Question
MichaelVerne, Esq.
Premerger Notification
Office Bureau ofCompetition
Federal Trade Commission
600 Pennsylvania Ave., NW
Washington, DC 20580
DearMichael:
Thank you for speaking with me on September 20, 2007.I am writing to confirm our telephone conversation.
As we discussed, my client ("AcquisitionLLC") will be acquiring a minority of the membership interests in anotherlimited liability company ("Target LLC"). In the transaction, AcquisitionLLC will acquire the right to receive apreferential return of approximately $35 million, to be adjusted upward eachyear by an agreed percentage. It will receive the first $35 million distributedby Target LLC to its members, whether by distributions or upon liquidation. Atthe time of the transaction, the fair market value of the membership interestsof Target LLC (as determined in good faith by the Board of Managers ofAcquisition LLC) will be well in excess of $100 million. Accordingly, if TargetLLC were sold as of the closing, Acquisition LLC would receive less than 50% ofthe proceeds of such sale.
We assume, for purposes of this letter, that the sizeof the parties test will be satisfied. We also assume, for purposes of thisletter, that, if Acquisition LLC is deemed to obtain "control" overTarget LLC in the transaction, the size of the transaction test will besatisfied and a Hart-Scott-Rodino filing required.
In our conversation, however, we concluded that anHSR filing is not required because Acquisition LLC will not be obtaining"control" of Acquisition LLC. You advised that, because Acquisition LLC's preferential return representsless than 50% of Target LLC's fair market value at the time of closing,it will not be acquiring "control." As we discussed, the fair marketvalue determination must, of course, be reasonable and determined in good faithpursuant to 16 C.F.R. 801.10(c).