Question
From:(redacted)
Sent:Thursday, January 11, 2007 12:49 PM
To:Verne, B. Michael
Subject:HSR question regarding ultimate parent entity of acquired person
Mr.Verne,
Iam trying to determine the ultimate parent entity of an acquired person in anasset acquisition where the voting securities of the entity whose assets arebeing acquired are held in a trust. Below I have laid out the basic facts, myanalysis, and two questions on which I would appreciate your thoughts. Giventhe length of the facts, if you feel it would be easier to discuss this overthe telephone, I would be glad to give you a call.
Facts
Priorto October 2006, Shareholder A owned 53% and Shareholder B owned 47% of theoutstanding voting securities of ABC Corporation. In October 2006 Shareholder Aand Shareholder B entered into an agreement to transfer their voting securitiesof ABC Corporation to an irrevocable trust of which Shareholder A andShareholder B became the trustees (the "Trust"). Shareholder A andShareholder B retain reversionary interests in the voting securities of ABCCorporation that constitute the corpus of the Trust. Under the agreement, ifone of the shareholders dies, the remaining shareholder is entitled to appointa substitute trustee of the Trust in place of the deceased shareholder.
Inearly January 2007, Shareholder A died. Shareholder B has not yet exercised hispower to appoint a substitute trustee of the Trust in place of Shareholder A.
Threedays after the death of Shareholder A, ABC Corporation enters into an agreementto sell all or substantially all of its assets. The transaction is reportableunder HSR.
Who is the ultimate parent entity of the person thatincludes ABC Corporation? Analysis
1.Shareholder A and Shareholder B are the settlors of the Trust. The reversionaryinterest retained by Shareholder A is now the property of Shareholder A'sestate.
2.Because the settlors retained reversionaryinterests in the voting securities that constitute the corpus of the Trust,under 801.1(c)(4) both settlors hold the voting securities of (redacted) and(redacted) that constitute the corpus of the Trust.
3.Because Shareholder A's estateholds 53% of the voting securities of both (redacted) and (redacted), under 801.1(b)(1)(i), Shareholder A's estate controls ABC Corporation by holding 50%or more of its outstanding voting securities.
4.Shareholder A's estate is an "entity"within the meaning of 801.1(a)(2) and is not controlled by any other entity,as control is defined in 801.1(b). Therefore, Shareholder A's estate is theultimate parent entity" of a person consisting of Shareholder A's estateand ABC Corporation.
Questions
1.Is the above analysis correct?
2. If theanswer to question 1 is yes and Shareholder A's estate is the ultimate parententity of the acquired person, how is this to be reconciled with 801.1(b)(2)?This rule provides that in the case of a trust described in 801.1(c)(4),control is the contractual power presently to designate the trustees of thetrust. Because Shareholder B has this contractual power as a result of thedeath of Shareholder A, it would seem that Shareholder B has control of theTrust and therefore of ABC Corporation. Does this mean that there are twoultimate parent entities Shareholder A's estate and Shareholder B? Or does itmean that although Shareholder B has control of the Trust, Shareholder A'sestate is still the ultimate parent entity of the acquired person?