Question
October 12, 2006
BYCOURIER
Mr.James Ferkingstad Premerger Notification Office
Bureauof Competition
FederalTrade Commission
600 Pennsylvania Avenue, N.W.
Room303
Washington, D.C. 20580
DearMr. Ferkingstad:
I am writing to confirm your oral advice on Tuesday,October 10th', that the transaction described below need not be reported underthe Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, 15 U.S.C. 18a("HSR").
"D LLC" is owned 36.75% by "BCorp.", 61.24% by "C Corp.", and 2.01 % by certain individualmanagers at D LLC. B Corp.'s only asset is its ownership interest in D LLC.
A group of investors are organizing "New FundLP." It will be capitalized with approximately $40 million. No otherperson will control New Fund LP for HSR purposes. New Fund LP will organize ACorp., and will control A Corp., but some shares of A Corp. will be issued tomanagers of D LLC.
Pursuant to a single agreement among all the relevantparties, and at a single closing:
1.A Corp. will merge with and into B Corp,and the current shareholders of B Corp. will be paid approximately $40 millionfor their shares. B Corp. will be the surviving entity in this merger.
2.B Corp. will purchase for approximately$80 million the ownership interests in D LLC that are currently held by C Corp.and the certain managers of LLC. B Corp. will borrow the money to acquire theseinterests from D LLC, which will have just borrowed these funds (and more) fromthird-party lenders.
Wenote that:
3.A Corp. is merging with B Corp. insteadof purchasing B. Corp.'s ownership interest in D LLC, solely because of taxconsiderations.
4.B Corp. is borrowing the funds for Step2 from
DLLC, instead of from the third-partylenders directly, solely because the lenders prefer to lend the funds to LLC.
We recognize that this transaction could be deemedtwo acquisitions: (a) acquisition of B Corp. by New Fund LP, which would not bereportable under HSR because New Fund LP will not meet the size-of-person testunder 15 U.S.C. 18a(a)(2)(B) based upon the "pass through" rule in 16 C.F.R. 801.11(e); and (b) acquisition of D LLC by New Fund LP, which would be reportableunder HSR. On the other hand, if A Corp. purchased all the ownership interestsin D LLC, instead of acquiring some of them indirectly by merging with B Corp.,that transaction would not be reportable under HSR because New Fund LP (the UPEof A Corp.) would not meet the size-of-person test under 15 U.S.C. 18a(a)(2)(B) and Rule 801.11(e).
You advised us that, in light of all thecircumstances here, the Premerger Notification Office will consider this asingle transaction, in which New Fund LP will acquire 100% of the ownershipinterests in D LLC; and therefore this transaction need not be reported underHSR because New Fund LP will not meet the size-of-person test under 15 U.S.C. 18a(a)(2)(B).
Thank you again for your patience as I discussed thistransaction with you. Please let me know by the close of business on Monday,October 16th, if I have misstated your advice that this transactionneed not be reported under HSR.