Question
August 12, 2004
VIA E-MAIL & REGULAR MAIL
Michael B. Verne, Esq.
Premerger Notification Office
Federal Trade Commission
600 Pennsylvania Avenue, N.W.
Washington, DC 20580
Re: Hart- Scott-Rodino
Dear Mr. Verne:
This letter is to confirm the substance of our telephone conversation yesterdayregarding the application of the Hart-Scott-Rodino Act and Rules to thefollowing fact pattern:
An acquiring person hasentered into four distinct contracts to acquire assets from four entitiescontrolled by the same acquired person.
Three of the contractsrelate to the acquisition of distinct businesses from three separate corporateentities. These businesses are franchised operations involving differentfranchisors, though the generic product is the same. In all, there are seven"brands" and five franchisors. In addition, there is a third-partyminority shareholder in two of these corporate entities and two minorityshareholders in the third. We did not note this in our conversation, but thesebusinesses have been "owned and operated" by these three corporateentities for some time, and in any event long before this transaction arose.
The fourth contract relatesto the conveyance by the fourth entity of related real property associated withthe businesses being conveyed pursuant to the other three contracts.
The four contracts aresubject to a different set of conditions. Each franchisor must consent to theconveyance of the business associated with its brand or brands. In addition,the sale of each business is subject to its own separate approval by the samestate licensing authority. However, the consummation of each of theseagreements is conditioned on the consummation of the others, and so thetransactions are expected to close at the same time.
The relevant contracts werestructured and signed months ago, without regard to whether HSR would apply.Given the various third party interests involved (e.g., the individualfranchisors), there are legitimate business reasons to convey the assetsassociated with these businesses pursuant to separate agreements.
You indicated that these purchases should be treated as multiple assetacquisitions (as opposed to a single, unitary acquisition) that would beaggregated for purposes of the Act's size-of-transaction threshold only if suchaggregation were required by 801.13(b)(ii) of the HSR Rules. Youindicated that this multi-acquisition conclusion would not be changed in thesecircumstances by the fact that the agreements are cross-conditioned on eachother. Since all the agreements to purchase assets were executed before theconsummation of any of these acquisitions (i.e., there is no asset purchaseagreement executed within 180 days after the consummation of an assetacquisition from the same acquired person), 801.13(b)(ii) would notrequire aggregation.
Please advise the undersigned promptly if this letter does not comport withyour understanding of our conversation. Thank you for your attention to thismatter.