Question
December 29, 2006
VIA EMAIL
B.Michael Verne
PremergerNotification Office, Bureau of Competition Federal Trade Commission
Room303
6th& Pennsylvania Avenue, N.W.
Washington, D.C. 20580
Re:Advice Confirmation Dear Mr. Verne:
Company A and B are significant competitors of oneanother. On several occasions in recent years, Company B has negotiated withCompany A regarding a possible acquisition of Company A. Company A and B havenot been able to reach agreement on a transaction because of their disagreementon valuation, among other issues.
Thetwo companies' businesses are characterized by long term contracts withdurations that can be as long as twenty years. Company B has been indiscussions with Company C, a customer of Company A. Company C would like tocontract with Company B, but Company C will have to buy out the remaining termof its contract with Company A. Company C is insisting as a condition of a newcontract with Company B that Company B be responsible for the cost of theCompany C's contractual buyout from Company A. As a consequence, negotiationshave commenced among Company A, Company B, and Company C regarding the value ofthe buyout of Company C's contract with Company A.
The parties propose that Company B will pay toCompany C an amount to exceed $100 million in order to induce the Company C toenter into a long term, 15 year contract with Company B. Company C will use aportion of the money it receives from Company B to buy itself out of itscontract with Company A. The amount Company C will pay to Company A will likelyexceed the $50 million (as adjusted) notification threshold of theHart-Scott-Rodino Act. Assuming Company A accepts Company C's offer, Company Bwill offer employment to the employees of Company A that work exclusively withCompany C under its existing long term contract. Those employees constitutebetween 18% and 25% of Company A's employees. Company A has more thanfive other long term contracts that it will continue to service.
Based on these facts, our advice to the client, withwhich we hope you will concur, is that these transactions involve the creationrather than the acquisition of an asset, and are not reportable regardless ofthe amount of money involved. If you do not agree with this conclusion, pleasecontact me as soon as possible.