Question
From:(redacted)
Sent:Friday, August 24, 2007 2:02 PM
To:Verne, B. Michael
Subject: Questions Relatingto Section 802.4/801.10(c)(3)
Mike,
I have two questions relating toa transaction that I was hoping to obtain your guidance on. I have not to daterelied on the 802.4 exemption in the following context, and want to confirmthat under the facts presented, the transaction is exempt.
An entity that is controlled byCompany A, Company B, will acquire 100% of the outstanding voting securities of Company C through amerger for approximately $90M in cash subject to adjustment. Assume the parties meet thesize of person test. Company B's Board equivalent has asked its outsideaccounting firm to determine the fair market value of Company C and itssubsidiaries' non-exempt assets. The accounting firm has performed a fairmarket valuation, and has determined that the fair market value of Company Cand its subsidiaries' non-exempt assets is below $59.8M. It is my understandingthat based on Section 802.4, the transaction would be exempt if the fair marketvalue of the non-exempt assets of Company C and its subsidiaries is below$59.8M. Please let me know if you agree.
I have a second related question.I understand that under Section 801.10(c)(3), "[t]he fair market value shall be determinedin good faith by the board of directors of the ultimate parent entity includedwithin the acquiring person [or equivalent body]; or by an entity delegated that function by such board orofficials)..." (emphasis added). My question relates to what is anappropriate delegee for purposes of 801.10(c)(3), and whether there is anyformal process by which such delegation should take place.
The PNO has stated informallythat the acquiring person can delegate the fair market valuation function to the chieffinancial officer of Company A, or any financial officer of A, who has direct responsibilityfor the proposed transaction. Premerger Notification Practice Manual (4thEdition 2007), Interpretation 87. I also note that the following InformalInterpretation states that "[t]he Board can delegate the role ofdetermining the fair market value to any one they want."
http://www.ftc.gov/bc/hsr/informal/opinions/0607006.htm. "There is no requirementthat the Board takeany formal action to approve the determination, but they are ultimatelyresponsible for it."Id.
I seek your advice on two issues:
1)Can the Board ofCompany A delegate the role of determining the fair market value to Company B's Board equivalent? IfYes, I understand that Company A's Board would not need to approve the determination, but that theywould be responsible for it, as any filing obligation would be that of the UPE.
2)If delegation toCompany B's Board equivalent is permissible, would the Board of Company A need to formally make a resolution todelegate the task? If Yes, will it suffice to have the CFO of Company A sign aresolution delegating the role of determining the fair market value to CompanyB's Board equivalent?