Control no longer controlling for HSR reporting of not-for-profit combinations


By:


Premerger Notification Office Staff

The PNO routinely provides informal guidance on Hart-Scott-Rodino reporting obligations that arise when combining not-for-profit entities, typically in the context of hospital combinations. In the past, much of this guidance focused on whether the combination resulted in a change of “control” of the board of directors of one or more of the combining entities. This was because those seeking guidance described hospital combinations primarily in terms of formal board governance.

Recently, however, when asked to analyze combinations of non-for-profit entities, the PNO began to appreciate the limitations of relying solely on the concept of control to determine reportability. In particular, as potential filers described combinations of not-for-profit hospitals, it became clear that a potentially reportable acquisition could occur even when there is no change in control of the board of directors of one of the combining entities. Typically, this is because one party obtains the indicia of beneficial ownership over the assets of another party –the fundamental basis for concluding that a potentially reportable acquisition occurs under any HSR analysis.

To clarify the analysis for those evaluating a transaction that involves not-for-profit entities, the PNO has posted a tip sheet reviewing how to assess the reportability of common not-for-profit combinations, with a focus on the “affiliation” of not-for-profit hospital systems. The tip sheet supersedes prior informal guidance for not-for-profit combinations and will apply to transactions to be consummated after today.