Question
From: (redacted)
Sent: Friday, January 30, 2009 9:59AM
To: Verne,B. Michael
Cc: (redacted)
Subject: HSRCompliance Question
Hello Mike,
Thank you for takingthe time to speak with us yesterday. As mentioned during our call, we aresending you this summary to confirm our conversation. As we discussed, ourtransaction involves the affiliation of two nonprofit, non-stock hospitals andwhether there is any acquisition price to take into account when determiningthe transaction value. Below is a brief summary of the facts and our conclusionas discussed during our phone call.
Facts
Hospital A andHospital B, both of which are non-profit and non-stock entities, have enteredinto an Affiliation Agreement (the "Agreement") whereby Hospital Awill have the right to appoint the board of directors of Hospital B andtherefore will acquire control of Hospital B for HSR purposes. Under the HSRregulations and informal interpretations, such transaction would be deemed tobe an acquisition of assets and the transaction value is the FMV of the assetsor, if determined and higher, the acquisition price.
As part of theAgreement, Hospital A will grant $25 million to Hospital B for certain approvedcapital projects of Hospital B (the "Capital Contributions") over thenext 5 years based on an approved draw down schedule. Hospital B will have nodirect repayment obligations or additional debt burden resulting from thecapital projects funded by the Capital Contributions.
Also as part ofthe Agreement, Hospital A will refinance Hospital B's certain long term debt ofHospital B by allowing Hospital B to enter into Hospital A's Obligated GroupBond facility (the "OGB"). Each OGB member is jointly and severallyliable for all debt that has been issued specifically under the OGB's mastertrust indenture ("MTI"). As part of the refinancing, some of HospitalB's existing debt will be refinanced under the OGB MTI as of the closing date.Thus, Hospital A will be jointly and severally liable for a dollar amount equalto (actually very slightly higher than, to accommodate costs of issuance) theoutstanding debt of Hospital B that is being refinanced.
Conclusion
As discussed, theCapital Contributions are not deemed to be consideration for the assets becausethese contributions may only be used for approved projects and are not going tothe sellers of Hospital B. Further, because there is no acquisition price inthis transaction, any assumed liabilities are irrelevant. Thus, in this casethe transaction value will be the fair market value of Hospital B.
Do you agree thatthis summary and the conclusions stated herein accurately reflect ourconversation and state the appropriate analysis to apply in this situation?