The Premerger Notification Office (the "PNO") of the Federal Trade Commission issued a "Statement on Escrows" clarifying the use of escrows in connection with transactions requiring notification under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"). Absent exceptional circumstances, the PNO is of the view that when assets or voting securities are transferred to an escrow prior to the expiration of the HSR Act waiting period, the beneficial ownership of such assets or securities also has been transferred to the acquiring party, notwithstanding the use of an escrow arrangement. The PNO deems transfers into escrow to be violative of the HSR Act and can result in civil penalties of $16,000 per day.
In the event that the parties to a reportable transaction believe they are facing exceptional circumstances that merit no HSR Act enforcement action be taken if an escrow arrangement is utilized, the PNO recommends that the parties consult with the PNO in advance. If consulted in advance, the PNO may, in limited instances, advise that it will not recommend enforcement action. The PNO did not identify specific circumstances under which an escrow arrangement would be permitted. At a minimum, the escrow arrangement must prevent the acquirer, to the extent possible, from exercising beneficial ownership of the escrowed assets or voting securities.