Question
March 29, 2005
Michael Verne
Premerger Notification Office
Bureau of Competition, Room 301
Federal Trade Commission
600 Pennsylvania Avenue, N.W.
Washington, D.C. 20580
Re: Rule 802.2(c)--Unproductive RealProperty; Rule 802.2(d)--Office and Residential Property; Rule802.4-Acquisitions of Voting Securities of Issuers Holding Certain Assets theDirect Acquisition of Which is Exempt
Dear Mr. Verne:
Thisletter will confirm our recent telephone call of March 16, 2005, which (redacted) and I, both of (redacted), participated in withyou. The call concerned applicability of the above captioned rules (16 CFR Section 802.2(c) exempting unproductive real property, 16 CFR Section 802.2(d) exempting office and residential property and 16CFR Section 802.4 exempting the acquisitionof voting securities of issuers holding certain assets the direct acquisitionof which is exempt) to our client's contemplated acquisition of the assets of ahomebuilder and certain voting securities of certain affiliates of such homebuilder.
Morespecifically, our client, also a homebuilder, intends to acquire (i) the assetsowned by another homebuilder and/or such homebuilder's controlled affiliates(collectively, the "Seller Parties"), (ii) all of the membershipinterests of a title company business owned and controlled by the SellerParties, (iii) all of the partnership interests of a mortgage brokeragebusiness owned and controlled by the Seller Parties and (iv) all of themembership interests of a residential property and casualty insurance businessowned and controlled by the Seller Parties.
Whilethe parties are still negotiating the specific allocation of the purchase priceamong the assets of the homebuilder, the overwhelming value of the assetsproposed to be acquired is in raw land held for future development, platted andpreviously subdivided lots and tracts, residential homes under construction orcompleted, the homebuilder's rights as seller under executory contracts tobuild and sell homes, and other work (such as streets, utilities and/or otherinfrastructure, etc.), associated with the homebuilder's various residentialdevelopment projects and activities in various stages of progress, model homesand other tangible and intangible personal property (including, for example,plans and specifications, workforce in place and goodwill) related to thehomebuilder's business as a residential developer/homebuilder. The tangiblepersonal property (i.e., furniture, fixtures and equipment) is an insignificantportion (less than $1 million) of the assets proposed to be acquired.
Notwithstandingthe express delineation of items included within the term "office andresidential property" set forth in subsection (d)(2) of Rule 802.2 (suchas, for example, "residences" in subsection (d)(2)(ii) of Rule 802.2and "assets incidental to the ownership of such property, including cash,prepaid taxes or insurance, rental receivables and the like" in subsection(d)(2)(iv) of Rule 802.2), you informed us that the staff of the Federal TradeCommission Premerger Notification Division (the "Staff") interpretssuch provisions as illustrative, but not exhaustive, of "real propertythat is used primarily for office or residential purposes" and"assets incidental to the ownership of such property" which qualifyfor exemptive treatment pursuant to Rule 802.2(d). Additionally, you clarifiedthe Staff's position that the assets which do not qualify for such exemptivetreatment are the assets you referred to as the "hard assets" (i.e.,machinery, equipment and trucks).
Basedon your comments made during our telephone call, it appears to us that asubstantial portion of the assets proposed to be acquired qualify for theexemptions provided by Rule 802.2(c) and Rule 802.2(d) (with certain assets,i.e., raw land, structures or other improvements used primarily for residentialpurposes, perhaps qualifying for both to the extent such raw land, structuresor other improvements meets the requirements of unproductive real property setforth in Rule 802.2(c)) and the voting securities to be acquired qualify forthe exemption provided by Rule 802.4 to the extent that the underlying assetscomprising the entities, the voting securities of which are proposed to beacquired, would be exempt if acquired directly, and, accordingly, the proposedtransaction would only be subject to the premerger notification filingrequirements of the Act to the extent that the assets which do not qualify for exemptivetreatment pursuant to Rule 802.2(c) and/or Rule 802.2(d) exceed a value of$53.1 Million.
Pleaseconfirm to us that our understanding is correct. Thank you for your assistanceand prompt attention to this matter.