What happened?

On November 8, 2019, the Federal Trade Commission (“FTC”) and the Antitrust Division of the U.S. Department of Justice (“DOJ”) proposed changes to the premerger notification rules (“Rules”) relating to how U.S. and foreign entities are defined for purposes of determining reportability under the Hart-Scott-Rodino Antitrust Improvements Act (“HSR Act”).1 As a result of the proposed amendments to the Rules, certain acquisitions of foreign voting securities and assets currently exempt from the HSR Act’s filing requirements would be reportable. In particular, if the proposed changes are finalized, acquisitions by offshore funds of minority interests in a foreign issuer may no longer be exempt even though those transactions likely would not raise any competition concerns.

Currently, an offshore investment fund is deemed “foreign” for purposes of the HSR Act and Rules, even if its investment manager or general partner is located in the U.S., so long as the fund is incorporated, organized and has its headquarters outside the U.S. Accordingly, such an offshore fund may acquire minority stakes in foreign issuers without needing to file HSR.2 The proposed changes to the Rules would result in the offshore fund being deemed a U.S. entity if either the fund’s investment manager or general partner is organized or incorporated under U.S. law (or, if an individual, is a resident or citizen of the U.S.).3 The amended Rules may substantially increase the number of HSR filings for hedge fund managers of offshore funds that take noncontrolling interests in foreign issuers.4

What happens next?

The FTC has invited interested parties to comment on the proposed amendments to the Rules. Comments must be received by December 30, 2019. The FTC will review the public comments and may make revisions prior to publishing the final changes. The amended Rules will become effective 30 days after publication in the Federal Register.