Question
November 30, 2009
VIA EMAIL (mverne@ftc.gov)Mr. Michael B.Verne
Premerger Notification Office
Bureau of Competition
Federal Trade Commission
Room 303
600 Pennsylvania Avenue, N.W.
Washington, D.C. 20580
Dear Mike:
Thepurpose of this letter is to confirm the conclusion reached during a telephoneconference (redacted) and I had with you on November 13, 2009, in whichyou concluded that, under the facts described below, neither of the entitiesdescribed below controls the corporation. In particular, our inquiry related tothe interpretation of the staff of the Federal Trade Commission of Rule 801.1(b)(2) relating to whether either of the entities described below has thecontractual power presently to designate 50% or more of the directors of thecorporation. The relevant facts, as we discussed them, are as follows:
C is a U.S. corporation. No person holds50% or more of the issued and outstanding voting securities of C. Under aShareholders Agreement, the holders of two classes of C's outstanding votingsecurities, Class A common stock and Class B common stock, have the right todesignate the members of C's board of directors. Shareholder X holds 100% ofthe issued and outstanding shares of the Class A common stock. Shareholder Yholds 100% of the issued and outstanding shares of the Class B common stock.
C has a five person board of directors. Underthe Shareholders Agreement, X and Y each have the right to designate twomembers of the board. The right to designate the fifth director is shared by Xand Y; the designation must be made by mutual agreement, and X and Y thus eachhave the contractual power to veto the other's choice of the fifth director.Neither X nor Y alone has the unfettered right to designate the fifth director.As a result, neither X nor Y has the contractual power presently to designate50% or more of the directors of C.
Basedon these facts, you confirmed that neither X nor Y controls C. This conclusionis supported by two earlier informal staff interpretations (InformalInterpretation Nos. 8712002 and 8807006) and is consistent with Interpretation38 published in the Premerger Notification Practice Manual (Fourth Edition).