Question
January 14, 1993
Federal Trade Commission
Pre-Merger Office
Bureau of Competition
Sixth & Pennsylvania Avenue
Room 301, Northwest
Washington, D.C. 20580
Attention: Ms. Nancy Ovuka
Re: Exemption of [redacted] District
Hospitals from the Hart-Scott-Rodino
Pre-Merger Notification Requirements
Dear Ms. Ovuka:
In our recent conversation, you inquired concerning a citation in [redacted] referring to[redacted] such as our client [redacted] as political subdivisions of the state. Enclosed please find a copyof Health and Safety Code 32002, previously furnished to you under cover of our letter of January 5,1993, together with a copy of Section 23300 of the Elections Code which is incorporated by referencewithin the [redacted] Law. Section 23300 refers to public districts and includes such public districtstogether with legislative districts, congressional districts, cities, and counties under the common rubric ofpolitical subdivision. Because this section is incorporated by reference into the [redacted], [redacted]such as our client created pursuant to that law must necessarily be classified as public districts under theElection Code since a [redacted] is clearly neither a city, county or congressional or legislative district. This is a conclusive legislative declaration that a [redacted] created under the [redacted] such as [redacted] is a political subdivision of the [redacted]. Enclosed for your reference are copies of the [redacted]organizational documents which reflect this political entity status.
We also discussed by telephone the possible effect on the pre-merger notification politicalsubdivision exemption of 15 U.S.C. 18a(c)4 of the lease or acquisition of a competing [redacted] by anonprofit corporation which is a controlled subsidiary of [redacted] pursuant to Health and Safety Code32121.4, a copy of which is enclosed.
It is our opinion that the acquisition or lease by a nonprofit corporate affiliate legallycontrolled by our client [redacted] of a [redacted] owned by another [redacted] pursuant to Section32121.4 would also fall within the pre-merger notification exemption of 15 U.S.C.. 18a(c)4. Section 7of the Clayton Act (15 U.S.C. 18) prohibits acquisitions whether directly or indirectly. The pre-mergernotification statute, 15 U.S.C. 18a(a), also applies to acquisitions whether accomplished directly orindirectly. Because an entity (i.e. [redacted] and its controlling subsidiary would be treated as one forpurposes of determining the need for pre-merger notification, an entity and its subsidiary should also beconsidered as one for purposes of the pre-merger notification exemption of Section 18a(c)4.
This view is reinforced by the fact that the indirect acquisition of a [redacted] by a[redacted] through a controlled affiliated nonprofit subsidiary is specifically authorized by Section 32121.4. This section expresses the sanction of the [redacted] for a specific type of transfer to a state or politicalsubdivision thereof. Moreover, the transaction, even if it were not deemed a transfer to a politicalsubdivision of a state, but rather a non-exempt transfer to its affiliate, would be a transfer from a politicalsubdivision of a state which is also an exempt transaction under Section18a(c)4 which exempts transfersto or from a federal agency or a state or political subdivision thereof. (Emphasis added.) Please alsoadvise us if you concur with our opinion on this controlled nonprofit subsidiary issue.
If you do not concur with our opinion and opine that the acquisition or lease of thecompeting [redacted] by a controlled nonprofit affiliate of [redacted] under Section 32121.4 would removethe transaction from the pre-merger notification political subdivision exempt of 15 U.S.C. a(c)4, pleaseadvise us if the transaction under Section 32121.4 described above would nonetheless be exempt from pre-merger notification assuming that:
1.[Redacted] (PNO staff note: not an entity) fell below the minimum $100,000,000income (PNO staff note: sales) and asset threshold of 14 U.S.C. 18a(a)2B;
2.The [redacted] to be leased fell below the minimum $100,000,000 asset and incomethreshold of 15 U.S.C. 18a(a)2D;
3.The [redacted] nonprofit affiliate (PNO staff note: a corp. engaged incommerce) fell below the $100,000,000 asset and income threshold of 15 U.S.C. 18a(a)2B;
4.The combined assets and/or income of [redacted] and its controlled affiliatednonprofit subsidiary exceeded the $100,000,000 minimum threshold of 15 U.S.C. 18a(a)2B.
We would argue that the transaction would be exempt under 18a(a)2B because if[redacted] and its controlled nonprofit affiliate are to be treated as separate entities for purposes of thepolitical subdivision exemption of 18a(c)(4), then they should also be treated as separate entities underthe income and assets threshold of 18a(a)2B. (PNO staff note: yes)
Very truly yours,
[redacted]
Enclosures
cc: [redacted]