Question
------OriginalMessage------
From: (redacted)
Sent:Wednesday, May 03, 2006 12:42 PM
To:Verne, B. Michael
Subject: HSR Question
Mike:
Iwanted to get your thoughts on the following transaction:
FundI LP is a private equity fund and a $100 million person. It is an establishedentity with regularly prepared balance sheets and operating subsidiaries. FundII LP is a newly formed private equity fund that has no regularly preparedbalance sheet and has only $60 million in cash.
FundI and II form NewCo, a corporation. Fund I contributes $40 million in cash fora minority interest. Fund II contributes $60 million in cash for a majorityinterest. NewCo is therefore a partial subsidiary of Fund I. NewCo has only thecash contributed by Funds I and II and no regularly prepared balance sheet.
NewCo and Company A will merge in a reverse triangularmerger for $100 million in cash, as a result of which Company A will be apartial subsidiary of Fund II. My questions -
1 --Is the formation of NewCo a reportable event? I would particularly appreciateguidance regarding the interplay of 801.21 and 801.40, and the application ofinterpretations 175, 184, 251, 274 of the Premerger Notification PracticeManual.
2 --Is the merger of NewCo into Company A, so that Company A becomes a partialsubsidiary of Fund II, a reportable event? What is the applicability ofinterpretations 142, 145, 146 and 182 here?
3-- How would NewCo's size and the value of the shares received by Funds I andII be analyzed if Funds I and II were not contributing cash and were insteadcontributing (1) voting securities; (2) assets; (3) loans; or (4) loanguarantees? Interpretations 119, 148, 179.
Thank you for your help. Kate Walsh
Verne, B. Michael - COMMENTS
To: (redacted)
Subject:RE: HSR Question
1- The formation of Newco is not reportable because all it holds is cash.Section 802.4 exempts the formation because of its inclusion of assetsdescribed in Section 801.21 in the non-exempt asset category. 175, 184, 251,& 274 are all being amended for the 4th edition of the manual.
2- The merger of Newco and Company A is not reportable. Neither A nor its UPEFund II have a regularly prepared balance sheet; the only asset of Newco andFund II is the cash to make the acquisition; and the size of transaction doesnot exceed $200 million (as adjusted). 142, 145, 146 and 182 are all stillcorrect. I think 182 is being amended to reference the availability of the802.4 exemption in an all cash formation.
3 -The value of the shares of Newco acquired by Fund I and Fund II is always the FMVof those shares, whether the contributions to the formation are cash or v/s andassets. That usually means that the value of the shares of Newco is the same asthe value of that which is being contributed unless liabilities are also beingcontributed to the formation. Loan guarantees do not come into play indetermining the value of the Newco shares.
The size of Newco will be the total value of thevoting securities, assets, loans and loan guarantees. However, in applying the 802.4exemption to determine whether Newco has in excess of $50 MM in non-exemptassets, any non-controlling minority interests in voting securities and theloans and loan guarantees are not counted. And of course and assets that wouldbe exempt if acquired directly can also be excluded.
119 is still correct, butnote that it is talking about future commitments of capital, not loanguarantees like you have. 148 and 179 are still correct.