July 15, 2016

Schedule 13G: Corp Fin Issues “HSR Passive Investment Exemption” CDI

Yesterday, Corp Fin issued a CDI – CDI 103.11 of the Regulation 13D-G CDIs – to clarify that just because someone is disqualified (due to efforts to influence management) from relying on HSR’s “passive investment” exemption doesn’t necessarily preclude that shareholder from being eligible to file a short-form Schedule 13G rather than the longer Schedule 13D. In other words, the HSR test is applied differently than the similar one for 13G/13D. The CDI notes that control intent – as analyzed through the relevant fact & circumstances – is key.

Before providing three examples of this analysis in operation, the CDI notes that the determination might hinge on the subject matter of the shareholder’s discussions with management – with the context in which the discussions occur being “highly relevant.”

Interestingly, this CDI came out on the same day that the DOJ – as noted in these memos – announced a record fine of $11 million that ValueAct paid to settle allegations that it had violated the HSR’s “passive investment exemption”…