AO 2012-21: Corporations and their PACs disaffiliated after spin-off

Following a reorganization and spin-off, Primerica, Inc. and Citigroup are disaffiliated entities for the purposes of the Federal Election Campaign Act (the Act). As a result, Primerica’s planned separate segregated fund (SSF) will not be affiliated with Citigroup’s SSF.

Background

Primerica is a for-profit, publicly traded distributor of life insurance and financial products. It was incorporated in October 2009 by Citigroup as a holding company for the Primerica businesses, which were wholly-owned, indirect subsidiaries of Citigroup. In April 2010, Citigroup transferred these businesses to Primerica through a corporate reorganization and spun off Primerica through an initial public offering of Primerica stock. As of December 2011, Citigroup no longer owned any shares of Primerica’s outstanding voting common stock.

At the time of the corporate reorganization and spin-off, Primerica and Citigroup entered into a number of agreements setting forth the terms under which assets, liabilities, tax consequences and other matters would be divided. These agreements were entered into “for the purpose of facilitating an orderly business transition during [the spin-off].” On April 1, 2010, the two companies entered into a Note Agreement, under which Primerica issued Citigroup a $300 million note, payable at 5.5 percent interest and due March 31, 2015. Primerica explained that the Note Agreement contains standard terms and interest rates as of the time of the Agreement’s execution.

Pursuant to a purchase agreement between Primerica and Citigroup, Citigroup has one representative on Primerica''s Board of Directors. As one of nine members on the board, this director has the same ability to direct or to participate in Primerica''s governance as do the other eight directors. Primerica and Citigroup do not otherwise have any overlapping officers or employees.

Primerica intends to form an SSF. Citigroup will not pay any of the administrative, fundraising, or operational costs associated with Primerica’s SSF, nor will it provide any other form of support. Primerica asked the Commission if Primerica and Citigroup are disaffiliated under the Act.

Analysis

Under the Act and Commission regulations, political committees that are established, financed, maintained, or controlled by the same organization are affiliated. See 2 U.S.C. § 441a(a)(5); 11 CFR 100.5(g)(2), 110.3(a)(1). Certain organizations—including a corporation and its subsidiaries—are per se affiliated, which results in their SSFs being affiliated. See 11 CFR 100.5(g)(3)(i), 110.3(a)(2)(i). Affiliated committees are treated as a single committee and share contribution limits; thus, contributions made to or by affiliated committees are considered to have been made to or by a single committee. 2 U.S.C. § 441a(a)(5); 11 CFR 100.5(g)(2), 110.3(a)(1).  

Although Primerica and Citigroup were previously per se affiliated, the Commission determined that, following the reorganization and spin-off, the organizations no longer meet the criteria for per se affiliation. In cases where the relationship of one company to another does not constitute per se affiliation, the Commission will examine various factors in the context of the overall relationship to determine whether one sponsoring organization has established, financed, maintained, or controlled the other sponsoring organization or committee. See 11 CFR 100.5(g)(4)(i)-(ii), 110.3(a)(3)(i)-(ii).

In this situation, the relevant factors include whether one organization owns a controlling interest, participates in the governance or otherwise controls the decision making of the other organization. The Commission also considers common staffing, funding and political giving which would indicate a formal or ongoing relationship between the two organizations. 11 CFR 110.3(a)(3)(ii)(A-J). After analyzing these and other factors within the context of Primerica and Citigroup’s relationship, the Commission concluded that Primerica and Citigroup are not affiliated.

The Commission found that Citigroup does not own a controlling interest in Primerica’s voting stock or securities, and that there is no indication that Primerica owns any voting stock or securities in Citigroup or its subsidiaries. Citigroup also has minimal authority or ability to direct or participate in the governance of Primerica and will have even less authority or ability to do so for Primerica’s SSF. With only one member on Primerica’s board, Citigroup has minimal authority or ability to hire, appoint, demote or otherwise control Primerica’s officers or other decision-making employees. Primerica and Citigroup also have no common or overlapping officers or employees; nor is there any indication that Primerica’s SSF will have any common or overlapping officers or employees with Citigroup or Citigroup’s SSFs.

Regarding the various spin-off agreements and the continuing Note Agreement, the Commission noted that separation agreements after spin-offs often require continuing transactions between the companies; however, the Commission has previously accepted representations that these agreements merely sort out the companies’ post-spin-off obligations rather than continue one company’s control. In this case, the Commission found that there was no indication of any formal or ongoing relationship between the companies since Citigroup and its SSF do not provide goods in a significant amount or on an ongoing basis to Primerica, and will not do so for Primerica’s SSF. Citigroup also will not fund or provide administrative support to Primerica’s SSF. Finally, although Citigroup had an active role in the formation of Primerica as it exists today, the Commission concluded that Citigroup’s role in the formation of Primerica does not require a finding that the entities are affiliated.

Given the separation of business operations, the arm’s length agreements setting forth the obligations of both Citigroup and Primerica at each stage of the spin-off and post-separation, and the almost total separation of leadership and personnel, the Commission concluded that the organizations are disaffiliated.

Date issued: June 21, 2012; Length: 12 pages.

Resources:

• Advisory opinion 2012-21 [PDF; 12 pages]
• Commission discussion of AOR 2012-21