Question
From:
(Redacted)
Sent:
Tuesday, March 23, 2010 4:20 PM
To:
Verne, B. Michael
Subject:HSR Filing Question / Assumption of Liabilities
Dear Mr. Verne,
Furtherto my voicemail this afternoon,I am writing seeking guidanceas to whether the Premerger Notification Office staff would agree with ourconclusions below regarding reportability of aproposed transaction.
Our client, "A", is considering theacquisition of target "B" and iscurrently evaluating whether it will structure the acquisition as a purchase of B's assets and assumption of B's liabilities or as a purchase all of B's outstanding voting securities. Determination of the final structure will primarily depend on variousnon-HSR considerations (e.g., tax, successor liabilities), but in evaluating the reportability of the potential transactionunder the HSR Act, we have determined an asset acquisition would be reportablebut an acquisition of B's voting securities would not be. The transaction would satisfy the size-of-person thresholds for reportability.
B'stotal assets have a fair market value ofapproximately $180 million. B currently has approximately $70 million of tradeliabilities and approximately $110 million of outstanding bank indebtedness, a small portion of which is guaranteed by B's majority owner, "C".None of B's bank lenders hold voting securities of B. The voting securities in B have been pledged by C and B's other stockholders to B's bank lenders, as collateral security for B's indebtedness.
If Adetermines to effect the transaction by purchasing all of B's voting securities, the acquisition price would be Significantly below $63.4 millionand, therefore, not reportable based on our review of the HSR Act andregulations thereunder. Additionally, we understand that neither the fact thatC has guaranteed B's indebtedness, nor that thevoting securities in B have been pledged to C, would change our conclusion that the transaction, if structured as apurchase of voting securities, is not reportable.
If A,however, determines to effect the transaction byacquiring B's assets and assuming B's liabilities, includingthe $180 million of bank indebtedness and other liabilities, the acquisition price would be (x) whatever amount is paid by A for B's assets plus (y)the $180 million of assumed liabilities (Statement of Basisand Purpose 43 Fed. Reg. 33450 (July 31, 1978) states that "assumption of liabilities, if consideration for an acquisition, must allbe valued in computing the acquisition price"). We believe that because the acquisition price would exceed $63.4 million (and because thesize-of-the-parties thresholds are exceeded) A'sacquisition of B's assets and assumption of its liabilities would be reportableunder the HSR Act.
Can youplease advise whether the staff would agree with our conclusions above regarding? Thank youin advance for your timeand consideration of this matter.