Question
September 25, 2007
Mr. B. Michael Verne
Premerger Notification Office
Bureau of Competition
Federal Trade Commission
7th & Pennsylvania Avenue, NW
Washington, DC 20580
Dear Mike:
I am writing to confirm my understandingof telephone conversations we had on September 12, 2007 and September 24, 2007 concerning the potential reportability under the Hart-Scott-Rodino AntitrustImprovements Act of 1976, as amended ("HSR Act") of a proposed transaction discussed below.
Proposed Transaction
The business of the acquiringparty in the proposed transaction ("Purchaser") includes the sale andinstallation of security alarm equipment, and alarm system maintenance, repair,service and monitoring. The Purchaser will be acquiring from another entity inthe same industry ("Seller") thousands of security alarm customeraccounts. These security alarm customers pay a fee, typically on a monthlybasis, for ongoing alarm system monitoring. These customers also may requirealarm system maintenance, service and repair. The acquisition of these accounts includes relatedcustomer contracts, related accounts receivable, related customer records, certain communications assets necessary to provideservices to or in connection with the accounts being acquired, and certain transitional rightsnecessary to effectively transfer the accounts being sold.
Purchaser has acquired customeraccounts in bulk from others in the security alarm industry on a number ofoccasions in the past and would intend to make additional such acquisitions inthe future. Seller is not exiting the security alarm business. The securityalarm customeraccounts being sold represent well under half of such customer accounts held bySeller.
This transaction involves the acquisition of more securityalarm customer accountsthan in most, if not all, individual transactions Purchaser has made in thepast. This transaction also involves theacquisition of more security alarm customer accounts than most prior acquisitions of customeraccounts that have occurred in the security alarm business. Further, thistransaction involves the settlement of a legal claim by Purchaser againstSeller whereby the purchase price has been reduced by a relatively smallamount, less than a million dollars. Further, Purchaser may acquire additional securityalarm customer accounts from Seller in the future, although no commitment isbeing made to do so as a part of the current transaction.
Analysis and Conclusions
You confirmed that thetransaction described above is not reportable under the HSR Act regardless of the valueof the transaction. Specifically, you confirmed:
(1)The proposedtransaction is exempt under the ordinary course statutory exemption containedin the HSR Act. 15 U.S.C. 18a(c)(1) (exempting "acquisitions ofgoods or realty transferred in the ordinary course of business");
(2)The ordinary courseHSR Act exemption applies to the acquisition of security alarm customeraccounts where, as here, the seller is not exiting the security alarm businessand the buyer has purchased security alarm customer accounts in bulk in thepast and intends to do so in the future; and
(3)The ordinary courseexemption still applies even if (i) the transaction involves the acquisition ofmore security alarm customer accounts than has occurred in past acquisitions bythe Purchaser or by others in the industry; (ii) the parties are settling alegal claim as a part of the proposed transaction; and (iii) Purchaser mayacquire additional security alarm customer accounts from Seller in the future.