Question
February 11, 2004
NancyM. Ovuka, Compliance Specialist
Premerger Notification Office `
Bureau of Competition.
Federal Trade Commission
Room 303
6th Street and Pennsylvania
Avenue, N.W.,
Washington, D.C. 20580
Re: Applicabilityof HSR Filing Requirements to Proposed Corporate Restructuring
DearMs. Ovuka:
This letter will confirm the advice you provided verballyearlier today regarding whether a, proposed corporate restructuring wouldnecessitate a filing under the Hart-Scott-Rodino ("HSR") Act.
Therelevant facts are provided below.
I. PreTransaction Structure
Company A, a corporation, is currently controlled byCompany B. Company B, owns approximately 53.85 percent of the shares and,because of its "double" voting rights, 71.66 percent of the votingrights in Company A. The remaining shares and voting rights in Company A arewidely held by institutional investors and individual shareholders.
Company B is a holding company existing solely for thepurpose of owning its interest in Company A. Family A holds 51 percent of theshares of Company B and Company C holds the remaining 49 percent of Company B.We do not know the precise manner in which Family A holds its interest inCompany B but, as you and I discussed, regardless of whether Family A orCompany B is currently the ultimate parent entity ("UPE") of CompanyA for HSRpurposes, the answer to the question of whether a filing is required remainsthe same.
Company A, Company B and -Company C are "foreignpersons" under the HSR Rules.1 Family A is also a "foreignperson" under the HSR Rules. In addition,, Company A is a "foreignissuer" under the HSR Rules.2
II. ProposedRestructuring
The essence of the proposed restructuring is that Family Aand Company C will exchange their current indirect interests in Company A fordirect holdings in Company A.
Company Bwill be merged into Company A. Family A and Company C will exchange theirshares in Company B for shares in Company A. Upon completion of the, restructuring,Family A will hold 27.48 percent of the shares and 28.58 percent of the votingrights in Company A; Company C will hold 26.38 percent of the shares and 27.46 percentof the voting rights in Company A. (The "double" voting rightscurrently held by Company B will be eliminated.) Institutional investors andpublic shareholders will continue to hold the remaining shares and votingrights in Company A.3 Family A will be able to nominate threemembers of Company A's board of directors and Company C will be able tonominate three members of Company A's board. Family A and Company C have agreedto vote for the board members nominated by the other. These six board members,however, will constitute a minority of Company A's 13 member board.
In short, as a result of the restructuring described above,Company A will become its own UPE.
For the purposes of our discussion, we assumed that CompanyC's and Family A's "acquisition" of voting shares in Company A wouldmeet the HSRsize-of-persons and size-of-transaction tests.
III. Analysis
Based on the facts presented above, and assuming thatFamily A is the UPE of Company A, you advised that the proposed corporaterestructuring would be exempt from the HSR filing requirements. The merger of Company B into itssubsidiary, Company A, would be exempt under Section (c)(10) of the HSR Act.4 Theacquisition of shares in Company A, by Company C and Family A would be exempton the basis of 16 C.F.R. 802.51(b)(1).5 Under802.51(b)(1), the acquisition of voting securities of a foreign issuer bya foreign person is exempt from the HSR filing requirements if, inter alia, the acquisition willnot confer "control" of the issuer. In the transaction at hand, CompanyA is a foreign issuer; Family A and Company C are "foreign persons;"and, neither Family A nor Company C will control Company A after the proposed restructuring.As a result, no HSR filing would be required.6
Finally,you advised that even if the various parties to this proposed corporate restructuringwere United States persons and issuers7 (and, as a result,802.51(b)(1) would not apply) it would still be the case that no HSR filing would benecessary. This is because the Premerger Office would interpret Section (c)(10)of the HSRAct as' exempting the restructuring from the HSR filing requirements. Neither Family A's nor Company C'sshare of the voting securities of Company A will increase as a result of theproposed restructuring. In fact, because the double voting rights currentlyheld by Company B will be eliminated, the voting rights held by Family A andCompany C will actually be reduced. While Family A and Company C currently own51 percent and 49 percent, respectively, of an entity (Company B) holding 71.7percent of the voting rights in Company A, Family A and Company C will holdonly 28.6 percent and 27.5 percent, respectively, of the voting rights inCompany A after the restructuring.8
Footnotes:
1. Theterm foreign person means a person the ultimate parent entity of which:(A) Is not incorporated in the United States, is not organized under the lawsof the United States and does not have its principal offices within the UnitedStates; or (B) If a natural person, neither is a citizen of the United Statesnor resides in the United States. 16 C.F.R. 801(e)(2)(i).
2 Theterm foreign issuer means an issuer which is not incorporated in the United States, is notorganized under the laws of the United States and does not have its principal offices within the United States. 16 C.F.R.801.1(e)(2)(ii).
3 Asmall portion of the shares are held by Company A as treasury shares.
4Section (c)(10) of the HSR Act exempts "acquisitions of voting securities, if,as a result of such acquisition, the voting securities acquired do notincrease, directly or indirectly, the acquiring person's per centum share ofoutstanding voting securities of the issuer."
5 The acquisition of votingsecurities of a foreign issuer by a foreign person shall be exempt from therequirements of the [HSR] act unless the acquisition will confer control of theissuer and the issuer (including all entities controlled by the issuer) either:holds assets located in the United States (other than investment assets, votingor nonvoting securities of another person, and assets included pursuant to801.40(d)(2) of this chapter) having an aggregate total value of over $50million; or made aggregate sales in or into the United States of over $50million in its most recent fiscal year. 16 C.F,R. 802.51(b){1 }.
6 Even if Company B is currentlythe UPE of Company A, no HSR filing would be required. The merger of Company 8 into itssubsidiary, Company A, would be exempt under Section (c)(10) of the HSR Act. ( and the"acquisition" of voting shares in Company A by Company C and membersof Family A would, as before, be exempt under 16 C.F.R. 802.51(b)(1).
7 The term United States person means a person the ultimate parent entity of which: (A) Isincorporated in the United States, is organized under the laws of the United States or has itsprincipal offices within the United States; or (B) If a natural person, either is a citizen of the United States or residesin the United States. 16 C.F.R. 801.1(e)(1)(i). The term United States issuer means an issuer which is incorporated in the United States, isorganized under the laws of the United States or has its principal offices within the United States. 16 C.F.R.801.1(e)(1)(ii).
8 The transaction will result inFamily A and Company C holding, on a combined basis, approximately 53.86 of theshares of Company A after the restructuring is complete, as opposed to 53.85percent (through Company B) before the restructuring. This minor increase inthe shares held by Family A and Company C is due to technical adjustments. Asnoted, however, the percentage of voting rights held by Family A and company Cwill actually be reduced significantly.