Question
May 27, 2005
Via Electronic Mail and FedEx
B. Michael Verne
Federal TradeCommission
Premerger Notification Office
Bureau of Competition
Room 303
600 Pennsylvania Avenue, N.W.
Washington, D.C. 20580
Re: Telephone Call of May 26, 2005 ..
Dear Mike:
I am writingto confirm the Hart-Scott-Rodino ("HSR")advice that you provided to (redacted) and me on Thursday, May 26, 2005.In our telephone call (and also in earlier, separate calls the preceding week),we posed the following scenario:
Buyer ispurchasing a Facility, consisting of real property and equipment, from Seller.The size-of-transaction and size-of-parties thresholds under the HSR Act are exceeded. Seller had constructed the nearly-completed,but not yet productive, Facility for its own use (pharmaceutical production),but is now unable to use it for this intended purpose. Instead, Buyer willpurchase the Facility, and employ certain of Seller's operational andmaintenance employees at the Facility, to engage in the production of other,different pharmaceuticals.
Importantly,after Buyer purchases the Facility, Buyer will have to make significant capitalexpenditures in order to retrofit, modify and equip the Facility for Buyer's intendedpurpose. We discussed that, based on current estimates, Buyer would need toexpend a minimum of approximately $31 million to have the Facility operational(consisting of approximately $24 million of direct construction and equipmentcosts, and approximately $7 million of indirect costs including designservices, permits and fees, etc.). Buyer might also need to spend additionalcontingent amounts (of up to 20% more than the amounts indicated above) toreach an operational stage, and Buyer would need to expend additional amounts(possibly as much as $5 million more) to reach maximum production.
Our HSR discussion focused on the Section 802.2 exemption for CertainAcquisitions of Real Property. You indicated that the Facility would not bedeemed exempt as a "new facility" under 802.2(a) because it was notconstructed by Seller for resale. Based on the foregoing expenditures, however,you indicated that the Facility does qualify as "unproductive realproperty" under 802.2(c). More specifically, you agreed that theabove-described scenario is substantially similar to Example 6 under 802.2, inwhich the exemption applied where a buyer was required to expend approximately$50 million in order to equip a purchased facility for use in its own productionoperations. Therefore, you advised us that the acquisition of the Facility,including both the real property and the equipment being acquired (and withoutrequiring any separate valuation of the equipment), is exempt from HSR reporting requirements under 802.2(c).
I understandthat the Premerger Notification Office does not generally confirm informaladvice in writing. However, if this letter misconstrues our conversations or isinaccurate in any way, I would appreciate it if you would please contact me assoon as possible. As always, thank you for your advice and assistance.