Question
January 20, 2005
Mr. MichaelVerne
Federal TradeCommission
Premerger NotificationOffice
600 Pennsylvania Avenue, N.W.
Washington, D.C. 20580
Re: Non-Reportability Of Certain Indirect Acquisitions ofPartnership Interests
Dear Mr. Verne:
Thepurpose of this letter is to confirm our telephone conversation of two weeks agoin which you indicated that the transaction described below relating to theindirect acquisition of interests in a limited partnership would not bereportable under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (asamended, the "Act") and the applicable regulations (the"Regulations"). Because the transaction is complicated and involvesanother reportable transaction, I thought it best to give you the opportunityto review in writing the transaction we discussed. This letter includes moredetail than we discussed by telephone, because I now have more information.
Forpurposes of your review of this letter, please assume that thesize-of-the-parties test is met.
Facts
CorporationA is a publicly-traded corporation engaged in the business of ground basedwireless telecommunications and is its own ultimate parent entity. CorporationB is a wholly-owned subsidiary of Corporation A. Individual X, his wife and twotrusts for their minor children each own 25%, 100% in the aggregate, of thevoting securities of both Corporation Y and Corporation Z, and thereforeIndividual X is the ultimate parent entity of both Corporation Y andCorporation Z.
Itis proposed that Corporation Y and Corporation Z be merged with and intoCorporation B, with Corporation B as the surviving corporation. Pursuant to themerger, the stock of Corporation Y and Corporation Z will be converted into theright to receive stock of Corporation A. The value of the stock of CorporationA to be received in the merger will exceed $200 million and will represent morethan 10% of the outstanding stock of Corporation A. It is recognized thatIndividual X will have to make a filing under the Act with respect to theacquisition of the stock of Corporation A.
PartnershipP is a privately held limited partnership engaged in the business of satellitebased telecommunications and is its own ultimate parent entity. At the closingof the transaction, the only assets of Corporation Y and Corporation Z will bean aggregate 5.89% interest in Partnership P as a limited partner and anaggregate 5.89% interest in the stock of Corporation GP, whose only assets willconsist of an interest in Partnership P as a general partner.
Thegeneral partner of Partnership P does not have any economic interest in PartnershipP, all economic interests being with the limited partners. When Partnership Pwas initially formed, the limited partners were given a percentage of the stockin Corporation GP equal to their percentage interest in Partnership P aslimited partners. The partnership agreement provides that, when an interest inPartnership P as a limited partner is transferred, the same percentage of stockin Corporation GP as the percentage interest as a limited partner beingtransferred must also be transferred to the transferee. Therefore, theownership of Corporation GP will always be identical to the ownership ofinterests as limited partners. The value of the stock of Corporation GP isnominal and certainly substantially less than $50 million.
Asa result of the transaction, Corporation A will not, for purposes of the Act,hold 50% or more of the profits of Partnership P or have the right to 50% ormore of the assets of Partnership P in the event of the dissolution ofPartnership P.
Analysis
Asa general rule, the acquisition of 100% of the stock of a corporation for $50million or more would be a reportable event. In this instance, however, allthat Corporation A is actually acquiring as a result of the transaction is anapproximate 44.5% (5.89% in this transaction) interest as a limited partner inPartnership P and an approximate 44.5% (5.89% in this transaction) interest inthe general partner of Partnership P. The direct acquisition of less than 100%of a partnership is not a reportable event under the Act and the Regulations,regardless of the dollar value of the transaction. In this case, theacquisition of less than 100% of a partnership occurs indirectly, and althoughthe "look through" provisions of 16 C.F.R. 802.4 do not specificallyapply, you indicated that the Premerger Notification Office would apply therationale of the "look through" provisions here for the acquisitionby Corporation A of less than 50% of the partnership interests.
Therefore,the indirect acquisition by Corporation A (through the merger with CorporationB) of 100% of Corporation Y and 100% of Corporation Z, which is the indirectacquisition of an approximate 44.5% (5.89% in this transaction) interest aslimited partner in Partnership P and an approximate 44.5% (5.89% in thistransaction) interest in the general partner of Partnership P (whose sole assetis an interest in Partnership P and which has no economic interest inPartnership F), would not be reportable. The reasoning is that a non-reportableacquisition of less than 100% of a partnership does not become a reportabletransaction just because the acquisition occurred in the form of theacquisition of 100% of the stock of a corporation, here Corporation Y andCorporation Z, as long as control of the partnership (for purposes of the Actand the Regulations) does not change.
Evenif the rationale of the "look through" provisions were held not toapply to the acquisition of the 5.89% interest in the stock of Corporation GP,the transaction would still not be reportable because the value of the 44.5%interest in the stock of Corporation GP held as a result of the transaction issubstantially less than $50 million.
Afteryou have had an opportunity to review this letter, please confirm that myanalysis of the transactions is correct. My direct telephone number is(redacted).