Question
April 30, 2010
Mr. B. Michael Verne
Premerger Notification Office
Bureau of Competition
Federal Trade Commission
7th & Pennsylvania Avenue, NW
Washington, DC 20580
Re: Basis of HSR Non-Reportability forAcquisitions by a Family of Investment Funds
Dear Mike:
I amwriting to confirm our discussion of April 27, 2010 regarding thenon-reportability under the Hart-Scott-Rodino Antitrust Improvements Act of1976, as amended ("HSR Act") of the proposed transactions describedbelow.
Proposed Transactions
There isa family of six related investment funds, Funds A through F. The investmentmanager, the Manager, for each Fund is the same. The Manager decides how tovote the shares of all voting securities held in any Fund within the family.The Manager also is the general partner for Funds A-D.
Fund Aand Fund B are U.S. limited partnerships in which no person has the right tohalf or more of the profits or the right to half or more of the assets upondissolution.
Fund Cand Fund D are U.S. limited partnerships in which there is a different investorin each that has the right to half or more of the profits or the right to halfor more of the assets upon dissolution. You can assume that the majorityinvestor in Fund C is ultimately controlled by Investor C and that the majorityinvestor in Fund D is ultimately controlled by Investor D.
Fund E isa corporation with voting securities. No person holds 50% or more of the votingsecurities of Fund E but you should assume that the Manager has the power todesignate 50% or more of the directors of Fund E.
Fund F isa corporation with voting securities. There is an investor that holds all thevoting securities of Fund F and that investor is ultimately controlled byInvestor F. There is not another investor or person that separately hascontractual rights to designate 50% or more of the directors of Fund F.
Under theproposed transactions, each Fund will acquire voting securities of Company X.You should assume that no one Fund will hold more than 10% of the votingsecurities of Company X, and that to the extent a Fund is not its own ultimateparent for HSR purposes, neither the ultimate parent or any other entitycontrolled by such parent will hold voting securities in Company X besidesthose held in the Fund it controls. You should assume that each Fund willacquire its shares solely for purposes of investment, and, that as a result ofthe proposed transactions, the Funds collectively would hold more than 10% butless than 50% of the voting securities of Company X.
It ispossible that the Funds may borrow from other investors voting securities ofCompany X for short sales. In engaging in short sales, the Funds would bespeculating that the price of the voting securities will fall, with the hope oflater purchasing the same number of voting securities at a lower price toreturn to the lender, thereby deriving a profit. In the case of borrowed votingsecurities for making short sales, the Funds would not have the power to votethose voting securities and would be responsible for paying the lender of thevoting securities dividends or other similar payments on the borrowed votingsecurities.
Conclusions
You continued that the proposedtransactions described above would not trigger any reporting obligation underthe HSR Act. Specifically you confirmed:
(1)None of the six Funds are commonly controlled for HSR purposes despite having acommon investment manager for all the Funds and a common general partner forfour of the Funds. Fund A is its own ultimate parent, Fund B is its ownultimate parent, Investor C is the ultimate parent for Fund C, Investor D isthe ultimate parent for Fund D, the Manager (or the Manager's ultimate parentif different) is the ultimate parent for Fund E, and Investor F is the ultimateparent for Fund F.
(2)The holdings of the different Funds in Company X voting securities would not beaggregated to determine HSR Act reportability.
(3)Assuming the acquisitions are solely for purpose of investment, all of theacquisitions are exempt under 15 U.S.C. 15a(c)(9) and 16 C.F.R. S02.9(a)regardless of the dollar amount of the voting securities and regardless thatthe Funds in aggregate will hold more than 10% of the voting securities ofCompany X.
(4)If any of the Funds or the Manager requests and receives information frommanagement of Company X, such actions would not be inconsistent with holdingthe voting securities of Company X solely for purpose of investment.
(5)To the extent that any of the Funds borrow voting securities of Company X fromother investors for short sales, none of the Funds will be viewed as acquiringor holding for HSR purposes the borrowed voting securities.
Pleaselet me know as soon as possible if you disagree with any of the conclusionsdiscussed above, or if I have misunderstood any aspect of your advice. Thank:you for your assistance in this matter.