Question
May 5, 2006
NancyM. Ovuka
PremergerNotification Office
Bureauof Competition
FederalTrade Commission
7th& Pennsylvania Avenue, NW
Washington,DC 20580
Dear Nancy:
I am writing to confirm my understanding of telephoneconversations we had on April 7, 2006, April 18, 2006 and May 4, 2006concerning the potential reportability under the Hart-Scott-Rodino AntitrustImprovements Act of 1976, as amended ("HSR Act") of a proposedtransaction discussed below.
Proposed Transaction
Our client ("Company A") is a non-profitcorporation that provides housing and services for developmentally disabled persons.Pursuant to a proposed transaction, Company B, also a non-profit corporation,will become the sole member of Company A whereby Company B will have the powerto select all of the members of the board of directors of Company A. Company Aand Company B satisfy the size of person test. There is no purchase price forthe transaction, although as a part of the transaction Company B will makefinancial commitments that will benefit Company A after closing. The value ofthose commitments would be well under the HSR size of the transaction test of$56.7 million.
Analysis and Conclusions
My understanding is that the transaction describedabove will be viewed for HSR valuation purposes as the acquisition of theassets of Company A by Company B. I also understand that it is necessary to doa fair market valuation of the assets of Company A to determine if the size ofthe transaction test is met.
You confirmed that in doing the fair market valuationfor the acquisition of control of Company A, the value attributable to assetsheld by Company A that are exempt as residential property under 16 C.F.R. 802.2(d) can be excluded from the valuation. Accordingly, if the value of thenon-exempt assets of Company A does not exceed $56.7 million, the acquisitionof control of Company A by Company B is not reportable under the HSR Act.
You agreed that residential facilities for those withdevelopmental disabilities, other than skilled nursing facilities or nursinghomes, would be HSR exempt as residential property under 16 C.F.R. 802.2(d) exceptfor (i) assets for medical care in the facilities (such as a nurses roomdevoted to seeing patients for medical care); or (ii) assets of a businessconducted on the residential property such as a training center or a hairsalon. You confirmed that if a residential facility (other than a skillednursing facility or nursing home) had some medical assets or assets forconducting a separate business on the premises, those assets should be includedin determining the fair market value of Company A. All other assets/parts ofthe residential facility would be excluded for HSR valuation purposes.
My understanding is that a facility may beresidential if it is a stand alone house, apartment building or other type ofstructure where people reside. You have instructed us to consider the level ofcare provided within the residential facilities owned by Company A to determinewhether it is "residential" for purposes of HSR exemptions.
As we discussed, the residential facilities held by CompanyA that satisfy the criteria of "residential" based on ourunderstanding of the regulation would include houses that have a few bedrooms (e.g.,approximately four), bathrooms and common residential living areas like akitchen and living room. These houses are typically in residentialneighborhoods, and have staff on site at all times when clients are present toassist the developmentally disabled residents with things like shopping andpreparing meals, but they do not provide professional health care services. Theresidents also may receive some training in the houses, but these houses wouldnot have a separate classroom for training or an adjoining training center.Further, these residences do not have "medical staffs" or medicaldirectors and would not have nurses on staff, although skilled professionalsmay be involved in training staff on medication administration and monitoring,preparing and monitoring health care plans for staff to follow and consultingwith residents at the houses on occasion or as needed. You agreed that thesehouses should be completely exempt for HSR purposes assuming that there are notassets designated for providing medical care or assets used for a separatebusiness activity such as a classroom for training.
Please let me know as soon as possible if youdisagree with any of the conclusions discussed above, or if I havemisunderstood any aspect of your advice. Thank you for your assistance in thismatter.