Question
From: (redacted)
Sent: Tuesday, October 23, 2007 2:52 PM
To: Verne, B. Michael
Subject: HSR question re 801.10(a) analysis
Importance:High
Mike:
Wewould like to confirm with you that the following proposed transaction is nonreportablefor the reasons indicated.
The proposed transaction is a merger in which Company Awill acquire 100% of the voting securities of Company C. Specifically, Company A's wholly-ownedsubsidiary, Company B, will merge with and into Company C, with Company Csurviving as a wholly-owned subsidiary of Company A.
The totalmerger consideration will be approximately $130 million. Among the majorelements that make up this amount is an agreement by Company A to cause CompanyC immediately following the merger to pay off indebtedness of approximately $55million owed by Company C under an existing credit agreement. Anothersignificant component of the merger consideration consists of amounts to beallocated to the sole owner of Company C's non-voting preferred stock, alimited partnership that, together with its affiliates, also owns the majorityof Company C's common stock. The limited partnership and its affiliatesacquired the common stock several years agoin connection with their acquisition of control of Company C and the non-votingpreferred stock the following year in exchange for cancellation of asubordinated promissory note given to the limited partnership in connection with an acquisition by Company C.Pursuant to the merger, and in accordance with the terms of thepreferred stock set forth in Company C's constituent documents, each of the8,933 shares of preferred stock outstanding immediately prior to the merger isto be allocated a sum equal to $1,000, plus accrued and unpaid dividends on thepreferred stock. The current aggregate amount of accrued and unpaid dividendson the preferred stock is just under $20million, so the total amount to be allocated to the preferred stock, includingthese unpaid dividends, will be just under $30 million.
It is our understanding that the amount that will begoing to repay Company C's debt will not have to be taken into account in valuing the acquisition under 801.10(a). Likewise, it is our understanding that the amount going tocompensate the holder of the preferred stock for those shares, including theaccrued and unpaid dividends, will not have to be considered for this purpose.Assuming that our understanding regarding the treatment of these two sizeablecomponents of the merger consideration is correct, the acquisition will bevalued for HSR Act purposes at an amount well below of the currentsize-of-transaction threshold of $59.8 million.
Isthis analysis correct?