Question
From:
(Redacted)
Sent:
Wednesday, March 28, 2012 3:09 PM
To:
Verne, B. Michael; Walsh, Kathryn
Subject:
HSR size-of-person issue
Mike and Kate:
We have a situation inwhich we're not certain how to apply the asset prong of the size-of-persontest.
The person in question isan investment fund partnership ("P") that controls two non-publiccorporations ("A" and "B") but does not hold 100% of eithercorporation's outstanding voting securities. P regularly prepares an auditedstatement of financial condition showing its assets and liabilities. On themost recent such statement, three categories of assets are listed: cash,prepaid expenses, and investments. The investments are the shares held in A andB and are carried at the cost of investment in accordance with GAAP. A and Beach have their own regularly-prepared balance sheets listing categories ofassets they each have (e.g., property, plant, and equipment, receivables,intangibles, inventory, etc.), carried at book value in accordance with GAAP;but those asset categories are not listed on P's audited statement of financialcondition, nor are the corresponding asset values taken into account there,given that P's investments are carried at cost.
Is it appropriate for P touse the total assets on its audited statement of financial condition -i.e., thesum of the cash, prepaid expenses, and investments carried at cost-in applyingthe size-of-person test? [NO MV]
If not, then is it appropriatefor P to adjust that figure upward by (artificially) ascribing to itself 100%ownership of both A and B at the same per-share cost reflected in P's auditedstatement of financial condition, and use the adjusted figure as its totalassets? [NO MV]
If not, then presumably Pwould have to look through to A and B and add up the values of their respectiveassets. In that case, would P add the total assets figures from A's and B'smost recent balance sheets, or would P be expected to use some other valuationmethod? Also, regardless ofthe valuation method used, would this sum then bethe total assets figure that P would use for purposes of the size-of-persontest; or should P instead start with the total assets shown on its auditedstatement of financial condition and add to that only a percentage of the totalvalue of A's assets and a percentage of the total value of B's assets -in eachcase, the percentage added being 100% less the percentage of the outstandingvoting securities held by P (i.e., the percentage interest not reflected in theinvestment line of P's audited statement of financial condition?
As always, please feelfree to contact me if you have any questions or need additional information inorder to respond. If a phone call would be helpful, I have time to talk thisafternoon.