Question
From: (redacted)
Sent: Monday, January 07, 2008 1:57 PM
To: Verne, B. Michael
Cc: (redacted(
Subject: RE:Acquisition price
Thanks Mike, but HOW dothey reliably value the FMV of the opportunity. When it comes down to thatissue, I would think that there are only two choices:
1. regard the whole deal as two separate transactions,the second of which is impossible to predict; OR
2. value the transaction with a "handicap"value that discounts the overall value in case that the required consents nevercome through. I know this seems contrary to the "all or nothing"approach that you use in contingent payments.
However, the Board ofDirectors have fiduciary responsibilities when they value these transactions. Idon;t see how they can represent to their shareholders that they are enteringinto a $70 million transaction ($20 MM base + $50 MM "success" fee)when it could turn out to be a $20 MM loss if the project just dies.
We would be gratefulfor your help on this, not just for this transaction but because it also comesup in other forms.
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From: Verne, B. Michael [mailto:MVERNE@ftc.gov]
Sent: Monday, January 07, 2008 12:54 PM
To:(redacted)
Subject: RE: Acquisition price
Ifthere is uncertainty as to whether the contingent payment will be made, theacquisition price is undetermined andfair market value would apply.
---------Original Message-
From: (redacted)
Sent: Monday, January 07, 2008 11:30 AM
To: Verne, B. Michael
Cc: (redacted)
Subject:Acquisition price
Wewanted some guidance on how to value a project-purchase transaction when partof the transaction price is contingent on obtaining government approvals forthe project. In other words, the closing takes place with a $20 millionpayment, but if government approvals are obtained, then the buyer needs to pay$50 million more. Some people have referred to this second contingent paymentas a "success" fee.
We look atInterpretation 94 and your own ruling on 9/14/04, but those are not quite the sameissues. In this case, the contingency is not based on business success but onthe rulings of third parties (government agencies). Unlike a businesscontingency, when presumably the parties had a chance to succeed based onmarketing prowess, here, if the rulings don't come through, the project isover, period.
Under thesecases, should the second "success" fee be considered part of theacquisition price?