Question
October 8, 2004
VIAOVERNIGHT DELIVERY
MichaelVerne
Premerger Notification Office
Federal Trade Commission
600 Pennsylvania Ave., N.W.
Washington, D.C. 20580
Re: Applicationof Hart- Scott-Rodino Rules and Regulations
DearMr. Verne:
Thank you for your oral response to my letter of September 13, 2004 (copy attached). As Iunderstand your comments, you agree that there is no "acquisitionprice" because no consideration is being paid. Whether the transaction isreportable would, therefore, appear to depend on a calculation of "fairmarket value."
We wish to clarify the implication of the fact that there is no acquisitionprice. We believe that we can attempt to determine the "fair marketvalue" of Company B by obtaining an independent appraisal. It would seemto follow that if the appraisal concludes that Company B has a fair marketvalue of less than $50 million, the transaction - i.e., the substitution of anew parent for the existing parent of Company B - would not satisfy the size ofthe transaction test. As a consequence, the transaction should not bereportable.
We would appreciate an additional response on this point.
September 13, 2004
VIAOVERNIGHT DELIVERY
MichaelVerne
Premerger Notification Office
Federal Trade Commission
600 Pennsylvania Ave., N.W.
Washington, D.C. 20580
Re: Application of Hart-Scott-Rodino Rules and Regulations
DearMr. Verne:
We are writing regarding the interpretation of the Hart-Scott-Rodino Act andthe rules and regulations interpreting it. In general, the question has to dowith rules regarding the Hart-Scott-Rodino reportability of membersubstitutions among not-for-profit entities, and specifically, determining thevalue of the transaction where the entity to be acquired is in substantialdanger of failure.
Company A and Company B are non-profit entities that meet the size-of-personrequirement. However, we are seeking confirmation about the method fordetermining whether or not the transaction would satisfy thesize-of-transaction requirement. Generally, the contemplated transaction wouldsubstitute a newly-created parent of Company A for the current parent ofCompany B through a member substitution. Specifically, Company A will create aparent organization ("Parent") that will have the authority toappoint the Board of Trustees of both Company A and Company B.
No money is to be paid in consideration for the change of membership. NeitherCompany A nor the Parent would be paying any funds to Company B or its currentparent. Company B, not the Parent, will continue to remain responsible for itsdebts and liabilities after the transaction.
Company B is a financially troubled institution that may not survive over thelong term. Indeed, Company B's most recently prepared balance sheet showsapproximately $ 140 million in assets and $180 million in liabilities. Sincethe book value of Company B would appear to be well below $50 million, theParent's attempt to assume control of the institution and to resolve CompanyB's significant financial and operational problems would not appear to bereportable. However, we understand that the "book value" of a companyis not used to determine the value of the transaction for HSR purposes. Rather,we understand that the value of the transaction is the fair market value of theassets.
We are requesting confirmation that the appropriately determined fair marketvalue (e.g., an independent appraisal), can be the basis upon which weshould decide whether or not the value of the contemplated transaction exceeds$50 million, and, therefore, would be subject to the Hart-Scott-Rodinonotification requirements.
We look forward to your response.