Question
From:
(redacted)
Sent:
Tuesday, March 17, 2009 2:11 PM
To:
Verne, B. Michael
Subject: HSR Issueconcerning step transaction
Mike,
Wespoke last week about a Canadian corporation NewCo that would be formed byanother Canadian Corporation X. Upon formation NewCo will receive cash frominvestors in a public offering in return for voting securities of NewCo. Alsoin return for cash and for voting securities of NewCo (from NewCo), CorporationX will contribute to NewCo the voting securities of Corporation X'swholly-owned subsidiary Corporation A. The new corporation would thus hold cashraised from the public offering and left over from the payout to the forming corporation,and the voting securities of a subsidiary Corporation A. No entity will havethe right to elect 50% or more of the directors of NewCo.
Contemplatedin the same transaction documentation and scheduled to occur immediately uponthe creation of and contributions to NewCo, NewCo will cause to be formed XYZPartnership, a Canadian partnership. Corporation A (controlled by NewCo) willcontribute all of its assets to XYZ Partnership. It will receive partnershipinterests in XYZ Partnership, which, when combined with partnership interestsheld by NewCo, will not entitle NewCo and Corporation A to 50% of the profitsor assets on dissolution. Corporation X will contribute operating assets to XYZPartnership and will receive partnership interests that entitle it to more than50% of the profits and 50% of the dissolution assets of XYZ Partnership.Corporation X will thus control XYZ Partnership immediately after theformation, and for the foreseeable future.
Myquestion concerns the HSR obligations of Corporation X, because Corporation Aholds U.S. assets the acquisition of which would be reportable under HSR, ifthe size tests are met for the parties. Before the contemplated transactions,Corporation X holds all of the voting securities of Corporation A. Between thefirst and second steps of the transaction, control of Corporation A will passfrom Corporation X to NewCo, a separate Person. Immediately after thetransaction series, Corporation X will control the assets of Corporation Abecause Corporation X will control XYZ Partnership (to which the assets will becontributed upon formation).
Despitethe technical transfer of control over Corporation A from Corporation X toNewCo, the immediate contribution by NewCo of all of A's assets to XYZPartnership (which Corporation X will control) means that as a practical matterand viewed as a step transaction with NewCo as an intermediary, Corporation Xwill not relinquish control over the assets first held by Corporation A andthen by XYZ Partnership. Am I correct that no HSR filing would be required forthe transaction described? Either:
16 C.F.R. 802.1 Orb) may apply(if one views the transaction as an effective reorganization of Corporation Ainto XYZ Partnership) because Corporation X will contribute no new assets inthe conversion and will not increase its per centum holdings in XYZ Partnershipover what it held in Corporation A (in fact, it will hold much less of XYZPartnership); or
16 C.F.R. 802.30(c) may apply toexempt assets contributed to XYZ Partnership not only by Corporation Xdirectly, but also the assets contributed by Corporation A because CorporationX controlled Corporation A at the beginning of the transaction. ABA Letter 85seems applicable here.