Question
October 23, 2006
Mr.B. Michael Verne
Premerger NotificationOffice
Federal Trade Commission
6th Street & Pennsylvania Avenue, NW Washington, D.C. 20580
Re: Confirmation of InformalInterpretation of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, asamended (the "Act")
Dear Mr. Verne:
This letter is to confirm our telephone conversationson October 18, 2006 and October 19, 2006 in which we discussed the analysisunder the Act of certain aspects of a transaction in which this firm's client("Buyer") plans to acquire all of the outstanding equity interests(the "Interests") in several limited liability companies (the"Acquired Entities") from another company.
The Acquired Entities collectively own and operate aresort consisting of, among other things, several hotels and golf courses (the"Resort"). Buyer will pay in excess of $226.8 million for theInterests, subject to the adjustment and timing mechanics set forth in thepurchase agreement.
The assets of the Resort consist primarily of realestate and tangible personal property, comprising or associated with theResort. Additionally, the assets include intangible personal propertyconsisting of:
(1)Workforce in Place existing employees that have been trained withrespect to the Systems and operations of the Resort;
(2)Trade Name the name recognition associated with the Resort (the"Trade Name");
(3)Systems internal accounting, information technology and othersystems, procedures and processes that facilitate the operation of the Resort;
(4)Favorable Contracts rights to reciprocal benefits among other countryclubs and resorts and existing supply and service contracts related tooperation of the Resort, pursuant to which the Resort can purchase goods orservices associated with the Resort at prices not available to the generalpublic; and
(5) CustomerBase/Membership List lists of Resort members, who hold contract rightsentitling them to certain access to the assets and real property of the Resort(e.g., golf club memberships), and lists of customers (including repeatcustomers) that visit the Resort but do not possess any contractual rights withrespect to the Resort.
Athird-party valuation that Buyer is having performed allocates more than $56.7million in the aggregate to the above described intangible personal property,but less than $56.7 million is allocated to the value of the Trade Name.
During our conversation, you agreed that the assetsincluded in intangible personal property, other than the Trade Name, would betreated as associated assets incidental to the ownership and operation of theResort and, as a result, all such assets (other than the Trade Name) would beexempt assets in determining whether the Act's reporting requirements aretriggered. Based on that conclusion, it is our analysis that:
1.The proposed transaction will constitutean acquisition of non-corporate interests in limited liability companies, asdefined by 16 CFR 801. l (f)(l)(ii). Under 16 CFR 801.2(f)(1)(i), becauseBuyer is acquiring non-corporate interests, which will result in control of theAcquired Entities, Buyer is deemed to hold all of the underlying assets of theAcquired Entities as a result of the acquisition. Since the value of theInterests is greater than the $226.8 million threshold referred to in 15 USC18a(a)(2)(A), the "size of the person" test need not be performedbecause of the size of the transaction.
2.The acquisition of the Interests byBuyer will fall under the exemptions set forth in 16 CFR 802.2(e) and (f) foracquisitions of certain real property assets ("Rule 802.2(e)" and"Rule 802.2(f)"). Rule 802.2(e) exempts acquisitions of hotels andmotels, their improvements, including golf, swimming, tennis, restaurant,health club and parking facilities, and assets incidental to the ownership andoperation of the hotel or motel. Rule 802.2(f) exempts acquisitions ofrecreational land, which includes real property used primarily as a golf courseand assets incidental to ownership of such property. Under these rules, thereal property and tangible personal property of the Acquired Entitiescomprising or associated with the Resort will be exempt under Rule 802.2(e) orRule 802.2(f) as hotels, golf courses and their improvements, and otherassociated assets "incidental to ownership of such property."Moreover, based on our conversations, the intangible personal property willalso be exempt as associated assets, except for the Trade Name.l
Finally, despite the factthat the proposed transaction is structured as an acquisition of non-corporateinterests, 16 CFR 802.4 allows an acquisition of this type to be exempt fromthe reporting requirements of the Act if the acquisition of the assets held bythe unincorporated entities would be exempt.
Assuch, the proposed transaction need not be reported under the Act because theunderlying assets are either exempt or do not meet the applicable threshold.
We appreciate your help in connection with thismatter, and ask that you confirm your receipt and approval of this letter byreply email or fax to the undersigned. If I have made any erroneous statementsin this letter, I would appreciate it if you would call me immediately at theabove direct dial number.
' Wenote that the commentary contained in the adopting release for Rule 802.2(e)explicitly states that "the [Rule 802.2(e)] exemption does not include theacquisition of hotel management businesses or the purchase of a hoteltrademark." 61 Fed. Reg. 13666, 13677 (Mar. 28, 1996).