Question
November 14, 1991
VIA U.P.S. NEXT DAY DELIVERY
Premerger Notification Office
Bureau of Competition
Room 303
Sixth Street & Pennsylvania Avenue, N.W.
Federal Trade Commission
Washington, D.C. 20580
Attention: Mr. Patrick Sharpe
Re: Premerger Notification and Report
Dear Mr. Sharpe:
This letter is to confirm my telephone conversation with you on November 8, 1991 inwhich we discussed the exemptions from coverage provided by the rules (the Rules)promulgated under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended(theAct), in various contexts, including (i) a merger of a limited partnership into its whollyowned corporate subsidiary, where both the parent and the subsidiary meet the applicable size-of-person tests, and (ii) an acquisition of common stock by a unitholder pursuant to the merger of alimited partnership into its wholly owned corporate subsidiary.
Parent-Subsidiary Merger
In the course of our telephone conversation, you indicated that the merger of a limitedpartnership into a subsidiary corporation is exempt under Section 802.30 of the Rules because theacquiring and acquired person are the same person, notwithstanding that the subsidiary, ratherthan the parent, is the survivor in such merger. Our client, (redacted), plans to convert tocorporate form, subject to its unitholders approval, by merging (the Merger) with and into itswholly owned subsidiary, (redacted), a recently formed (redacted). Immediately prior to theMerger, the (redacted) assets will exceed $100 million and (redacted) assets will exceed $10million. (Redacted) will survive the Merger and, pursuant to the Merger, will succeed to all of the(redacted) assets and liabilities. Upon consummation of the Merger, management of (redacted)will be the same as that of the (redacted)-- will be managed by the persons who are currently themembers of the Board of Directors and officers of the managing general partner of the (redacted). Also pursuant to the Merger, the unitholders of the (redacted) will receive, in exchange for eachunit of the (redacted) (representing beneficial ownership of an underlying limited partnershipinterest), one share of common stock of (redacted). Please confirm that, pursuant to Section802.30 of the Rules, the Merger is exempt from the Acts premerger notification reportingrequirements because the (redacted) and (redacted) are deemed to be the same person forpurposes of the Act and the Rules.
Exchange of Securities Pursuant to Parent-Subsidiary Merger
Pursuant to the Merger, a unitholder of the (redacted) (the Unitholder) holdingapproximately 10.5% of the Partnerships outstanding units, will acquire, in the one-for-oneexchange of units for shares, shares of common stock of (redacted) having an aggregate value inexcess of $15 million. The Unitholder meets the applicable size-of-person test under Section7A(a) of the Act.
You indicated in our telephone conversation that generally the distribution of shares to asecurity holder pursuant to a merger would be a reportable transaction, assuming the size-of-person tests are met and the transaction exceeds the acquisition thresholds of Section 7A(a) of theAct. However, you also acknowledged that there are instances in which the Rules on their facedo not provide clear exemptions for transactions that do not raise the competition and antitrustconcerns which the Act and the Rules were designed to address.
Section 7A(d) of the Act indicates that the purpose of the Act is to facilitate the FederalTrade Commissions and Attorney Generals analysis of whether a transaction or acquisition, ifconsummated, would violate the antitrust laws. The Act and the Rules provide enforcementagencies with a tool to obtain information regarding a proposed transaction in sufficient time tochallenge a transaction that raises antitrust concerns prior to consummation of the transaction. Insome cases, such as those covered by the stock dividend exemption provided by Section 802.10of the Rules and the intraperson exemption provided by Section 802.30 of the Rules, it is clearthat the type of transaction will have no effect on competition, regardless of the specifics of theparticular transaction.
We respectfully submit that the acquisition of shares of (redacted) by the Unitholder in theMerger does not, directly or indirectly, affect competition and raises no antitrust concerns and,therefore, should not be a reportable transaction under the Act and the Rules.** The Unitholdersacquisition of the shares of (redacted) is merely an ancillary effect of the Merger, which is itself anexempt transaction because it has no effect on competition. The Merger has no effect oncompetition because the (redacted) and (redacted) are the same person, not only in the sensethat the (redacted) is the ultimate parent entity with respect to both the (redacted) and (redacted),but also in the sense that the assets, liabilities, operations, management and ownership of(redacted) upon consummation of the Merger will be virtually identical to those of the (redacted). Pursuant to the Merger, (redacted) will acquire all of the assets, assume all of the liabilities andcontinue the current operations of the (redacted). In addition, the unitholders will receive sharesof (redacted) in a one-for-one exchange. The Unitholder is one of the founders of the business ofthe (redacted), is the Chairman of the Board and Chief Executive Officer of both the managinggeneral partner of the (redacted) and (redacted) and has continually served as (redacted). Because no substantial change occurs in the assets, operations, management or ownership of(redacted) or the (redacted) relationship with (redacted), premerger notification filing with andreview by the Federal Trade Commission and Department of Justice in this context wouldunnecessarily burden the Federal Trade Commission and Department of Justice and subject the(redacted) to significant costs and filing fees, without any corresponding benefit.
** staff note: Poor argument. Where is the exemption?
Moreover, based on my telephone conversation with you, it is our understanding that theFederal Trade Commission ** has informally taken the position that stockholders acquiringsecurities pursuant to a reincorporation from one state to another would not be subject to thereporting requirements of the Act and the Rules. We believe that the acquisition of securities inthe conversion of the (redacted) from partnership to corporate form is substantially similar to theacquisition of securities in a business reincorporation in which an existing corporation isreorganized under the laws of another state. In both instances, there is no meaningful change tothe assets, operations, management or ownership of the business. In addition, in both instances,the transaction has absolutely no impact on competition and raises no antitrust concerns. Thus, ina context similar to the acquisition of securities in the Merger, we understand that the FederalTrade Commission ** has concluded that the filing of premerger notification would not serve auseful purpose.
** staff note: PMN Office, not FTC
Based upon the foregoing, we respectfully request that you confirm that both the Mergerand the (redacted) acquisition of (redacted) common stock pursuant to the Merger are exemptfrom the premerger notification filing requirements of the Act and the Rules.** If you requirefurther information regarding the Merger or the distribution of securities in the Merger in order torespond to this request, please call me at the above-indicated number.
** staff note: How? No exemption applies.
Finally, we respectfully request that you afford this letter confidential treatment pursuantto Section 7A(h) of the Act. Kindly stamp the enclosed copy of this letter to acknowledge receiptand return it to me in the enclosed, self-addressed, stamped envelope. Thank you for yourconsideration of this matter.
Very truly yours,
(redacted)