Question
From: (Redacted)
Sent: Monday, November 16, 2009 2:29 PM
To: Verne, B. Michael
Cc: (Redacted)
Subject: HSRQuestion
Mike, (redacted)and I are working on a proposed transaction and would appreciate youradvice on an HSR question which has arisen. The facts are as follows:
Factual CircumstancesMy client,Company A, is proposing to enter into a transaction with Andrew's clients, thecurrent members (the "Existing Members") of Company B (which is anLLC) . The purpose of the transaction is for A at some point to acquire all ofthe membership interests in 8. However, the parties do not agree on thevaluation to be placed on B and therefore propose to spread the acquisition outover several years so that ongoing performance can be evaluated.
In step one, Awould acquire 55 percent of the membership interests in B for a purchase priceof less than $65.2 million (the "Initial Purchase"). This InitialPurchase would give A control of B for HSR purposes because A would obtain aright to more than fifty percent of B's profits and more than 50 percent of B'sassets on liquidation after payment of debts.
The term sheetthen sets forth three possible scenarios concerning a sale of the remaining 45percent of membership interests in B (the "Subsequent Purchase(s)".First, it gives the Existing Members "put" rights whereby they(acting collectively) can require A to purchase all of the Existing Members'interests on any of four dates falling between June 30, 2011 and November 30, 2014at prices in accordance with price formulas in the term sheet. Second, A isgiven certain "call" rights where it has the option to acquire all ofthe Existing Members' interests on any of six dates falling between December31, 2010 and December 31, 22013 in accordance with price formulas in the termsheet. Finally, the term sheet provides that if on January 31, 2015, theExisting Members remain equity holders of B (I.e., none of the put or callrights has been exercised), a buy/sell process shall be triggered pursuant towhich an independent third party shall determine the fair market value of themembership interests then held by the Existing Members, and A shall be requiredto buy and the Existing Members will be required to sell all such membershipinterests at the value so established. Under any of these three scenarios, theaggregate amount paid by A for the Initial Purchase and the Subsequent Purchase(s)would at some point exceed $65.2 million.
Question
Our question iswhether this transaction should be viewed as:
a. A purchase of the entire company for anundetermined acquisition price, in which case A should make a fair marketvaluation of what a third party buyer would pay now to acquire all of B (whichvaluation, if above $65.2 million, would require a current HSR filing, but nofilings for the Subsequent Purchase(s) because control would be obtained in theInitial Purchase); or
b. A purchase of control in connection with theInitial Purchase but for a value below $65.2 million, with no HSR filing beingnecessary for the Initial Purchase because it is below the HSR transactionthreshold, and no HSR filing being required for the Subsequent Purchase(s)because A would already have obtained control of B in connection with theInitial Purchase?