Question
Premerger Notification Office
Bureau of Competition
Federal Trade Commission
600 Pennsylvania Avenue, NW, Room 303
Washington, D.C. 20580
Re:Proposed Acquisition by (redacted) of Fixtures and Inventory from (redacted)
Dear Mr. Kaplan:
This will confirm the request made to your by telephone this afternoon by (redacted) and me concerning the question whether the "ordinary course of business" exemption is available in the context of the above-described transaction. The facts which we related to you on the telephone are as follows:
(Redacted) line of business is the operation of departments in discounts department stores. That is to say, it operates (redacted) departments for such departments stores as (redacted). The public does not know it is dealing with (redacted) and assumes that it is purchasing (redacted) from the department store is one of licensor/licensee. One of (redacted) largest licensors is (redacted).
(Redacted) recently acquired all of the stores in the (redacted). Historically, (redacted) had operated its own retail (redacted) departments and did not utilize the services of a licensee in connection with its recently-acquired (redacted) stores and proposed to expand its License Agreement with (redacted) to cover those (redacted) stores. In connection with expanding the license, (redacted) would transfer to (redacted) the fixtures in each of the (redacted) stores, as well as the (redacted) inventory in each of those stores. It is contemplated that (redacted) would pay (redacted) approximately $7 Million for the fixtures and approximately $55 Million for the inventory.
We believe that the purchase of its inventory qualifies for the "acquisition of goods . . . in the ordinary course of business: exemption found as Sec. 7A(c)(l) of the Hart-Scott-Rodino statute. This is merely an extension of the current business relationship. Furthermore, inasmuch as it is (redacted) practice not to operate its own (redacted) departments, it can be said that it is in the normal course of (redacted) business to turn over the (redacted) inventory which it acquired with the (redacted) stores to (redacted). Under the expanded License Agreement, (redacted) will be buying and selling the inventory in the (redacted) departments on an on-going basis as licensee, and the purchase of the inventory (as well as the assumption of existing (redacted) purchase orders for the acquisition of new inventory) is, effectively, nothing more than a transitional step.
We believe that our position on "normal course" is supported by Interpretation No. 14 which is contained in the American Bar Association Pre-Merger Notification Manual. That interpretation deals with the question whether an inventory purchase was exempt . . . as a transfer of goods in the ordinary course of business. There, as here, both the purchaser and the seller regularly deal in the type of inventory in question in the ordinary course of their respective businesses. Although the commentary to Interpretation 14 indicated that the ABA expressed doubts about the availability of the exemption, those doubts were based on the fact that there, unlike here, the acquisition was of substantially all of the assets of the seller. Accordingly, we conclude that the availability of the exemption is more appropriate in the (redacted) situation.
We would appreciate it if you could advise us as soon as possible as to your views of this issue. Thank you very much for your cooperation.
cc: (redacted)