Question
November 21, 1994
Victor L. Cohen
Premerger Notification Office
Bureau of Competition
Federal Trade Commission
6th & Pennsylvania Avenue, NW
Room 303
Washington, D.C. 20580
Re: Premerger Notification - Not for Profit Affiliation
Dear Mr. Cohen:
This letter confirms your phone call last week in which you told me that the staff has reconsidered it earlier guidance regarding whether an affiliation between not-for-profit health care organizations structured as described in my November 9, 1994 letter to you would include a reportable transaction under Section 7A of the Clayton Act, 15 U.S.C. 18A, and the regulations promulgated thereunder, 16 C.F.R. Subchapter H. The staff had initially determined that such an affiliation would not contain a reportable transaction because Foundation the acquired person - ill use a staggered board structure that will give Medical Center - the acquiring person - the contractual power to designate less than 50% of Foundations directors in any one year, though Medical Center would have the contractual power to designate more than 80% of Foundations directors in all years.
Upon further reflection, the staff has concluded that such an affiliation would include a reportable transaction (assuming size of person and size of transaction test are satisfied). You told me that the staff no longer considers Foundations use of a staggered board to mean that the Medical Center will not acquire control of Foundation. In all other respects, you reconfirmed the staffs original guidance as set out in my November 9 letter.
Accordingly, the response to question 2 in my November 9 letter - will the reorganization of Foundation result in a reportable acquisition by Medical Center? - is now, yes, if the transaction otherwise meets the reporting requirements. The staffs analysis for this result is the same as set out in my November 9 letter except that the last italicized point is corrected as follow:
The proposed affiliation will result in Medical Center acquiring control of Foundation for reporting purposes because Medical Center will have the power to designate at least 50% of the Foundation directors, notwithstanding that Foundation will use a staggered board of directors. After reconsideration, the staff has concluded that the fact that Medical Center will have the contractual power to designate 26 of the 30 Foundation directors, or 86.7%, in all years (not counting the 4 ex-officio directors that will be appointed annually by the other Foundation directors) will give Medical Center control of Foundation. This will be the case, even though Foundations use of a staggered board will mean that, in any one year, Medical Center will be exercising its contractual power directly and indirectly to designate only 10 of the 30 Foundation directors.
Once again, we appreciate your guidance on this matter. As before, please let us know immediately if w have misconstrued the staffs views on this situation.
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