Question
From: (redacted)
Sent:Thursday, January 10, 2008 12:00 PM
To:Verne, B. Michael
Cc:(redacted)
Subject: FW: size oftransaction question
Hi,Mike -
I am hoping to get your thoughtson determining the size of transaction in the following scenario:
Company A, a foreign person for purposes of the HSRAct, is purchasing 100% of the voting securities of Company B, also a foreignperson. The mechanics of the purchase will work as follows:
1. Before closing, Company B will increase its capital by JPY 8.0billion/$73.2 million by issuing 10 million new shares to the shareholders ofCompany B (the "Sellers") (the "Sellers' CapitalContribution"). We understand that this will not be reportable by reasonof 16 C.F.R. 802.30 and/or 7A(c)(10) or possibly for other reasons.
2. At closing, the Company A will pay a "transfer price" of JPY10 million/$91,500 to the Sellers (the "Buyer Transfer Price").
3. Company A will contribute additional capital and Company B will issue newshares to Company A to increase capital by JPY 7.6 billion/$69.55 million (the"Buyer's Capital Contribution"); none of the Buyer's CapitalContribution will be paid to the Sellers. Both the Sellers' CapitalContribution and the Buyer's Capital Contribution are contemplated as part of the agreement between the parties and the Buyer'sCapital Contribution must occur within two months of closing.
4. Company B currently has about JPY 27.2 billion/$248.9 million of netthird-party interest-bearing debt outstanding . The Sellers' CapitalContribution will be used, in part, to pay off a corresponding amount of debtof Company B after closing. The Buyer's Capital Contribution will also be usedto pay off such third-party debt of Company B. The amount of the Seller'sCapital Contribution, the Buyer's Capital Contribution and the Transfer Pricewill still not be enough to pay off all of Company B's debt so Company A willtake control of a company with a substantial amount of third-party debt.
Questions
The first question iswhether the Transfer Price should be aggregated with the Buyer's CapitalContribution for purposes of determining the size of transaction. It appearsthat since the Transfer Price and theBuyer's Capital Contribution are contemplated by the same agreement,occur close in time and are viewed by Company A as part of a single transaction(one would not occur without the other), the PNO would presumptively aggregatethese amounts to determine whether the $59.8 million threshold is exceeded. Ifthere is a clear business reason forbifurcating the Transfer Price and the Buyer's Capital Contribution, thepresumption may be able to be rebutted and the Buyer's CapitalContribution in exchange for additional shares would be exempt pursuant to 16 C.F.R. 802.30. Do you agree with this methodology?
Assumingthe Transfer Price and the Buyer's Capital Contribution were aggregated, thesecond question is whether that the transaction is not reportable for failureto meet the size of transaction test. When the third-party debt of Company Bbeing assumed or paid off by Company A is subtracted from the purchase price,you are left with a transaction value of $0 for HSR purposes, rendering thetransaction non-reportable. Would you please let me know if you agree?