Question
February 28, 2005
BY TELECOPIER
Mr. MichaelVerne.
Pre-MergerNotification Office,
Bureau of Competition,Room 300,
Federal TradeCommission,
600 Pennsylvania Avenue, N.W.,
Washington, D.C. 20580.
Dear Mike:
Thank you for your help on Thursday in analyzing the "acquisitionprice" for the transaction described orally to you as follows:
Party A and Party B are signatories to a joint venture agreement pursuant towhich profits and losses are being shared. The joint venture does not own anytangible or intangible property. All property used in the joint venture'sbusiness operations are owned separately by one or the other of the twoparties. Party A, which owns the greater portion of the property used in thebusiness operations, receives the largest portions of the profits (or losses)and is responsible for most, but not all, of the operations of the ,jointventure.
The parties propose to end their joint venture. To do so, they plan to enterinto a Transaction Agreement which contemplates the execution upon closing oftwo further agreements: (I ) an Asset Purchase Agreement and (2) a CancellationAgreement. Pursuant to the Asset Purchase Agreement, Party A will obtaincertain of the separate tangible and intangible assets used in the jointventure's business operations drat are currently owned by Party B and, pursuantto the Cancellation Agreement, the parties will agree to cancel their jointventure agreement effective December 31, 2004. The consideration paid by Party A toParty B is as follows:
1.Party A will pay B a$500,000.00, which is associated with certain tangible and intangible assets:
2.Party A will pay Party B$46.5 million in connection with the termination of the joint ventureagreement:
3.Party A will surrender aclaim that Party B owes it approximately $3 million for losses incurred by the,joint venture in 2004, which is not disputed by Party B;
4.Party A will assume PartyB's share of certain contingent obligations of the venture which share couldtotal ac much ac $1 million; and
5. Party A will augment at closing theamounts set forth in items 1 and 2 above by the amount in the nature ofinterest based on the prevailing LIBOR rate calculated for the period from January 1, 2005 to the Closing Date. !f the Closing Date were April 1, 2005, the amount of this augmentation would be approximately $470,000,if a LIBOR rate of 4% is assumed for the entire period.
I asked you for guidance in determining the "acquisition price" forthis transaction and whether it would exceed the $53.1 million size oftransaction test and thereby trigger a Hart-Scott-Rodino filing.
Overall, you concluded that no filing was required for this transaction becauseit did not reel the $53.1 million size of transaction test. You confirmed thatitem 1 would be considered part of the "acquisition price" of assets,but that item 2 does not constitute consideration for the acquisition of assetsand would not ha considered ;n calculating, the" acquisition price, because ft is a payment for termination of anagreement. Items 3 and 4 also do not represent consideration for theacquisition of assets unless they are tied to the assets being acquired, whichthey are not in this case. You also noted that item 4 would not be valued at$10 million beat at some smaller value that would reed to be determined.Finally, with respect to item 5, you concluded that, because this augmentationpayment in the nature of interest accrues before Closing, the augmenting paymentwith respect to item 1 would be taken into consideration in determining the"acquisition price."
Please let me know if this letter accurately reflects our discussions andthanks very much for your help.