Question
(redacted)
June 3, 1987
VIA FEDERAL EXPRESS
Andrew Scanlon
Premerger Notification Office
Bureau of Competition
Federal Trade Commission
6th & Pennsylvania Avenue, NW
Room 303
Washington, D.C. 20580
Re: Hart-Scott-Rodino Antitrust Improvements Act of
1976-Request for Interpretation and Advice
Dear Mr. Scanlon:
As you suggested during our recent telephone conversation, I am writing to request advice as to whether the HSR Act applies to a proposed transaction which involves the investment by several foreign pension plans in a new corporation which will purchase partnership interests in an existing partnership.
The parties to the proposed transaction are set forth in the diagram attached hereto as Exhibit A. In that diagram: X is an existing partnership which owns a parcel of real estate on which is situated a pension plan for employees of corporation C (see Exhibit B for a description of P-1" prepared by counsel to C) P-2". P-3" and P-4" are foreign pension plans for employees of corporation D (see Exhibit C for a description of P-2". P-3" and P-4" prepared by counsel to D): and J is a U.S. issuer (a corporation ) which is proposed to be created.
The proposed transaction is the following: J will be created and its shareholders will be P-1", P-2", P-3" and P-4". The aggregate investments of P-1", P-2", P-3" and P-4" in J will be approximately $40,000,000. The cash contributions of each participant will be 75% in the form of a loan and 25% in payment for voting common stock (i.e., a total of $30,000,000 will be advanced to J as loan and $10,000,000 will be contributed to J in payment for common stock). The contributions to be made by each individual participant have not been finally decided upon. Using the funds which P-1, P-2", P-3" and P-4" have invested in it , J will purchase from B some (but not all) of the partnership interests which B hold in X for approximately $40,000,000. To my knowledge, the foregoing cash amounts constitute the entirety of the assets which P-1, P-2", P-3" and P-4 have agreed to transfer to J and that none of such contributors has agreed to extend or guarantee any amount of credit of obligations of J. I understand that J will engage in no other activity other than holding partnership interests in X.
It is my understanding that the only part of th proposed transaction which may be subject to the notification and waiting requirements of the HSR Act under the HSR Rules presently in effect is the formation of corporation J, a corporate joint venture. The purchase by J of partnership interests in X from B are not (as I understand it under the HSR Rules presently in effect) subject to the HSR Act since upon conclusion of such purchase, interests in X will be held by at least two persons (A and Z). As you have explained to me, the FTC presently considers a transaction involving transfer of interests in a partnership at the conclusion of which the interests in the partnership are held by two or more or more persons to be neither a transfer of assets nor of voting securities.
As we discussed on the telephone, whether or not the formation of J is subject to the HSR Act may turn on whether or not P-1", P-2", P-3" and P-4" are controlled by Z and therefore part of person Z or are their own persons. The descriptions of P-1", P-2", P-3" and P-4" set forth in Exhibits C and D will hopefully provide you with a basis for a determination as to whether or not each of them is within the person of Z.
Section 802.41 states that J would have not filing obligation in connection with its formation. If P-1", P-2", P-3" and P-4" are controlled by Z and therefore within the person of Z, Section 801.40 indicates that no filing would have to be made by any party acquiring voting securities in J since all acquiring parties are within the person of J and there is therefore no joint venture.
Further, if P-2" is separate person, 801.40 indicated that since P-2" has total assets of less than $100,000,000, P-2" would not have any filing obligation in connection with the formation of J. Accordingly, the parties which may have a filing obligation under 801.40 in connection with the formation of J are P-1", P-2", P-4" and Z.
Based upon the foregoing, I would appreciate your advice as to which (if any) of the above-mentioned parties will have an obligation to observe the notification and waiting period requirements of the HSR Act. Particularly, I would like your advice as to:
a) What the applicable criteria are for determining whether any of the persons participating in the above-described transaction would qualify for the: minimum dollar value exemption of 802.20. Apparently, any person which paid $15,000,000 or less for common stock of J and did not acquire control of J would be eligible for this exemption. I am unsure, however, whether if one of the participating persons were to pay less than $15,000,000 for 50% or more of the common stock of J whether the acquisition of such interest would be, nonetheless, exempt on the grounds that J would be a newly formed entity without an existing balance sheet which would be paying out to X the entirety of the $40,000,000 contributed to it.
(b) What the applicable criteria are for determining whether any of the subject persons qualifies for the acquisition of real estate in the ordinary course of business exemption of 7A(c)(1) of the SR Act.
(c) What the criteria are for determining whether an employee pension plan is a separate person or part of the person of the employer.
(d) Whether the participants of the above-described transaction might qualify for any other exemption.
If you require any further information, please do not hesitate to call me.
I would appreciate a response by telephone at your earliest convenience. Thanks in advance for your time and consideration. [note 1]
Very truly yours.
(Redacted)