Question
From:(redacted)
Sent: Monday, July 11, 20052:29 PM
To: Verne, B. Michael
Subject: RE: Question(s)
Thanks. Do you also agreewith me that, when analyzing the acquisitions of the two subsidiaries under802.4(a), you get only one combined $500 million test under 802.3 for the O&Gassets of both companies (but excluding the O&G assets held by the"target" of the secondary acquisition)? Thus, if B and C togetherhold O&G reserves and related assets with a combined FMV of more than $500million (again, excluding the value of any O&G assets of the unaffiliatedcompany), the primary transaction is reportable, regardless of whether one ofthem has more than $500 million worth, or only combined do they have more than$500 million worth).
-----OriginalMessage ----
From: Verne, B. Michael [mailto:MVERNE@ftc.gov]
Sent: Monday, July 11, 2005 1:39 PM
To: (redacted)
Subject: RE:Question(s)
Sorry - I gotbogged down on some other issues this morning. I agree with your analysis ofthis transaction.
-----OriginalMessage ----
From: (redacted)
Sent: Monday, July 11, 2005 7:49 AM
To: Verne, B. Michael
Subject:Question(s)
I need some helpin puzzling this one through.
Buyer willacquire all the stock of Company A, which has two wholly-owned subsidiaries, Band C (and nothing else). Acquisition price exceeds $500 million.
B is an oil andgas company that holds reserves and associated exploration and productionassets.
C's sole assetis a large minority holding (in the range of 35%) of the stock of an otherwiseunaffiliated company that also holds oil and reserves and associated assets.
It seems prettyclear to me that, because C doesn't "hold" the oil and gas assets ofthe otherwise unaffiliated company, Buyer applies 802.3(a) to the assets of B(only), to determine whether that exemption applies (to the acquisition of A).
Buyer's indirectacquisition of the stock of C gives rise to a potentially reportable secondaryacquisition of C's minority holding in the otherwise unaffiliated company.Because we have a different acquired person, I can apply 802.3 again, todetermine whether the unaffiliated company holds less than $500 million worthof oil and gas assets (which become exempt) and therefore whether the secondaryacquisition may be exempt as a result of 802.4(a).
Let's supposethat the secondary acquisition is exempt, that B has exempt oil and gas assetsvalued at less than $500 million, and that the acquisition of B by itself wouldbe exempt under 802.4(a) because B doesn't hold more than $53.1 million worthof other non-exempt assets. I still need to figure out whether the"primary" acquisition of the stock of A is reportable. Suppose thatBuyer is paying more than $53.1 million for the stock of C. Does the fact thatthe secondary acquisition is exempt make the primary acquisition of the stockof that subsidiary exempt as well? Does it matter whether B holds anynon-exempt assets or what their value is? Do I have to value the stock of C?Does it matter whether C holds non-exempt assets? Help(!)
Here's my tentativeanswer: Buyer applies the 802.3 exemption to the assets of B, eliminating B'sexempt assets if the exemption applies. If B has any non-exempt assets, theycount against a $53.1 million filing trigger. If B holds more than $53.1million of non-exempt assets, the entire transaction is reportable. If B holdsless than $53.1 million worth of non-exempt assets, we go to the next step.
The secondaryacquisition is either reportable or non-reportable, and that question by itselfdoesn't figure directly into the analysis of whether the primary transaction isreportable.
Back to theprimary transaction. Buyer's acquisition of the stock of A is an indirectacquisition of the stock of C. If C's only assets are its minority holding ofthe stock of the unaffiliated company, then C does not hold any"non-exempt" assets and the reportability of the acquisition of thestock of A turns on the analysis (above) relating to the indirect acquisitionof the stock of B. Or if C does hold some non-exempt assets, their fair marketvalue would be added to the fair market value of the non-exempt assets held byB. If the combined fair market value of the non-exempt assets of B and C isless than $53.1 million, then the acquisition of the stock of A is exempt under802.3(a). Otherwise reportable.