Question
February 29, 2008
VIAEMAIL AND FAX
mverne@ftc.gov(202) 326-2624
Mr.Michael Verne
Premerger Notification Office
FederalTrade Commission
Dear Mr. Verne:
Thisletter summarizes our phone conversation on February 25, 2008, concerning aproposed transaction, the structure of which is outlined below. We are seekingwritten confirmation of the guidance that you provided to us during thatconversation, that no HSR Filing is required in connection with the proposedtransaction.
Purchaser'sBusiness
Thepurchaser, (redacted), LLC,(the "Purchaser") is a wholly owned subsidiary of (redacted), LLC, which is awholly-owned subsidiary of (redacted), Inc.(NYSE) (redacted), Inc. andits subsidiary companies provide a broad range of services to the nuclearindustry, including providing solutions for the safe management, handling,transportation and disposition of radioactive materials. These services aretypically performed pursuant to written services contracts.
1 TransactionDescription
Thestructure of the proposed transaction is an innovative departure fromPurchaser's typical decommissioning transaction, in which Purchaser wouldsimply enter into an agreement with a client to perform decommissioningservices. In this transaction, Purchaser will acquire from (redacted), LLC(the "Seller") title to substantially all of the buildings,facilities and equipment of its non-operating nuclear power plant near (redacted),Illinois (the "Plant"), which has been shuttered for over 10 years,As the owner of the Plant and associated permits, licenses and other assetsincidental to ownership of the Plant (the "Assets"), Purchaser willbe eligible to acquire a license to decommission the Plant from the NuclearRegulatory Commission ("NRC") and the rights to the Seller'sdecommissioning trust funds associated with the Plant, which are overseen bythe NRC. Seller will retain ownership of the real property upon which theAssets are located and will lease the real property to Purchaser for the periodduring which Purchaser performs its decommissioning and decontaminationactivities. Purchaser is assuming contractual responsibility to decommissionand decontaminate the Plant on a 10-year schedule.
This unique dealstructure facilitates the decommissioning of the Plant at least 10 years aheadof the schedule that the Seller would otherwise expect to achieve in theabsence of the proposed transaction. The Seller would otherwise scheduledecommissioning to commence in November 2013 when the decommissioning trustfunds contributed by electricity rate-payers are projected to have grownsufficiently through investment to cover the estimated cost of decommissioningthe Plant. That schedule anticipates completion of Plant decommissioning in2028, with a potential extension to 2058. Purchaser has the unique technology,expertise and assets necessary to begin decommissioning work in 2008 and completethe decommissioning of the Plant during the next 10 years at a total cost notexceeding the available balance of the decommissioning trust funds (plusinvestment interest accruing during the 10-year decommissioning project). Inorder to accomplish this objective, however, it is essential that Purchaserhave direct access to the decommissioning trust funds as the owner of theAssets and licensee of the NRC, enabling Purchaser to avoid several expensiveand time consuming levels of administrative oversight. Purchaser is in theprocess of seeking NRC approval of the proposed transaction.
Exemptions fromIISR Filing Requirements
As wediscussed in our conversation, we believe that the proposed transaction isexempt from making a Notification and Report Form filing under theHart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSRFiling"). Our belief is based upon the following independentanalyses:
1.The"Acquisition Price" of the proposed transaction does not exceed theHSR Filing minimum transaction value. Thereis no determined "Acquisition Price" for the Assets. Purchaseris not paying a purchase price to Seller for the Assets. In exchange for theAssets, Purchaser is agreeing to assume and be responsible for certainliabilities of the Seller in connection with the Plant, to be satisfied primarilyby the decommissioning trust funds. These liabilities for which Purchaser willbe responsible are not of a fixed or determined amount. Additionally, theAssets have a negative "Fair Market Value," since they are encumberedby the liability for decommissioning and have no useful value. Purchaser'sboard of directors has determined in good faith that the "Fair MarketValue" of the Assets is a negative amount. Purchaser willreceive consideration for its decommissioning work at the Plant through thePlant's decommissioning trust funds. As set forth above, the real property onwhich the Assets of the Plant are located is being retained by Seller andleased to Purchaser in order to perform the decommissioning work. Followingcompletion of the decommissioning work, the real property will continue to beowned by Seller. Because there is no determined "Acquisition Price"of the Assets, and the Assets have a negative "Fair Market Value,"the transaction value of the proposed transaction does not exceed the HSR Filingminimum.
2.TheAssets are "unproductive real property." 16 CFR 802.2(c)provides that "An acquisition of unproductive real property shall beexempt from the requirements of the act. "[U]nproductive real propertyis any real property, including raw land, structures or other improvements ...and assets incidental to the ownership of the real property, that has notgenerated total revenues in excess of $5 million during the thirty-six (36)months preceding the acquisition." We believe that the Assets are"unproductive real property" according to Section802.2(c), since they are nearly entirely "structures or otherimprovements" to real property, including buildings and other structuresassociated with the real property on which the Plant is located. Othercomponents of the Assets are the licenses and permits from the NRC related tothe ownership of the Plant. These licenses and permits are "assetsincidental to the ownership of the real property" since they are attachedto the Plant and have no other value or use. None of subparagraphs (i), (ii) or(iii) of Section 802.2(c)(2) would cause the real property Assets not toqualify as "unproductive real property" under Section 802.2(c). Equipment,machinery and other personal property that constitute a portion of the Assetswould not independently require an HSR Filing because the value of those assetsis well below the HSR filing minimum.
Informal StaffOpinions
We have located the following guidance, in thePremerger Notification Practice Manual (the "Manual") and FTCInformal Staff Opinion letters, which we believe is helpful to our analysis andconclusion that the proposed transaction is exempt from the HSR Filingrequirements:
1.Section 122 of the Manual statesthat assumed liabilities of a determined amount must be included in theacquisition price. By implication, assumption of liabilities or obligations notof a determined amount are not included in the acquisition price.
2.Section 107 of the Manual statesthat, "in calculating the 'acquisition price,' future payments of a fixedamount must be included ...." Again, by implication, assumption ofliabilities or obligations not of a fixed amount are not included in theacquisition price.
3.Letter addressed to Ms. Nancy Ovuka,dated March 3, 1999 (Informal Staff Opinion 0012010). This letter statesthat (a) the Staff has interpreted Section 802.2 to apply to leases if thelease pertains to real property, the acquisition of which would be exempt ifpurchased outright, and (b) permits and agreements associated with realproperty are assets incidental to the ownership of real property. Please notethat there was no FTC Staff response set forth on this letter, and the electronicallycoded "Response" is listed as "unknown".
4.Letter addressed to Mr. MichaelVerne, dated January 15, 2007 (Informal Staff Opinion 0701010). In this letter,the Staff agrees that permits, contracts and agreements associated with a powerplant are "assets incidental to the ownership of real property"for purposes of Section 802.2(c).
5.Letter addressed to Mr. MichaelVerne, dated November 11, 2004 (Informal Staff Opinion 041 1008). This letter assumesthat contracts, permits, rights and other assets associated with a power plantare real property for purposes of Section 802.2(c).
6.Letter addressed to Mr. MichaelVerne, dated November 13, 2001 (Informal Staff Opinion 0111003). This letter statesthat production sharing contracts, which gave the right to develop and drill acertain natural gas field and receive a share of such production, are viewed asthe equivalent of the underlying gas reserves in the drill field, despite thefact that no title or other interest in the real property containing thereserves was held. The letter also states that if such gas reserves have notyet produced revenues, then the reserves (and therefore the productioncontracts) are exempted from the HSR Filing requirements pursuant to theunproductive real property exemption. The FTC Staff concluded, then, thatagreements related to real property, as determined according to Section 802.2,are also considered real property for the purposes thereof
These letters described in paragraphs 3 through 6above demonstrate that the FTC Staff views the unproductive real propertyexemption as designed to include a wide variety of real property interests andrelated agreements and transactions, even to the point of including agreementsthat relate only to resources in real property, and not to the real propertyitself. As set forth above, the Real Property Assets meet the language ofSection 802.2(c). Moreover, the inclusion of so many varied types of real propertyin the exemption, both in the rule (e.g., natural resources) and in InformalStaff Opinions (e.g., agreements relating to real property or resources in realproperty) provides additional support to our conclusion that the unproductivereal property exemption applies to the proposed transaction and that no HSRFiling is required.
Our conclusion is, therefore, that the proposedtransaction will not require an HSR Filing. Please contact me with anyquestions, concerns or requests for additional information that you may have. Weappreciate your assistance in this matter.