Question
January 24, 1996
VIA FACSIMILE - (202) 326-2624
AMD U.S. MAIL, REGULAR DELIVERY
Premerger Notification Office
Bureau of Competition
Room 303 - Federal Trade Commission
Sixth Street and Pennsylvania Ave., N.W.
Washington, D.C. 20580
Re: Application of Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the Act)
Dear Mr. Smith:
Thank you for your telephone call of earlier today. Pursuant to our discussion, set forth below are the relevant facts underlying the proposed transaction:
1. Three not-for-profit corporations, hospitals A, B, and C, each of which satisfies the size-of-person test, propose to form a not-for-profit (under Internal Revenue Code Rule 501(c)) corporate joint venture, Newco;
2. A, B, and C will have membership voting rights to appoint one-third of the board. Newco will not have any membership interest in A, B, or C;
3. A, B, and C will contribute at closing a combined total of up to $10 million in cash. In addition, A, B, C have agreed to contribute annually to Newco their respective excess net revenues, if any:
4. A, B, and C will retain ownership of their respective assets, and each will maintain their account receivables and pay their own obligations;
5. A, B, and C will give Newco control of strategic planning, and capital and operating budgets. Although the exact extent of Newcos control has not yet been determined and subject to the exceptions stated above, each hospital will be responsible for its own day-to-day operations.
We understand, based upon the foregoing facts and our conversations from today and last week, that this proposed transaction does not require premerger notification under the Act.
Rule 802.40 exempts from filing the acquisition of voting securities of a not-for-profit joint venture at the time of its formation. However, in this proposed transaction there are no voting securities of Newco. Thus, this exemption is not applicable and we are directed to Rule 801.40 regarding the reportability of formations of joint ventures. However, for the same reason Rule 802.40 is not applicable (i.e., no voting securities), Rule 801.40 is not applicable. Consequently, this proposed transaction is not reportable.
Alternatively, we understand from our conversations that this proposed transaction would be exempt under rule 802.20. A, B, and C will each acquire a one-third membership with voting rights to appoint one-third of the Newco board and would satisfy the 15% threshold in Rule 7A(a)(3)(A) of the Act. However, as a result of the acquisition neither A, B, nor C will hold assets of Newco valued at more than $15 million or hold transaction would be under the minimum dollar value of Rule 802.20 and therefore exempt from reporting under this alternative reasoning(??)
Please call me at the direct dial number listed above if you disagree with these conclusions or wish further information prior to reaching your conclusion. We will call you in the near future to discuss this letter. Thank you.
Very truly yours,
(redacted)
(redacted)