Question
From:(redacted)
Sent:Thursday, February 22, 2007 12:26 PM
To:Verne, B. Michael
Cc:(redacted)
Subject:HSR questions
Mike,I have a couple of HSR interpretation questions that I need your help with.
1. Identificationand valuation of exempt/non-exempt assets contributed to a JV
Itis clear from the various HSR interpretations that the acquisition of anexclusive license is reportable (if above the thresholds), so that if anexclusive license were contributed to the JV, the acquirors of the JV interestsshould count this as a non-exempt asset when considering whether the value oftheir acquisition exceeds the HSR reporting thresholds. In the royalty-freelicense scenario, I understand that the value of such a license is its fairmarket value - whatever it would be worth if negotiated on a commercialarms-length basis. If something is being paid for the license, however, howshould it be valued? The difference between what is being paid and thearms-length price?
Weare uncertain how to consider or value a non-exclusive license. If such alicense were on arms-length commercial terms, should we disregard it entirelywhen counting the assets of the JV? What about if the license was atbelow-market rates - would such a license be exempt or non-exempt and howshould it be valued?
Finally,how should we treat a hybrid scenario - a license that has a short exclusivewindow, followed by a non-exclusive period at discounted rates?
2. Contribution of EBIT of abusiness to a JV
Inanother scenario, a JV participant is proposing to contribute not a businessunit but the revenue and EBIT attributable to that business unit. The detailsare as follows:
The contributing party plans to contribute therevenue stream of the business unit to the JV and guarantee that revenue streamfor some limited period of time.
Thebusiness in question (including technology, assets, and agreements related tothe business) would continue to be owned by the contributing party. The JVwould have effective control over the content and merchandising of the"storefronts" of the business (using employees of the contributingparty who may be seconded or allocated to the JV).
The JVwould bear the operating costs and overhead associated with the business.
Would such a contribution be cash/cash equivalent,and hence exempt?
If youwould like to discuss these questions, please give me a call at yourconvenience. I look forward to hearing from you.