Question
October 20, 2005
B. Michael Verne
Premerger Notification Office
Bureau of Competition
Room 303
Federal Trade Commission
6`h & Pennsylvania Ave., N.W.
Washington, DC 20580
Re: HART-SCOTT-RODINO ACT ("HSR")
Dear Mr. Verne:
This letter confirms our conversation of this afternoon in which we discussedthe applicability of the Hart-Scott-Rodino-Antitrust Improvements Act of 1976("HSR Act") disclosure requirements tothe transaction on which we are currently working. Thank you for talking withus. We believe that the transaction falls squarely within the exemptionapplicable to acquisitions of investment and rental property assets codified at16 C.F.R. 802.5 and does not require any HSR Actfiling.
Our transaction is an asset sale of a number of assisted living and skillednursing home facilities and operations, as well as a sale of different equityinterests in a number of health care related businesses, for a total price ofapproximately $100,000,000.00. The transaction involves three groups: a sellergroup, a buyer/operator group, and a buyer/1031 purchaser group. Within eachgroup, the various entities are related by common ownership, common controllingindividuals and have the same ultimate parent entity. Between the groups, thereare currently no existing relationships, no common ownership and no commonindividuals. The transaction is currently documented in a single agreementbetween the seller group and the buyer/operator group, but contemplates theintroduction by the buyer/operator group of the buyer/ 1031 purchaser group.
The seller group is selling the real property (fee and leasehold interests)directly to the buyer/1031 purchaser group and is selling the other operationalassets and the operating rights, contracts and patient relationships directlyto the buyer/operator group. More than eighty (80%) percent of the purchaseprice reflects the value of the real estate being acquired by the buyer/1031purchaser group. The buyer/1031 purchaser group will in turn lease the realestate to the buyer/operator group under typical lease agreements negotiatedbetween those groups, at market rental rates. The leases grant an option to thebuyer/operator group to purchase the real property subsequent to the thirdanniversary of the lease inception (exercisable at the buyer/operator group'ssole option).
The buyer/1031 purchaser group is purchasing the real estate solely forinvestment purposes in order to rent the properties. The properties arecurrently subject to a similar structure with operating companies renting thereal estate from the real property owners (although the parties are related).The buyer/ 1031 purchaser group has no intention to convert the property fromits present use and the property is not currently being leased by a competitorof the buyer/1031 purchaser group. The buyer/1031 purchaser group has notundertaken a study of the cost of converting the property for use by one of itsbusinesses.
We believe that the portion of the transaction relating to the transfer of thereal estate to the 1031 purchaser group falls squarely within the exemptionapplicable to acquisitions of investment or rental property assets codified at16 C.F.R. 802.5, and thus, the purchase price to be paid for this part of thetransaction can be excluded from the HSR valuation.Since the remaining assets and equity to be acquired by the buyer/operatorgroup is substantially below the current $53.1 million dollar threshold of the HSR Act, the transaction will not trigger the HSR Act filing requirements, either by the seller group, thebuyer/operator group or the buyer/ 1031 purchaser group.