Earlier this year, I wrote about the FTC’s $5 million settlement with Canon & Toshiba arising out of their efforts to structure the sale of the Toshiba Medical Systems Corporation (TMSC ) to avoid compliance with the HSR Act. The authority for the FTC’s challenge to that transaction was provided by Rule 801.90 promulgated under the HSR Act – which allows regulators to disregard any transaction or device employed for the purpose of avoiding compliance with the Act.
Now, in the wake of the Canon/Toshiba settlement, the FTC has blogged guidance setting forth its views on the reach of Rule 801.90, using the TMSC transaction as a starting point. Here’s an excerpt:
According to the Statement of Basis and Purpose for Rule 801.90, “[f]or purposes of determining whether transactions or devices for avoidance have been employed, of obvious relevance will be the existence of reasons other than avoidance for the manner in which a particular transaction is consummated.” Some have argued that so long as there is a legitimate purpose for the overall structure of the transaction, then there is not a purpose to avoid. This is not correct.
Rule 801.90 is not a normative provision, nor is it even focused on the competitive effects of transactions. Rather, it poses a simple question: does the benefit that is the motive behind the transaction’s structure result from avoiding or delaying filing? If the answer is yes, the structure is an avoidance device under the Rule.
So, in this case where Toshiba’s desire to quickly realize the gains from the transaction so as to avoid bankruptcy may have been “legitimate”—and certainly was not anticompetitive—that benefit flowed directly from delaying the filing. In contrast, if a transaction’s structure creates a benefit entirely unrelated to HSR filing – such as a tax benefit from a proposed structure that has nothing to do with filing – but the filing is delayed or avoided as an incidental consequence of the structure, there is no avoidance device.
The Canon/Toshiba proceeding was the first proceeding based on Rule 801.90 in a long time, but the blog makes it clear that it was a “shot across the bow” – and that companies can expect to face stiff penalties if they restructure a reportable acquisition in order to avoid complying with the HSR’s pre-merger notification requirements.
-John Jenkins, DealLawyers.com November 25, 2019