Question
June 15, 2004
BY FEDERAL EXPRESS AND E-MAIL
Ms. Nancy Ovuka
Premerger Notification Office
Bureau of Competition
Federal Trade Commission
Room 303, 6t" Street and
Pennsylvania Ave. N.W.
Washington, DC 20580
Re: Hart-Scott-Rodino Compliance Inquiry
Dear Ms. Ovuka:
This letter summarizes the telephone conversation yesterday amongyou, me and (redacted) of Gardner, Carton and Douglas. It sets forth the various considerations resulting in theconclusions set forth in Section C hereof regarding the treatment of theacquisition described below under the Hart-Scott-Rodino Antitrust ImprovementsAct of 1976, as amended (the "HSRAct"), and the rules promulgated thereunder. For the sake of clarity, Ihave expanded upon the facts that we discussed in our conversation in certainplaces in this letter.
A. TransactionSummary.
Pursuant to an Agreement and Plan of Merger (the"Agreement"), a subsidiary of the acquiring person (the"Acquiror") will be merged with and into the acquired person (the"Target"), and the Target will be the surviving corporation (the"Merger"). The Target has issued and outstanding Class A Common Stockthat entitles its holders to vote for the directors of the acquired person andtherefore is a voting security within the meaning of 16 C.F.R. 801.1(f)(1)and issued and outstanding Class B Common Stock that does not entitle itsholders to vote for its directors and accordingly is not a voting securitywithin the meaning of that rule.
Immediately prior to the Merger, the equity securities of theTarget will be held as set forth below:
Refer toimage file
The votingsecurities are 1 % of the issued and outstanding equity securities of theTarget (4 400 = 0.01). The non-voting securities are 99% of the issued andoutstanding equity securities of the Target (396 = 400 = 0.99).
At the effective time of the Merger, each of the four issued andoutstanding shares of the Class A Common Stock of the Target and each of the396 issued and outstanding shares of the Class B Common Stock of the Targetwill be converted into the right to receive a pro rata share of about $122million of common stock of the Acquiror (the "Purchaser StockConsideration").
B.Allocation ofPurchaser Stock Consideration.
Based upon the pro rata allocation of the Purchaser StockConsideration between all of the issued and outstanding equity securities ofthe Target as provided for in a formula in the Agreement, the Acquiror willprovide $1,220,000 million of the Purchaser Stock Consideration in exchange forthe voting securities of the Target ($122,000,000 * 0.01 = $1,220,000). Pursuantto the same formula, the Acquiror will provide the remaining $120,078,000 ofthe Purchaser Stock Consideration in exchange for the nonvoting securities ofthe Target ($122,000,000 * 0.99 = $120,078,000).
C.Analysis.
You confirmed that only the value of the voting securities of theTarget being acquired by the Acquiror must be counted for purposes of the $50million size-of-transaction test set forth in Section 7A(a)(2)(B)(i) of the HSR Act. The value of the non-voting securities of the Target is not countedfor purposes of determining if this threshold is met. Accordingly, theconsideration being provided by the Acquiror to the Target's Stockholders (the"Stockholders") pursuant to the Merger in exchange for the 4 sharesof the Class A Common Stock of the Acquiror constitutes the acquisition pricefor purposes of the $50 million size-of-transaction test.
You further advised us that the acquisition price of the votingsecurities of the Target being acquired by the Acquiror is not determined forpurposes of 16 C.F.R. 801.10(a)(2)(ii). The acquisition price isundetermined because the Agreement does not expressly allocate the amount ofthe Purchase Stock Consideration between the Target's voting and non-votingsecurities. You therefore advised us that the board of directors of theAcquiror or its designee will have to perform a fair market valuation of theTarget's voting securities pursuant to the procedure stated in 16 C.F.R. 801.10(c)(3) in order definitively to determine whether or not the instant acquisitionmeets the $50 million size-of-transaction test.
I understand that the Premerger Notification Office does notconfirm informal advice in writing. However, I would appreciate it if you wouldcall me at (redacted) when you have the chance to confirm whether or not thisletter correctly represents our discussion and the advice that you gave to (redacted)and me. Thank you for your prompt assistance regarding this inquiry.