On November 8, 2019, the Federal Trade Commission (FTC) and the U.S. Department of Justice’s (DOJ) Antitrust Division proposed amendments to the Hart-Scott-Rodino Antitrust Improvements Act (HSR Act) to clarify which transactions are exempt from the pre-merger notification requirement because they involve a foreign entity.
The HSR Act requires companies of a certain size involved in a transaction that exceeds the reportability thresholds (currently $90 million or more) to file a pre-merger notification with the FTC and DOJ and observe a waiting period unless an exemption applies.
Defining "Principal Office" to Determine Foreign Person
Certain transactions are exempt from this requirement because the transaction involves acquisition of foreign assets or stock of a foreign person. Under the current HSR Act, the determination whether the entity is a foreign person often depends on the location of the entity’s "principal office," but that term has never been defined.
Under the proposed Amendments, the "principal office" would be defined by the primary location of the entities' executives and assets. An entity’s principal offices would be deemed to be in the United States (and therefore not foreign, and potentially not subject to exemption) if:
- 50 percent or more of the officers reside in the United States;
- 50 percent or more of the directors reside in the United States; or
- 50 percent or more of the company’s assets are located in the United States.
By adding this long-awaited definition, the amended HSR Act will aid in more accurately identifying those transactions that may be excluded from the filing requirements because they have a limited nexus with the United States.
Other Considerations for Foreign Transactions
This proposed amendment comes on the heels of proposed regulations issued by the Committee on Foreign Investment in the United States (CFIUS) expanding its authority to review foreign transactions, including those with only a limited nexus with the United States.
CFIUS is an interagency committee authorized to review certain transactions involving foreign investment in the United States to determine the effect of such transactions on the national security of the United States.
The proposed CFIUS regulations explain the scope of CFIUS’s new authority to review certain—even minority—investments by foreign entities in U.S. businesses involving sensitive personal data, or a wide range of critical technology or infrastructure. CFIUS’s expanded authority is broad and not yet fully defined, and will have significant impact on foreign investments and transactions, especially in the growing technology sector.