Question
From: (Redacted)
Sent: Tuesday, December 14, 2010 10:45 AM
To: Verne, B. Michael
Subject: Question Regarding PartnershipDistributions
Mike, we have a question regarding apartnership distribution.
Three partnerships that are minorityshareholders of Company A are planning to transfer some of the stock of CompanyA (that they currently hold) to their partners as a distribution. Two of thepartnerships ("PS1" and "PS2") have a common UPE ("UPE1")and the third partnership ("PS3") is its own UPE ("UPE2").UPE1 is a limited partner of PS3 but does not "control" PS3 withinthe meaning of the HSR rules.
The distribution of Company A stock byPS1 and PS2 to UPE1, who is the controlling partner of PS1 and PS2 (the"Controlling Partner"), would not be a reportable transaction becauseit is a distribution to a controlling partner (Interpretation 213) and becausethe Controlling Partner was the "acquiring person" when the shareswere acquired by PS1 and PS2 in an exempt transaction. However, thedistribution of Company A stock by PS3 to the Controlling Partner of UPE Iraises a question for which we seek your advice. We have summarized the factsbelow:
PS1, PS2 and PS3 plan to distribute someCompany A stock not only to the Controlling Partner (who controls PSI and PS2but does not control PS3) but also to non-controlling partners in all threepartnerships.
As outlined in the table below,following the distribution of Company A shares from the three partnerships, theControlling Partner will maintain beneficial ownership of fewer shares (and asmaller ownership percentage) of Company A, despite being distributed sharesfrom PS3:
Controlling Partner ShareholdingsSummary:
Approximate Number of Shares Before PS1, PS2, PS3 Distributions
Approximate Number of Shares After PS1, PS2, PS3 Distributions
UPE I direct ownership
0
I.5mm
UPE I indirect ownership through PS I
13.4mm
10.5mm
UPE I indirect ownership through PS2
2.5mm
2.5mm
UPE I indirect ownership through PS3
0
0
Total Controlling Partner Beneficial Ownership (#)
15.9mm
14.5mm
Company A Fully Diluted Shares Outstanding
104.4mm
unchanged
Total Controlling Partner Beneficial Ownership (%)
15.1%
13.8%
The Controlling Partner's shareholdingsin Company A decrease from 15.9mm to 14.5mm. The Controlling Partner's ownershippercentage in Company A drops from 15.1% to 13.8%.
Question: Can UPE1 (the ControllingPartner) rely on Section 7 A(c)(10) with respect to the distribution of CompanyA stock by PS3 to UPE1? Even though tile number of shares held by UPE1 will increasedue to the distribution from PS3, the overall percentage of shares held by UPE1will decrease because PS1 and PS2 are distributing shares to theirnoncontrolling partners. If Section 7 A(c)(10) is not available, is thereanother exemption that might apply? We note that the "solely for purposesof investment" exemption is not available because of board representation.
In closing, we believe that it seemsillogical that the distribution from PS3 to the Controlling Partner isreportable under HSR when the distributions from PS1, PS2 and PS3 result in amaterial decline in the Controlling Partner's ownership position in the subjectcompany.