuing a public interest, such as makinginvestments on behalf of the government (Informal Staff Opinion 0805002 (May 6,2008)); and/or the power to dissolve the organization is confirmed to thegovernment. (Informal Staff Opinion 9503021 (Mar. 23, 1995)).
Here, the enablinglegislation of the Institution sets forth the creation of a public body whollyowned by the Sovereign and subject to its supervision; the Institution receivesfunds from the Sovereign for the purpose of investing those funds in the publicinterest; the Institution is responsible for establishing investment policy forthe Sovereign; the Institution's Board of Directors are state employeesappointed by government decree; and the Institution's investment funds vest inthe Sovereign upon the Institution's dissolution or liquidation.
Second, for HSRpurposes, the touchstone for determining whether an entity is a"corporation" is whether that entity issues "votingsecurities," with "voting securities" defined as "anysecurities which at present or upon conversion entitle the owner or holderthereof to vote for the election of directors of the issuer, or of an entityincluded within the same person as the issuer." 16 C.F.R. 801.1(f)(1)(i). The Institution's organizational document makes no provision forvoting securities. Rather, the appointment of the Institution's directors isentirely within the control of the Sovereign. Since the Institution does notissue voting securities, it should not be considered an "entity"potentially subject to the HSR Act.
Based upon thesetwo arguments, we believe that the Institution itself is not an"entity" subject to the reporting requirements of the HSR Act.Therefore, any acquisitions made by the Institution itself or by anynon-corporate subsidiaries controlled by the Institution, would not be subject tothe HSR Act.
It also followsfrom this that acquisitions in excess of the HSR threshold of U.S. assets or of a U.S. issuer may be reportable if those acquisitions are made by a corporationcontrolled by the Institution ("Investment Corporation"). However, inthe case of such acquisitions, no information would be required from theInstitution or any of its other holdings that are not controlled by theInvestment Corporation. This is supported by Interpretation I I in thePremerger Manual, which concluded that "if the government organization isnot an 'entity' under the [HSR] Act, it cannot be an acquired or acquiringperson subject to the Act." Furthermore, in Interpretation 32 of thePremerger Manual, the PNO also concluded that an "agency" of a foreignstate is not an entity under the HSR rules, but a corporation engaged incommerce and controlled by the "agency" is an entity under the Rules.In such an instance, if the corporation is required to file, it would be itsown UPE.
Lastly, we notethat while the Institution is treated as a governmental agency for HSRpurposes, and not a corporation engaged in commerce, the HSR analysis does nothave any bearing on the treatment of the Institution under other regulatoryregimes. The HSR analysis flows from the very specific legislative andregulatory regime that is unique to the HSR Act.
Please let me know if you disagree with the above analysis.As always, thank you for your time and assistance.