Question
From:(redacted)
Sent: Monday, October 24, 2005 1:31 PM
To:Verne, B. Michael
Cc:(redacted)
Subject: HSR - "warehouse exemption" (802.2(h))
Mike:
I have been in touch with (redacted) ("seller' counsel") about aproposed transaction between a client of my firm and a client of her firm. I understandthat seller's counsel provided you the attached letter confirming an analysisthat you had done in respect of a prior "warehouse exemption"transaction (the "2002 letter") and that you confirmed to her thatthe PNO's position hadn't changed between 2002and then.
I'm sending you this email to confirm the factual differences (which may or maynot be material) between the proposed transaction and the transaction that wasdescribed in the 2002 letter do not change your conclusion regarding the availabilityof the 802.2(h) exemption. I also wanted, on a broader basis, to make sure Iunderstood the rationale underlying your conclusion that the "warehouseexemption" was available in the 2002 transaction, despite the stated"exception" within that "exemption." Also, from the buyer'sside of the transaction, I thought it was a good idea to confirm the analysisin any event.
Here's a summary of the significant factual differences between the proposedtransaction and the transaction described in the 2002 letter:
1. Seller's counsel confirmed to you that the proposed transaction is a stocksale, and not an
asset sale as described in the 2002 letter. I understand, nevertheless, thatthe target company
doesn't operate any business other than its refrigerated warehouse business.The principal assets
that comprise that business are the warehouses (the target has either feeownership or leasehold
interests), related equipment and contracts (including short- and long-termcustomer contracts, a
portion of which may be characterized as leasehold interests but some of whichenable customers to
store goods "at will").
2. The target does arrange for trucking services on behalf of its client (andhas contracts with
third-party trucking companies for that purpose) but no longer owns thephysical assets involved in
the trucking segment of its warehousing business. (In the 2002 letter, thosephysical assets were
acknowledged not to be exempt under 802.2(h). I would imagine that, in theproposed transaction,
the contracts with third-party trucking companies would similarly not be exemptunder 802.2(h) and
that their value would be determined pursuant to the "fair marketvaluation" rule.)
3 The parties are not intending to transfer trade names or marks. (In the 2002letter, those
assets were acknowledged not to be exempt under 802.2(h).)
4. The "handling services" may be somewhat broader in scope thanthose described in the 2002
letter. For example, we understand that there are some foodpreparation/packaging services
provided at one of the warehouses and that the target performs customsbrokerage services for
some of its customers. We believe that those types of services are comparablein nature to those described in the 2002 letter and should also becharacterized as "incidental" to the warehouse business and that, tothe extent those services are incidental to that business, the related assetsshould also be exempt under 802.2(h).
My understanding of the rationale for the availability of the 802.2(h)exemption with respect to the warehouses and incidental assets is that, wherethe "business [to be] conducted on the real property" is itself theoperation of the warehouse (and services incidental to warehousing), then the"exception" within 802.2(h) is not implicated. Based on thatunderstanding, our facts are generally distinguishable from example no. 12 to802.2 (re the purchase of a drug wholesale distribution business) and the factsin interpretation no. 3 in the ABA manual(because no inventory is to be transferred in the proposed transaction).
I'd appreciate your confirming the above analysis or letting me know whetheryou disagree with any portion of it. I'm generally available to talk today ortomorrow.