Question
March 24, 2006
VIA E-MAIL
MichaelVerne
PremergerNotification Office Bureau of Competition, Room 303 Federal Trade Commission
600 Pennsylvania Avenue, N.W. Washington, DC 20580
Re: Hart-Scott Informal Interpretation Dear Mike:
As you may recall, you and I spoke last weekconcerning what would constitute "sales in or into the United States."The hypothetical facts are as follows:
Ultimate Parent A has three wholly-owned, sistersubsidiaries: B, C and D. A, B, C and D are all "foreign" entitiesunder the Hart-Scott rules (i.e., they are not incorporated in the United States,are not organized under the laws of the United States, and do not have theirprincipal offices within the United States). Subsidiary B holds a plantlocated outside of the United States. Subsidiary C delivers raw materials to SubsidiaryB's plant where the raw materials undergo substantial transformation tofinished products. Subsidiary C owns the raw materials and the finishedproducts.
Some of the finished products are acquired at thetailgate of the plant by Subsidiary B for its in-country wholesale and retailrequirements. None of these products are sold in or into the United States.Some finished products are sold at the tailgate of the plant by Subsidiary C tounrelated third-parties. The vast majority of the finished products are sold atthe tailgate of the plant by Subsidiary C to Subsidiary D. Subsidiary D sellsthe finished products all over the world, including the United Statesthrough a U.S. branch office. Subsidiary D's sales of finishedproducts in or into the United States are well in excess of $56.7 million annually.
SubsidiaryB is being acquired by X in a proposed transaction. Neither Subsidiary C norSubsidiary D are being acquired; both will remain subsidiaries of UltimateParent A. However, as part of the transaction X will purchase all of SubsidiaryC's inventory, wherever located.
Presented with these facts, you indicated that salesof finished products from the tailgate of Subsidiary B's plant to Subsidiary Dwould not constitute sales in or into the United States attributable toSubsidiary B for Hart-Scott purposes (assuming that none of the output wasspecifically designed for the U.S. market), because (1) the sales are FOB theplant, and (2) Subsidiary D is not being acquired in the proposed transaction.You indicated that this would be the result notwithstanding the fact thatSubsidiary D resells more than $56.7 million in finished products annually inthe United States.
With respect to X's purchase of C's inventory, youindicated that to the extent the inventory was physically located in the UnitedStates it would be considered a U.S. asset, but to the extent it was locatedoutside the United States it would not be considered a U.S. asset or an assetto which U.S. sales were attributable, even if it was under contract to a U.S.purchaser.
Pleaselet me know if I have misstated our discussion or your conclusions in any way.As always, thank you for your time and assistance.