Question
January 27, 2006
VIA FEDERAL EXPRESS &E-MAIL
James Ferkingstad
Premerger NotificationOffice
Bureau of Competition
Federal Trade Commission
Room 303, 600 Pennsylvania Ave. N.W.
Washington, DC 20580
Re: Hart-Scott-Rodino Compliance Inquiry
Dear Mr. Ferkingstad:
Thisletter summarizes the telephone conversation which we had yesterday regardingthe potential filing requirements for one of our clients under theHart-Scott-Rodino Anti-Trust Improvements Act of 1976, as amended (the"Act"), and the rules promulgated thereunder. Specifically, thisletter restates the various facts related to our client's potential acquisitionand the conclusions we reached with you yesterday regarding the treatment ofsuch acquisition under the Act.
Transaction Summary
Pursuantto a Stock and Asset Purchase Agreement (the "Purchase Agreement"), asubsidiary of our client (the "Acquiror") will purchase all of theissued and outstanding common stock of a U.S. corporation (the "Target"). The Target's issuedand outstanding common stock consists of (i) voting common stock that entitlesits holders to vote for the directors of the Target, and, therefore, is avoting security within the meaning of Section 16 C.F.R801.1(f)(1), and (ii)non-voting common stock that does not entitle its holders to vote for theTarget's directors and accordingly is not a voting security within the meaningof that rule.
Immediately prior to theconsummation of the acquisition, the equity securities of the Target will beheld as follows:
Stockholder
Voting
Common Stock
Non-Voting
Common Stock
Total Number
of Shares
Natural Person 1
5,000 shares
20,000 shares
25,000 shares
Natural Person 2
5,000 shares
20,000 shares
25,000 shares
Irrevocable Deed of Trust of
Natural Person 1 dated
December 23, 2003
25,000 shares
25,000 shares
Irrevocable Deed of Trust of Natural Person 2 dated December 29, 2003
25,000 shares
25,000 shares
TOTAL
10,000 shares
90,000 shares
100,000 shares
TheTarget's voting securities constitute 10% of the Target's issued andoutstanding equity securities (10,000 divided by 100,000 = 0.1). The Target'snon-voting securities constitute 90% of the Target's issued and outstanding equitysecurities (90,000 divided by 100,000 = 0.9).
Uponthe consummation of the acquisition, the Acquiror will acquire all of theTarget's issued and outstanding securities (voting and non-voting) for a totalpurchase price of approximately $145 million (the "Purchase Price").The Purchase Agreement provides that the Purchase Price will be paid by theAcquiror to the Target's stockholders (the "Stockholders") prorata based upon their respective percentage ownership of all of the Target'sissued and outstanding equity securities. Therefore, based on such pro rataallocation, approximately $14.5 million of the Purchase Price is being paid forthe Target's voting common stock and approximately $130.5 million is being paidfor the Target's non-voting common stock.
Analysis
Basedupon our discussion of the above facts yesterday and the no action letter datedJune 15, 2004 posted by the Federal Trade Commission on its website regarding asimilar but not identical transaction involving a merger (a copy of which isattached for your convenience), you confirmed that only the value of theTarget's voting securities being acquired by the Acquiror must be counted forpurposes of the $50 million sizeoftransaction test set forth in Section7A(a)(2)(B)(i) of the Act (indexed currently at $53.1 million and soon to be$56.7 million). The value of the Target's non-voting securities is not countedfor purposes of determining if this threshold is met. Accordingly, theconsideration being provided by the Acquiror to the Stockholders pursuant tothe Purchase Agreement in consideration for the 10,000 shares of the Target'svoting common stock constitutes the acquisition price for purposes of examiningthe $50 million sizeoftransaction test.
Becausethe Purchase Agreement expressly allocates the amount of the Purchase Pricebetween the Target's voting and non-voting securities, the acquisition price isconsidered "determined" for purposes of Section 16C.F.R.801.1(a)(2)(i). Because the Acquiror, the Target and the Stockholder'sspecifically agreed that $14.5 million of the Purchase Price should beallocated as the consideration to be paid for the 10,000 shares of the Target'svoting common stock, no pre-merger notification filing is required under theAct, as the $14.5 million does not exceed the $50 million sizeoftransactiontest threshold.
Iunderstand that the pre-merger notification office does not confirm informaladvice in writing. However, I would appreciate it if you would call me at(redacted) at your earliest convenience to confirm this letter correctlyrepresents our discussion and the advice that you provided me. Thank you foryour prompt assistance regarding this inquiry.