Question
Jeffrey Kaplan, Esquire
Premerger Notification Office
Bureau of Competition
Federal Trade Commission
600 Pennsylvania Avenue, NW, Room 303
Washing ton, D.C. 20580
Dear Mr. Kaplan:
I would be grateful if you or one of your colleagues could respond to this inquiry regarding the report ability of a proposed transaction. For your reference enclosed herewith is a photocopy of the premerger notification filing made by my client, (redacted) on October 24, 1986 with respect to the acquisition of the voting securities of (redacted) which was the acquired person for purposes of such filing. This filing is, of course, confidential pursuant to 15 U.S.C. § 18a(h), and we do not intend by this communication to waive the protection afforded by the
Hart-Scott-Rodino Act against public disclosure.
Prior to the 1986 filing (redacted) held 42.3% of the voting securities of (redacted). He did not hold such voting securities directly. Rather, pursuant to Section 801.1(c)(8) of the Hart-Scott regulations, he held such stock indirectly by reason of his Hart-Scott “control” over several layers of entities. More specifically , (redacted) had contractual control, pursuant to Section 801.1(b)(2), over (redacted) Footnote ; (redacted) held approximately 60% of the voting securities of (redacted) held 100% of the voting securities of (redacted) and (redacted) held 42.3% of the voting securities of (redacted) (I refer to this corporate chain as the “First Chain.”) That was true in 1986, and in essence it remains true today.
The 1986 filing was occasioned by certain transactions, more fully described in response to Item 2(a) therein, pursuant to which (redacted) proposed to acquire indirectly, pursuant to Section 801.1(c)(8), an additional 30.6% of the voting securities of (redacted). Again, as with the First Chain described above, the new chain of “control”the “Second Chain”) would result partly from the provisions of Section 801.1(b)(2) (at the very top of the chain) and partly from holdings of voting securities, i.e., Section 801.1(b)(l)(I). Thus the top of the Second Chain would mirror the top of the First Chain, as described in footnote1 above. Footnote All of this is spelled out in the 1986 filing.
Following the expiration of the waiting period in connection with the 1986 filing, the transactions described therein were effected. At the present time (redacted) continues to hold indirectly, as described above, 74% of the outstanding voting securities of (redacted). The remaining 26% of such voting securities are publicly held.
STAFF COMMENT: is this the correct use of the word
In addition, (redacted) continues to control numerous other companies through the First Chain. Among them is (redacted); by reason of Section 801.1(c)(8), (redacted) holds 61% of the voting securities of (redacted), and the remaining 39% are publicly held.
In is not proposed to merger (redacted) with (redacted) so that a new company (herein “Newco”) will be substituted as a holding company for the operating companies in both corporate chains.1 As a result of the this transaction, (redacted) will hold indirectly 68% of the voting securities of Newco. Fourteen percent of the voting securities of Newco will be held by the former public shareholders of (redacted) and 18% will be held by the former public shareholders of (redacted).
These transactions are depicted in the three “before and after” charts enclosed with this letter. These charts, however, do not describe the tops of the First and Second chains, referring instead simply to “family trust.”
STAFF COMMENTS TO FOOTNOTE 2: 1) not necessarily so
2) but is trust “within” (redacted) - only if he has reversionary interest in trust or trust is revocable.
3) “control” not “hold”
The proposed transaction may be viewed as involving the acquisition of voting securities of Newco by Trust M and R receptively, pursuant to Section 801.1(c)(3) and (c)(8). Newco however, will be a foreign issuer”within Section 801.1(e)(2)(ii), and both Trust M and Trust (R) are “foreign person” within Section 801.1(e)(2)(I). Moreover, Trust M and Trust R will each be acquiring less than 50% of the voting securities of Newco, and neither will have the power to designate 50% or more of the directors of Newco. Accordingly, the “acquisitions” of voting securities of Newco by Trusts M and R are exempt pursuant to Section 802.51(b).
This leaves the questions of whether (redacted) has a reporting obligation in connection with the proposed transaction. 2
STAFF COMMENT: This language is “owned”
In the proposed transaction, (redacted) and (redacted) will each be acquiring and acquired entities. Both (redacted) and (redacted) are controlled by (redacted) by reason of holdings of voting securities. Accordingly, I believe the merger of (redacted) and (or the acquisition by one of the voting securities of the other) should be exempt pursuant to Section (c)(3) of the Hart-Scott-Rodino Act.
In this connection I not Example 3 to Section 802.30, which indicates that an entity possessing contractual “control” but holding no voting securities is required to comply with the Hart-Scott-Rodino Act reporting requirements upon the acquisition of voting securities. I believe the facts in Example 3. Here (redacted) already holds a majority of the voting securities of (redacted) and (redacted) pursuant to the provisions of Section 801.1(c)(8).
Moreover, unlike the situation addressed in Example 3, here there is one and only one ultimate parent entity, (redacted) both before and after the proposed transaction.
Please note also that in his 1986 filing (redacted) gave full and complete information on the First Chain, including SIC breakdowns for revenues derived from U.S. operations by subsidiaries of (redacted) Similarly, (redacted), as the acquired person in 1986, gave full and complete information on U.S. dollar revenues derived by its subsidiaries. Accordingly, if Section 803.30 were deemed inapplicable and the same ground as the filings made in 1986.
I look forward to being in touch with you to discuss this matter.
Sincerely yours,
Enclosures
I do not believe the precise steps by which this merger will be accomplished are materialto your analysis, and accordingly I have omitted this detail, in order not to add further complexityto an already complex inquiry.
Most of the public shareholders of (redacted) and (redacted) who will become public shareholders of Newco, are “foreign person.” Because none of the public shareholders will beacquiring as much as 50% of the voting securities of Newco, their acquisitions are exempt underSection 802.51(b). Acquisitions by “United States person” of Newco shares do not benefit fromthis exemption, and would be subject to the normal rules of Hart-Scott reporting. My clientsbelieves that no “United States person” will be acquiring voting securities of Newco valued inexcess of $15,000,000. We will, however, keep this point in mind, as well as the “investmentonly” exemption, as we proceed.