Before continuing this series of posts about the Hart-Scott-Rodino Antitrust Improvements Act (HSR), here are some links to useful materials. The most basic materials are the HSR statute, §7A Clayton Act (15 USC 18a), and the rules implementing HSR: Coverage Rules (16 CFR 801), Exemption Rules (16 CFR 802), and Transmittal Rules (16 CFR 803). You will need both statute and rules to follow along with these HSR Primer posts. The FTC’s Premerger Notification Office provides much helpful material, including links to the statute and rules, as well as to the Statement of Basis and Purpose and formal interpretations, here. The form and instructions can be found here. There are also useful introductory guides (using unadjusted thresholds), a searchable data base of informal interpretations, and a FAQ. As a reminder, these HSR Primer posts are eclectic and make no pretense to provide a complete guide to HSR reportability.
Parsing Acquisitions. The world according to HSR is flat. It is two-dimensional in two important respects:
- There are only Acquired Persons and Acquiring Persons. Every transaction is broken down into binary acquisitions with (one or more) Acquiring Persons and (one or more) Acquired Persons. (The topic of this post.)
- There are only voting securities and assets. Yes, even though the Rules now deal with interests in unincorporated entities. (This will be the topic of a future post.)
This binary view of acquisitions goes back to the magic language of §7A, and it means that within the transaction, each acquisition must be identified, and for each the acquired and acquiring person, before the jurisdicitonal SOT and SOP can be applied. While the Rules identify entities (within persons) and issuers, the question of where an acquisition is located, and therefore the question of reportability, turns exclusively on the acquired and acquiring person. These terms are not identical with “buyer,” “seller,” “target,” or “parent” that corporate agreements might identify. In a second step, those acquisitions that will not lead to reportability can be eliminated. To see how this works, here are a series of basic situations.

Assets for cash. The most basic situation is an asset purchase, in which the Acquiring Person acquires assets (say a factory) from the Acquired Person for $350 million in cash. There are two acquisitions: the first of the factory (assets), and then of cash. Rule 801.2(e) make clear that both these acquisitions must be analyzed separately:
Whenever voting securities or assets are to be acquired from an acquiring (!) person in connection with an acquisition, the acquisition of voting securities or assets shall be separately subject to the act.
Once the acquisitions have been identified, the second step is to eliminate acquisitions that will not lead to reportability. The most important instance is that the payment of cash for voting securities or assets is not a reportable acquisition. The Rules make this point by stating that “cash shall not be considered an asset of the person from which it is acquired,” 801.21(a), with the effect that in the example above, there is only one acquisition: that of the factory (assets of Acquired Person).

Voting securities for cash. The second basic situation is a stock purchase, in which Acquiring Person acquires stock of Target from Acquired Person for cash. (As in the previous example, the cash paid as consideration is not considered an asset of the person from which it is acquired, and thus won’t lead to a reportable acquisition.) The important point is that Target is not the acquired person, even though it is the entity that is being bought. The reason is Target is controlled by Acquired Person, and that for HSR “Person” means ultimate parent entity—another delightful HSR construct that will be topic of a separate post. For now it’s sufficient to note Rule 801.2(b):
… the person(s) within which the entity whose assets or voting securities are being acquired [here: Target] is included, is an acquired person.
To be “included within” means controlled by in HSR.
Voting securities for voting securities. The next example shows the simplest case in which the binary view of acquisitions leads to breaking up a transaction into two acquisitions:

Here, A acquires the voting securities of Target from B in a stock-for-stock deal. B receives newly-issued voting securities in A as consideration. Again, there are two potential acquisitions, but since this time both acquisitions are of voting securities, 801.21(a) doesn’t apply. The result is that there are indeed two reportable acquisitions. A is the Acquiring Person with respect to the voting securities of Target, but the Acquired Person with respect to its own newly-issued voting securities. Conversely, B is the Acquired Person with respect to Target’s voting securities, but the Acquiring Person with respect to A’s voting securities. Rule 801.2(c) states:
For purposes of the act and these rules, a person may be an acquiring person and an acquired person with respect to separate acquisitions which comprise a single transaction.
And yes, in this situation, A and B would file just one form each as both acquired and acquiring persons (watch out for items 5-8, which require only a limited response from acquired persons).
To understand the complicated terms of acquisition, acquiring and acquired person under HSR, it’s helpful to consider the starting point: enforcement of §7 Clayton Act, which aims at acquisitions that lessen competition. For example, the transfer of cash is competitively neutral, and shouldn’t be the reportable, which explains 801.21(a). (The SBP says that “cash generally lacks competitive significance.”) Similarly, looking not to buyers or sellers or similar corporate terms, but—through the construct of acquiring and acquired persons—at who currently and after the transaction will control the assets or voting securities goes to the competitively-relevant question of how the transaction will affect the ability to make competitive decisions (such as raising prices). Who will make competitive decisions before and after the transaction? is a fun question to ask, but only an imperfect proxy for determining HSR reportability.
Voting securities beat assets. The indirect concern with control also explains the rule that voting securities are never assets, even though an investment in a company is certainly an asset for bookkeeping purposes. Rule 801.21(b) states:
Neither voting or nonvoting securities nor obligations referred to in section 7A(c)(2) [things likes bonds and mortgages] shall be considered assets of another person from which they are acquired.
This rule means that in terms of parsing acquisitions, voting securities beat assets, because the voting securities that are being acquired are considered to be acquired from the person in which the entity whose voting securities are being acquired is included (801.2(b)). That, incidentally, is the sort of sentence only long exposure to HSR can lead one to write or understand. So here is a graph to explain it:

Mr. X sells his minority stake in Issuer to Acquiring Person. He doesn’t have to file HSR (because he doesn’t control Issuer, or, in HSRish, because Issuer is not an entity included within him). But Issuer’s parent, Acquired Person, does have to file. (To make sure Acquired Person knows about the sale and its filing obligation, Acquiring Person would have to give Acquired Person notice in these situations, see 801.30(a)(5), 803.5(a).) If the minority stake were treated as an asset of Mr. X, Mr. X himself would be the acquiring person (and UPE), Issuer wouldn’t be included in the acquiring person (since Mr. X doesn’t control Issuer), and the potential competitive significance of the acquisition would not be apparent in the filing. That’s why voting securities are never asset.
To sum up, these are steps required to parse a transaction into HSR-relevant acquisitions. Once this work is done, the jurisdictional tests can be applied.
- Identify all acquisitions of voting securities or assets [or interests in unincorporated entities].
- Eliminate those acquisitions that won’t lead to reportability, such as cash. (There are others, like contributions to newly-formed subsidiaries, intraperson transfers, or certain aspects of joint venture transactions.)
- Identify the acquiring and acquired persons for each remaining acquisition by finding UPEs. That’ll be the topic of the next post.
Previous posts: HSR and §7. The Basic Test.
Share on Facebook