Question
From: (redacted)
Sent: Tuesday, December 11, 2007 4:57 PM
To: Verne, B. Michael
Cc: (redacted)
Subject: Nonprofit Fact Pattern
Mike
Thankyou for taking the time to speak with us yesterday. As discussed, we seek toconfirm that the proposed transaction, as further described below, would be classifiedas an acquisition of assets for purposes of determining whether thenotification and waiting period requirements of the Hart-Scott-Rodino AntitrustImprovements Act of 1976, as amended (the "Act"), are applicable.
Ourclient ("Nonprofit A") operates in the health servicesindustry and will be acquiring the membership interests (the "Interests")of another nonprofit entity which also operates in that industry ("NonprofitB"). Nonprofit A and Nonprofit B are both nonprofit corporationsorganized under the laws of the State of Wisconsin. As a result of the transaction and its acquisitionof the Interests, Nonprofit A will serve as the sole member of Nonprofit B andwill ultimately control the activities of Nonprofit B. Prior to thistransaction, Nonprofit B did not have any members. In exchange for theInterests, Nonprofit A will contribute approximately $30 million to Nonprofit Bfor the building of a new hospital, with the remainder to be provided byNonprofit B. You indicated that, for purposes of determining whether this is areportable transaction under the Act, the above scenario would constitute anacquisition of assets. You noted that certain other FTC Informal Opinionstreating the acquisition of interests in a nonprofit corporation to be an acquisitionof voting securities were based on a relatively unusual provision of Michigan lawwhich permits nonprofit corporations to issue stock constituting votingsecurities. In the present context, the acquisition of interests in Nonprofit Bshould be analyzed as an acquisition of assets for purposes of the Act.
Further, pursuant to Premerger Notification Rule 801.10,the value of assets to be acquired by Nonprofit A would be equal to the fair market value of such assets, asdetermined in good faith by the board of Nonprofit A (or another entity asotherwise designated by the board). You indicated that the fair market value ofthe Interests would notinclude any amounts contributed by Nonprofit A to Nonprofit B for theconstruction of the new hospital. Accordingly, if the board of NonprofitA determines in good faith that the fair market value of the Interests is lessthan $59.8 million, this transaction will not be reportable under the Act.Please advise if any of the above is inconsistent with our earlierconversation. Again, we appreciate your assistance with this matter.