Question
(redacted)
September 27, 1990
VIA FAX
Mr. Thomas Hancock
Premerger Notification Office
Bureau of Competition
Federal Trade Commission
600 Pennsylvania Avenue, NW, Room 303
Washington, D.C. 20580
Dear Mr. Hancock:
As you requested, I am writing to describe the proposed transaction that we discussed by telephone on September 25.
Under the proposed transaction, two (redacted) companies will buy five parcels of U.S. real estate as tenants in common, with the (redacted) companies paying $10 million each for their respective interests in the five properties. The properties will be bought from a single seller. The properties in question consist primarily of (redacted) that are leased to (redacted) although half of one building used for office space.
After the closing, the two (redacted) companies intend to sell their interests in the parcels to a (redacted) partnership. The (redacted) partnership would be newly formed for the purpose of buying these properties. Interests in the partnership would be held by a large number of (redacted) investors.
My own analysis suggests that this transaction should be nonreportable.
To start with, if one looks at the specific structure of the transaction, it consists of two steps: the initial acquisitions of tenancy-in-common interests by the two (redacted) companies, and the subsequent sale of those interests to the (redacted) partnership.
In the first step, the consideration paid by each acquiring person for the asset being acquired (an undivided one-half interest as tenant in common) is $10 million. Thus, as to this step in the transaction, the size-of-transaction test is not met, and this step of the transaction would be nonreportable for this reason.
As to the second step (sale of the interests in the properties to a newly formed (redacted) partnership), the newly-formed (redacted) partnership would be its own "ultimate parent entity" and would not meet the "size-of-persons" test under the provisions of 16 C.F.R. Section 801.11(e). Thus, this part of the transaction would clearly be nonreportable.
An alternative way of looking at the transaction is to ask what the economic substance of the transaction is. The economic substance of the transaction is that a newly formed (redacted) partnership is acquiring U.S. (redacted) with two (redacted) companies acting as intermediaries. Viewed from this perspective, what is important is whether the direct acquisition of the U.S. (redacted) by the (redacted) partnership would be reportable. The answer, of course, is that it would not be, because the newly formed (redacted) partnership would be its own "ultimate parent entity" and would not meet the size-of-person test.
In sum, on these specific facts, I conclude that neither the specific transaction as structured nor the economic substance of the transaction would constitute a reportable event.
Should you have any questions concerning any aspect of the proposed transaction, please let me know.
I very much appreciate your advice and assistance.
Sincerely yours,
(redacted)
cc: (redacted)