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Date
Rule
802.40
Staff
James Ferkingstad
Response/Comments
Not reportable.

Question

July 24, 2008

JamesH. FerkingstadMichael Verne

PremergerNotification OfficePremerger Notification Office

Bureauof CompetitionBureau of Competition

FederalTrade CommissionFederal Trade Commission

600 Pennsylvania Avenue, NW 600 Pennsylvania Avenue, NW

Washington, DC 20580 Washington, DC 20580

Dear Mr. Ferkingstad:

This letter is afollow up to our telephone conversation this morning with Mr. Ferkingstadrequesting confirmation of my conclusion that no aspect of the transactiondescribed herein is reportable under the Hart-Scott-Rodino Antitrust ImprovementAct of 1976, 15 U.S.C. l8a ("HSR Act"). I have set forth below thegeneral transaction that we discussed but have added additional details to helpfurther explain the proposed transaction.

In the proposedtransaction, two nonprofit 501(c)(3) hospital systems ("System A) and("System B") have agreed to affiliate through the creation of a to beformed 501(c)(3) parent holding company (NewCo"). System A consists of a501 (c)(3) hospital and affiliates which provide health care related services.System B operates a 501(c)(3) hospital and integrated delivery system thatprovides services consistent with the healing mission of the Catholic Church.The structure of the transaction is that of a parent holding 90mpany modelunder which NewCo will be formed and will become the sole corporate member ofSystem A and the Class A corporate member of System B. The Catholic Bishop currentlyaffiliated with and controlling System B, or an entity the Catholic Bishopcontrols (in either event, the "Bishop"), will be the Class B memberof System B with certain reserved powers related solely to religious andethical directives for Catholic health care services currently in place forSystem B. The initial Board of Trustees of NewCo will consist of fifteen (15)members, eight (8) of whom will be appointed by the Bishop and seven (7) ofwhom will be appointed by the Board of Trustees of System A. The current Chairof the Board of Trustees of System A will be the initial Chair of the Board ofTrustees of NewCo. The initial appointees to the Board of Trustees will eachserve a three year term. At the expiration of the three year term of the initialboard, their successors shall be elected to staggered terms such that five ofthe individuals shall serve two year terms, five shall serve three year terms andfive shall serve four year terms. The organizational documents for Newco shallestablish a Nominating Committee for the election of successors to the initialappointees to the Board. The parties agree that the successors to the initialmembers of the Board will be appointed without regard to any historicalallegiance to any of System A or System B. Until all of the initial Trusteeshave completed their initial terms, the Nominating Committee shall include anequal number of initial Trustees who are designated by the Bishop and the Boardof Trustees of System A, respectively.

Following thetransaction, NewCo will govern the operation of the new health systemconsisting of System A and System B and their respective affiliates and willretain certain reserve powers over management and operation of the healthsystem, except for certain reserve powers noted earlier related to religiousand ethical directives for Catholic healthcare services with respect to SystemB to be retained by the Bishop. NewCo will operate in a highly centralizedmanner and will maintain at least the following reserved powers over the NewCoHealth System consisting of System A and System B:

  • Approval of any changes to the mission, philosophy and value statements.
  • Authority to amend or approve the amendment of the Articles of Incorporation and Bylaws, except for those provisions reserved to the Bishop relating to Catholic directives at System B.
  • Appointment/removal of the System A and System B Hospitals' Boards of Trustees.
  • Approval of the operating and capital budgets for each System entity.
  • Approval of the strategic plan for the NewCo System and each System entity.
  • Approval of the sale, lease, transfer or mortgage of property, closure or relocation of services and retention of any debt by any System entity.
  • Appointment of corporate officers of each System entity.
  • Approval of any corporate affiliation, reorganization or change of control.
  • Approval of any certificate of need filing or any material change in services.
  • The following reserved powers of the Bishopshall be limited to System B:

  • Approval of the philosophy, mission and value statements.
  • Compliance with the religious and ethical directives for Catholic health care services.
  • Approval of the sale/mortgage/lease of System B property if in an amount in excess of relevant canonical threshold.
  • Approval of the dissolution of the System B corporation.
  • Continuation of System B charity care policy.
  • Continuation of pastoral care.
  • The right to withdraw Catholic sponsorship of System B is the Diocesan mission of hospital health care is ever discontinued.
  • Newco will not payto any party a purchase price and no voting securities will be issued in connectionwith the affiliation and integration of System A and System B under Newco. Itis the intent of the parties that NewCo will be created as a permanent joiningtogether of the assets of System A and System B and that neither party shall beable to trigger a unilateral withdrawal, sale, merger, change of sponsorship orother disposition of assets or dissolution of or from NewCo.

    Assuming that the"commerce test" under subsection (a)(l) of the HSR Act and the"size-of-person" test and "size-of-transaction" test undersubsection (a)(2)(B) of the HSR Act are otherwise satisfied., please confirm myconclusion that neither NewCo nor the Bishop, nor System A nor System B, isrequired to file a HSR Premerger Notification with respect to the formation of NewCo,the affiliation and integration of System A and/or System B under Newco or anyother aspect of the integration of System A and System B under NewCo, based onthe exemption contained in 16 CFR 802AO or, alternatively, that 16 CFR801.2(f)(3) and 16 CFR 80lAO are not applicable and, as such, no aspect of theproposed transaction is reportable.

    Thank you for your review of this matter.Please contact me if you have any questions or need any further information.

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