Question
From: (redacted)
Sent: Monday, July 31, 200611:36 AM
To: Johnson, Janice C.
Subject: Acquisition of LLC membership interest
Janice,
Thankyou for your call this morning. We discussed the following transaction and howone should determine the size of the transaction for HSR reporting purposes.
1.LLC operates a specialtyhospital. LLC's members are A (55%), B (25%) and C (20%). LLC has assets with abook value of ~$32 million (fair market value not yet determined), andliabilities of ~$40 million currently held by the financing arm of A's ultimateparent entity. The debt is guaranteed pro rata by A, B and C based on theirrespective membership interest.
2.B proposes to purchase A'smembership interest for $550,000, and will thereafter hold an 80% membershipinterest in LLC. LLC will simultaneous refinance the outstanding debt and usethe proceeds to repay the debt currently held by the financing arm of A'sultimate parent entity.
3.The purchase of A's membershipinterest constitutes an acquisition of LLC by UPE-B from UPE-A. Both"A" and "B" satisfy the size of person test. I am having difficultyfollowing the new LLC rules regarding the size of transaction test. I believethat the size of the transaction is the greater of the acquisition price or thefair market value of the assets to be acquired, here the specialty hospital.
4.The acquisition price clearlyincludes the $550,000 cash consideration. Rule 801.10(d) appears to suggestthat the corresponding value of B's membership interest, here $250,000, shouldalso be included in the acquisition price, but I might not be reading thatcorrectly. Please confirm whether the value of B's membership interest isincluded in the acquisition price for purposes of Rule 801.10(d).
5.Second, while I understand thatthe value of the debt guarantee is part of the consideration to be included inthe purchase price, please confirm that the amount of debt guaranteed, however,is NOT included in the purchase price (ABA, Premerger Notification Practice Manual,Interpretation 102).
6.Finally, I understand that onemust still make a good faith determination of the fair market value of theassets to be acquired in the transaction described. If that is not necessary,please advise.
Thank you for you assistance in this matter. I do notwant to misstate the nuances of the new LLC rules in my opinion letter. Pleaselet me know if you require additional information.