Question
January 23, 2001
BYFACSIMILE
Mr.Michael Verne
Premerger Notification Office
Bureau of Competition
6th-& Pennsylvania Avenue, N.W.
Washington, D.C. 20580
Re: FairMarket Value Determination
DearMichael:
I am writing to confirm the advice I received fromyou on Thursday, January 4, 2001. For the sake of completeness, I will summarize thepertinent facts below.
Company A, through Subsidiary 1, owns 70% of the partnership interests inPartnership P. Through Subsidiary 2, it is purchasing the remaining 30% ofPartnership P's interests. Both Subsidiary 1 and Subsidiary 2 are wholly ownedsubsidiaries of Company A. Thus, I understand that the Premerger NotificationOffice will treat the transaction as Company A acquiring 100% of the underlyingassets of Partnership P. Because there is no determined purchase price, CompanyA will have to make a fair market value ("FMV") determinationpursuant to 16 C.F.R. 801.10(b) and (c)(3).
The underlying assets of Partnership P could theoretically be sold to anypotential purchaser, including one who could relocate those assets to anynumber of jurisdictions. The fair market value of this collection of assets isat most $9-13 million dollars. However, the partnership also holds a license tooperate in its present jurisdiction. By, state commission regulation, there area fixed number of licenses available. Unless Company A agrees to give up thelicense held by Partnership P, no buyer could operate the assets of PartnershipP in its present locale because there are no available licenses to be issued.Accordingly, it is theoretically possible that were Company A to sellPartnership P, it could receive more than $9-13 million dollars based an itsability to extract a premium payment for its concession to give up its license.This license, however, is non-transferable and cannot be sold as part of thecollection of assets included within Partnership P. Indeed, a buyer that desiredto operate the assets of Partnership P in its present locale couldtheoretically convince another license holder to give up its license so thatthe Commission has a license to issue to it. Because the agreement by a thirdparty to give up a license so that the purchaser of Partnership P's assets mayreceive a license would not be considered an acquisition of an asset, such atheoretical premium payment, in this case, should notbe included as part of the FMV calculation. Thus, the EMV of P's assets remainsat most $13 million and the partnership roll-up described above is notreportable under the Hart-Scot-Rodino Antitrust Improvements Act of 1976, asamended, because it fails the "size-of-transaction" test.
If I have incorrectly describedyour advice, please give me a call as soon as possible at the above number.
(redacted)