Question
From: (redacted)
Sent: Monday, June 27, 2005 10:45 AM
To: Verne, B. Michael
Subject: HSR size-of-person analysis for newly formed LLC acquisition vehicle
Mike,
Could you confirm my conclusion of no HSR filing for the following transaction?
Sevenentities ("Forming Parties") are going to form a new LLC which willin turn form various direct and indirect wholly-owned subsidiaries. None of theForming Parties "controls" the new LLC, i.e. no one Forming Partywill be entitled to 50% or more of the profits or 50% or more of the assets ondissolution of the new LLC. The seven entities combined will contribute $18million in cash to the new LLC and the LLC, or one or more of the newly formedsubsidiaries of the new LLC, will borrow $43 million from unaffiliated thirdparties. The LLC will take the $61 million and buy assets from the targetcompany.
Pursuantto 801.50(b), the formation of the new LLC is not reportable because no entitywill acquire control of the new LLC. Pursuant to 802.30, the formation ofvarious direct and indirect wholly-owned subsidiaries of the new LLC is notreportable.
Finally,the acquisition by the LLC of $61 million of assets from the target is notreportable because the LLC does not meet the HSRsize-of-person jurisdictional threshold. The LLC is newly formed and has noregularly prepared balance sheet. At the time of the acquisition, the onlyassets held by the LLC will be the $61 million of cash that it will use to buythe assets from the target. Rule 801.11 (e) says that in calculating"total assets" for a newly formed acquiring person that does not havea regularly prepared balance sheet, you don't count cash that will be used asconsideration in the acquisition of assets from the acquired person. Thus,here, the "total assets" of the acquiring person LLC would be zero,and the LLC would not meet the size-of-person threshold.
Please let me know if you agree with my analysis and conclusion.