Question
August 26, 1993
VIA FEDERAL EXPRESS
Victor Cohen, Esq.
Premerger Notification Office
Bureau of Competition
Federal Trade Commission
6th St. and Pennsylvania Ave., N.W.
Washington, DC 20580
Re: Informal Interpretation Pursuant to 16 C.F.R. 803.30
Dear Mr. Cohen:
This is to confirm the interpretation of the application of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "Act"), as amended, 15 U.S.C. 18A, and the Rules promulgated thereunder, to a proposed transaction that was discussed in a telephone conference with you, [redacted] and me on August 24, 1993.
Under the proposed transaction, two hospitals intend to enter into a joint operating agreement by contract. This will not involve the formation of a corporation. The first hospital ("Hospital A") is a separate corporation, owned by a hospital system. The second hospital ("Hospital B") is also a part of a larger hospital system, but is a division of the system and not separately incorporated. Under the proposed joint operating agreement, both hospitals will run their operations together for a period of five years and will share in the profits and losses, on a 50%/50% basis, during that period. There is no provision in the agreement whereby either hospital would be merged or consolidated into the other at the end of the term.
If any new assets are to be acquired by the hospitals, the assets would be acquired by a new corporation to be formed by Hospital A and Hospital B. However, this is not yet being contemplated. (PNO staff note: Note, however, that any agreement to restrict services may be an illegal conspiracy in restraint of trade violation of both the Sherman Act and FTC Act.)
[redacted]
You stated that the proposed joint operating agreement outlined herein will not trigger a filing obligation under the Act since it is a contractual, non-corporate, joint venture. This view is consistent with Interpretations 195 and 196 of the Premerger Notification Practice Manual (1991 ed.), which states that non-corporate joint ventures are not covered by the Act.
You further stated that if a new corporation is formed by the hospitals for the purpose of acquiring new assets, the transaction would be analyzed under the joint venture rules, 16 C.F.R. 801.40. If this new corporation is a not for profit corporation within the meaning of Internal Revenue Code 501(c)(1) -(4), (6)-(15), (17)-(20) or (d), it will be exempt from the requirements of the Act pursuant to 16 C.F.R. 802.40. [STAFF COMMENT: Formation of the new corporation is analyzed under 801.40; the subsequent acquisition by this corporation of "new assets" is analyzed separately. If the non-profit issues voting stock, which is doubtful, it may rely on 802.40 for an exemption; if it doesn't then formation is not within 801.40 and therefore 802.40 cannot apply.]
Please let me know as soon as possible if this letter does not reflect the informal opinion pursuant to 16 C.F.R. 803.30(a) given to me and [redacted] over the telephone. Thank you very much for your assistance.
Sincerely,
[redacted]
cc: [redacted]