Question
From: (redacted)
Sent: Tuesday, July 03, 2007 11:49 AM
To: Ferkingstad,James H.
Cc: (redacted)
Subject: Follow-UpRegarding Analysis of Transaction Steps
James,
As a follow-up to our call on June28, 2007, including (redacted) of this firm, we would like to confirm ourunderstanding that a portion of the transaction on which we are working doesnot need to be reported for HSR purposes because of the analysis of thetransaction by the steps into which it has been broken for tax purposes and theresulting exemption available through Section 802.51.
Description of Transaction
To recap, our client ("Seller") is a foreignentity entering into a transaction with a private equity fund("PEF"), whereby the transaction has been broken down into severalspecifically-ordered steps to take advantage of certain tax benefits that arederived from having the transaction occur in several, purposeful steps, asdescribed below.
STEP 1: PEFcreates a new, wholly-owned French societe a responsabilite limitee to serve asa holding company ("French HoldCo"). PEF contributes cash to French HoldCo,which also creates a number of wholly-owned shell companies that have noassets, other than cash, and no activities or operations ("French ShellCompanies").
STEP 2: Seller will subscribe for voting securities inFrench HoldCo equal to a 28% interest (with the remainder held by PEF) and willcontribute the shares of a wholly-owned French subsidiary to French HoldCo inexchange for such 28% interest in French HoldCo. At the time of thecontribution and Seller's acquisition of the voting securities of French HoldCo,French HoldCo will have no activities or operations, and its only assets willbe cash and the shares it holds in the French Shell Companies.
STEP 3: After Step 2, in a series offurther steps:
(a)FrenchHoldCo and the French Shell Companies will borrow additional funds and will usesuch borrowed funds to purchase shares in other existing businesses held bySeller. At least some of these businesses are U.S. issuers or foreign issuers with substantial U.S. assets or sales. This transaction,whereby Seller sells shares of its existing businesses to French HoldCo andFrench Shell Companies, will be reported pursuant to HSR requirements by PEF(as UPE of French HoldCo) as the acquiring person and Seller as the acquiredperson.
(b)PEFwill contribute the shares of an existing U.S. corporation that is within its person to French HoldCo.Because this existing U.S. corporationis already within the person of PEF, this component of the transaction is notreportable by PEF under the HSR Act.
HSR Analysis
At the time Step 2is completed, Seller's acquisition of a 28% interest in French HoldCo is exemptunder Rule 802.51, as French HoldCo, together with any entity controlled byFrench HoldCo, does not have $50 million in U.S. assets or $50, million insales in or into the U.S. and Seller will not gain control of French HoldCo.
[Comment Yes Agree]
If, on the other hand, Seller'sacquisition of the voting securities of French HoldCo were analyzed after Step3 (i.e., if all the Steps were viewed as a single transaction, rather than aseries of separate transactions), Seller would file as both an acquired person(because of PEF's acquisition of shares of Seller's subsidiaries in Steps 2 andStep 3(a)) and also as an acquiring person (because of Seller's acquisition ofthe voting securities of French HoldCo after it has acquired shares of anexisting U.S. corporation with sufficient assets and operations). Thetransactions in Steps 2 and 3 are all contemplated by a single"Transaction Agreement." Step 3 is conditioned on Step 2 havingoccurred, and in reality, the Steps will occur one immediately after the other.
We believe (and on the phone youconfirmed) that, consistent with Interpretation No. 80 of the PremergerNotification Practice Manuals [3rdEdition], there is a legitimate, non-HSR avoidance rationale for thesequencing of the transactions, and that, accordingly, Step 2 is properlyanalyzed on a stand-alone basis, which results in Seller's acquisition of thevoting securities of French HoldCo being exempt from HSR reportingrequirements. Since Seller's acquisition of the voting securities of French HoldCois not separately reportable, Seller will file only as an acquired person.
We have attached to this email aredacted copy of steps 2 and 3 of the closing of the transaction foryour reference.
If we havemisunderstood our reporting responsibility with respect to Seller's acquisitionof the voting securities of French HoldCo, please advise.
Kind regards,
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