Question
From: (redacted)
Sent: Wednesday, September 19, 2007 11:22 PM
To: Verne, B. Michael
Subject: Guidance on the Scope of7(A)(c)(10) where voting percentage increases but is then immediately diluted
Mike,
I'mfaced with a fact pattern that I've concluded would not trigger a filing butwanted to confirm this. I'd appreciateyour views on this when you get a chance and, if needed, am happy to schedule acall to answer any questions you have.
As part of an issuer'sacquisition of another company it needs (or wants) to get an infusion of cash.A minority holder, who is the focus of this email, will contribute part ofthose needed funds and receive additional voting securities of the issuer inreturn. These newly acquired shares would increase his stake such that thenecessary jurisdictional thresholds are crossed and his percentage of votingsecurities held would also increase. However, immediately (the same day,or possibly only minutes after this cash comes in) the issuer will also beissuing substantial numbers of additional voting securities as considerationfor its acquisition of the other company.
The issuance of theseadditional shares results in the minority holder actually ending up with alower percentage of the total outstanding than what he held immediately beforehis purchase of new shares in the issuer. So, although his percentage holdingsdo technically increase, this increase is extremely transitory and the almostimmediate result is actually a dilution of his holdings.
Withthe understanding that if the second step didn't occur the minority holderwould not be HSR compliant, can you confirm that this temporary blip (before theinevitable dilution) isn't sufficient to trigger a filing obligation. I'vebeen told that the two steps are inextricably linked, so that risk of along-lived increase shouldn't be a factor.
Thank you in advanceand please let me know if you have any questions. While my research didn't turnup any interpretations directly on point it seemed to me that this was somewhatanalogous to the treatment of cashless exercises of options (such as thatdiscussed at http://www.ftc.gov/bc/hsr/informal/opinions/0210009.htm ).I'm hoping that this approach seems reasonable to you.