|
801.10 |
|
|
Staff: |
Michael Verne |
|
Response / Comments: |
09/25/2012 - The proceeds of the loan are not retiring debt, they are part of the consideration to Seller for the 55% interest in Target LLC. We don't think you can prorate the amount by the percentage that Seller is retaining in the LLC. Our call would be that this is a $90 million deal, as that is the total amount going to seller in exchange for the 55% membership interest that Buyer is receiving. |
|
|
|
From: |
(Redacted) |
|
Sent: |
Tuesday, September 25, 2012 10:59 AM |
|
To: |
Verne, B. Michael |
|
Cc: |
(Redacted) |
|
Subject: |
Acquisition Price Question |
Mike
I hope you are well. We have two questions regarding the valuation of debt in an acquisition of control over an LLC Our client (Buyer) is acquiring a 55% interest in Target LLC from Seller. The parties contemplate that prior to/simultaneous with the acquisition, Target LLC, with the assistance of Buyer, will borrow $75M from a third party and distribute the proceeds of the loan to Seller prior to the acquisition of the equity by Buyer. At closing, Buyer will acquire 55% of Target LLC for $15 million. Seller will retain a 45% interest in Target LLC This structure was done for tax purposes, without consideration as to whether it would affect HSR filing obligations.
1. This scenario is similar to informal interpretation #91, in which the PNO determined that the value of the debt need not be included in the acquisition price. The only difference here is that the proceeds of Target LLC's third party loan will not be used to retire an intracompany debt between Seller and Target LLC. Instead, the proceeds of the loan will be provided to Seller through a dividend. In our situation, must the acquisition price include the Target LLC's newly-acquired debt if that loan is not used to retire an intracompany debt?
2. If Target's LLC's newly-acquired debt should be considered as part of acquisition price, must Buyer include the entire value of the $75 million loan as part of the acquisition price? As a result of the transaction, Seller will retain a 45% interest in Target LLC. Target LLC will be responsible for the $75 million debt, but the profit distributions Seller will receive in the future from its 45% interest in Target LLC will necessarily be reduced by the amount Target LLC pays in interest and principal. Seller's future profits from Target LLC will be reduced as a result. If 45% of the $75 million debt is not considered part of the acquisition price, the transaction would fall below the $68.2 million size-of-transaction threshold.