Question
(redacted)
To: mverne@ftc.gov
Date: 1 /10/02 3:17PM
Subject: HSR question
Mike,
I hope the new year is finding you well. I have a quick question regarding whether, under the following facts, "A" would be considered to be making a reportable acquisition of voting securities of "B"
A is an individual (who has total assets in excess of $10 million).
B is a corporation (which has total assets or annual net sales in excess of $100 million).
C is a single-purpose corporation, the purpose of which is to hold voting securities of B.
A currently sits on the board of directors of B, and he and his wife currently hold directly or through trusts voting securities of B that are valued at less $50 million.
A and his wife are also shareholders of C. They hold less than 50% of the voting securities of C (let's say 16%) and do not have the power to appoint 50% or more of the members of the board of directors of C. A does, however, sit on the board of directors of C and, pursuant to a resolution of the board of directors of C, he has the power to vote all of the B voting securities that C owns. (Note: If A were considered to be the beneficial owner of the voting securities of B owned by C, or even the beneficial owner of 16% of those shares, A would currently hold voting securities of B valued in excess of $50 million.)
C is now contemplating: (a) passing a board resolution that would allow each of its shareholders to direct C to sell the shareholder's pro rata shares of B, and pay the proceeds directly to the shareholder who directed the sale; or (b) transforming from a corporation into an LLC that would provide the shareholders that same right. Under both scenarios, A and his wife would continue to hold less than 50% of the voting securities (or membership interests) of C.
Am I correct that under each of these proposals, there would be no acquisition by A of B's voting securities, and therefore there would not be an HSR reporting obligation?
Also, would A, under either of these proposals, be considered to be the beneficial owner of some or all of B's voting securities owned by C, such that A would be deemed to hold B voting securities in excess of the $50 threshold and would need to file and wait before acquiring a single additional share of voting securities of B?
Many thanks for your assistance.
(redacted) (See Attached)
From: Michael Verne
To: Karen Berg; Marian Bruno; Nancy Ovuka (All Concur)
Date: 1/11/02 8:00AM
Subject: Fwd: HSR question
Attached is the issue we were discussing late yesterday. Nancy and I have talked more about it this morning and conclude the following:
There are three questions to be answered:
1) Does beneficial ownership of As pro-rata share of the B voting securities currently held by C pass to A at some point? We are in agreement that it does. A currently has the right to vote the shares, and investment discretion, the benefit of an increase and the risk of a decrease in value all pass to A. YES
2) When does beneficial ownership pass to A? When the board passes the resolution or when A elects to exercise its right to direct C to sell the B shares? Again, we are in agreement that beneficial ownership passes at the time that A gets the right (at the time the board resolution passes) even if A never elects to exercise the right. YES
3) The transfer of beneficial ownership does not necessarily mean that A has made an acquisition of the shares. YES
This is the tougher question. In my view, there is no argument that after the board resolution, A holds both the shares of B it originally held, plus its pro-rata share of the B shares currently held by C. As a result, it will hold v/s of B valued in excess of $50MM, so that any additional acquisition of B voting stock will result in a reportable event. The question is whether at the time of the board resolution, A is deemed to make an acquisition of its pro-rata share of B stock currently held by C.