Question
From: (redacted)
Sent: Monday,March 13, 2006 11:30 AM
To: Verne,B. Michael
Subject: HSRRestructuring Question
Mike
I would like yourconfirmation on the following scenario.
Parent owns all of thevoting securities of Sub. Sub is a debtor-in-possession in bankruptcy. Parentis not in bankruptcy, and has no material assets other than its interest inSub. Acquirer proposes to acquire all of the stock or assets of Sub under acourt approved plan. Consideration will include cash and the conversion of anoutstanding note of Sub owned by Acquirer into equity, that together exceed the$50 million (AA) threshold. Upon consummation of the plan, Acquirer willacquire ownership of both Parent (even though Parent is not a debtor in thecase) and Sub (or the successor entity that exits bankruptcy).
The acquisition of Sub willbe subject to the requirements of the HSR Act. Could you confirm that theacquisition of Parent will not?
Here is my analysis. By HSRconvention, Parent is not deemed to be the ultimate parent entity of Sub, itssubsidiary in bankruptcy. Accordingly, the acquisitions of Parent and Sub mustbe separately analyzed for the purposes of the Act. Because Parent is not theultimate parent of Sub, the assets of Sub should not be attributed to Parent.Moreover, pre-consummation, the stock of Sub in the hands of Parent isessentially worthless. Finally, if any allocation of the purchase price were tobe made between Parent and Sub, the allocation to Parent would have to benominal. The acquisition of Parent should therefore not be reportable.