Question
November 11, 2004
Via Facsimile
Mr. B. Michael Verne
Premerger Notification Office
Bureau of Competition, Room 303
Federal Trade Commission
6th Street and Pennsylvania Avenue, N.W.
Washington, DC 20580
Re: Unproductive Real Property Exemption
Dear Mike:
Iam writing to confirm our understanding of the appropriate Hart-Scott-Rodinoanalysis of a transaction we discussed during a November 3, 2004, telephone call and (redacted) discussed with you again during a November 9, 2004, telephone call.
Specifically,we discussed the following transaction. X intends to build a power plant.X has the necessary permits and has entered into contracts with fuel suppliersand a power purchaser. X is leasing the land upon which to build the facilityfrom a city and has an option to acquire such land. X has also acquired thenecessary intellectual property rights to build and run the facility. X basentered into a construction contract with a third party under which the thirdparty would construct the facility. Preliminary construction activities havecommenced. Collectively, these assets, plans, contracts and rights related tothe planned power plant are termed the "Project."
Ywould like to purchase the Project from X and lease it back to X forconstruction and operation of the power plant. Y will pay X approximately $169million, of which approximately $7.65 million will be attributable to thedevelopment and construction costs of the facility- The lease back rights arenot for the useful life of the facility, but X will have an option to extendthe lease back rights on terms offered by Y in its sole discretion.
Weunderstand that Ys acquisition of the Project (including the contracts,permits and other assets related to the Project currently held by X) would be exemptunder 16 CFR, 802.2(c), which applies toacquisitions of unproductive real property, so long as the real property atissue has not generated total revenues in excess of $5 million during the 36months preceding the acquisition. We also understand that X's exercise of itsoption to acquire the land froze the city would not be reportable regardless ofwhether construction of the facility had begun on the land when such option isexercised
Finally,because the term of the lease back agreement is not four the useful life of thepower plant, and because it is uncertain whether the parties will. be able toagree on the terms of a second lease term, we understand that no filingobligation currently exists with respect to the lease back arrangement betweenY and X.
Mike,please advise if our understanding of our discussions and the proper Hart-Scott-Rodino analysis of this transaction is incorrect in any way. As always,thank you for your help.