Question
From: (redacted)
Sent: Tuesday,January 18, 2005 12:40 PM
To: Verne, B. Michael
Cc: (redacted)
Subject: HSR Issue Concerning Formation of Foreign LLC (33494-00041)
Dear Mike:
I am writing to confirm our discussions regarding the formation of a newforeign entity, particularly given the imminent changes in the HSR rules and regulations affecting the partnership/LLC arena (the"Proposed Changes").
As we have discussed, two existing foreign persons (the "Parents")will be forming a new entity in the form of a "societa per azioni"that is a limited liability company under Italian law ("ItalianLLC"). Under Interpretation No. 177 in the Premerger Notification PracticeManual (3d Ed.) recognizes, because foreign LLCs can have significantlydifferent characteristics than US LLCs, the longstanding "votingsecurities analysis", rather than Formal Interpretation 15, is used todetermine whether a foreign LLC should be treated as a partnership or acorporate entity.
Per our discussions, we believe that for HSR purposesItalian LLC would be treated as a partnership under the voting securitiesanalysis set out in Interpretation Number 177. The key factor is that althoughItalian LLC does have a board or board equivalent, it will be "membermanaged" -- the Parents will be appointing solely "insiders"(persons who are current officers, directors, or employees of the Parents) tothat board/board equivalent.
Because this would thus qualify as a "partnership formation" for HSR purposes, the Parents' contributions to Italian LLC as part ofthat formation would not constitute reportable acquisitions (pending theProposed Changes), even if such contributions involve assets or issuers thatmight otherwise meet the HSR "size of transaction" test,and fall outside the exemptions in 16 C.F.R. 802.50 and 802.51.Moreover, I believe from past discussions that both the formation and contributionelements of the transaction would remain nonreportable (pending the ProposedChanges) even if Italian LLC were created prior to the Parents completing theircontributions, so long as the formation and contributions were contemplated bythe Parents to be part of the same overall transaction. Indeed, this is thecase here -- Italian LLC will be created by one of the Parents as a shell anumber of weeks prior to the Parents making their contribution -- but becausethis is all contemplated by the Parents as part of the same transaction, Iwould expect that this timing lag would not affect the overall conclusion thatthe contribution is considered part of the formation.
As we have also discussed, the parties recognize that the transaction willalmost certainly be reportable once the Proposed Changes are implemented.However, I understand that if the transaction is consummated even one day priorto the effective date of the Proposed Changes -which would obviously also beafter the effective date has been announced -- it will be judged under thecurrent rules, and not subject to any second guessing under the ProposedChanges.
Please advise if you disagree with any of the foregoing, and as always thanksfor your attention to this.