Question
PROPRIETARY AND CONFIDENTIAL
November 21, 1991
BY OVERNIGHT COURIER
Mr. Victor L. Cohen, Esquire
Premerger Notification Office
Bureau of Competition
Federal Trade Commission
Room 303
6th and Pennsylvania Avenue, NW
Washington, D.C. 20580
RE: Hart-Scott-Rodino Act Interpretation
Dear Mr. Cohen:
Thank you for your assistance in our phone conversations of today and yesterday in providing the Premerger Offices position regarding the Hart-Scott-Rodino Act (Act) and the Commissions implementing rules (Rules). I am writing to confirm my understanding of that position.
As I explained, (redacted), a wholly-owned subsidiary of (redacted), itself a wholly-owned subsidiary of (redacted), Inc. (collectively (redacted)), currently is negotiating an acquisition agreement for the purchase of certain home improvement loans from another financial services firm. The proposed transaction poses the question of the appropriate treatment of an acquisition of mortgage loans exempt under Sec. 7A(c)(2) of the Hart-Scott-Rodino Act, 15 U.S.C. Sec. 18A(c)(2), when acquired in a package transaction with assets utilized to service the acquired mortgage loan portfolio.
Specifically, (redacted) is negotiating a transaction in which it would acquire a home-improvement mortgage loan portfolio (mortgage portfolio) from a financial services entity that is exiting that business. The acquired firm desires to sell the entire mortgage portfolio (and related servicing assets) to (redacted). It is probable, however, that the final purchase agreement will exclude certain specified mortgage loans from the portfolio package that (redacted) acquires.
In addition to the mortgage portfolio, (redacted) is negotiating to acquire from the acquired firm various assets employed to service the mortgage portfolio (servicing assets). These servicing assets consist primarily of furniture, fixtures, and office equipment. In addition, (redacted) plans to hire certain employees of the acquired firm to continue performing the servicing of the acquired mortgage portfolio. (Redacted) also will lease from the acquired person computer equipment that the latter uses in servicing the mortgage portfolio, and will assume the lease of the premises where the servicing is performed.
The mortgage portfolio itself accounts for the dominant share of the transactions fair market value. The final purchase agreement is expected to assign a separate price to the servicing assets. This price will be less than one percent of the overall purchase price. It is virtually certain that neither the fair market value nor any assigned purchase price of the servicing assets alone will be sufficient to trigger the $15 Million size-of-transaction test under the Act and the Rules. On the other hand, if the transaction is otherwise reportable, that size-of-transaction test clearly would be met if the value of the (otherwise exempt) mortgage portfolio must be aggregated with the value of the servicing assets because the two are acquired in the same transaction.
You have informed me that, as the Premerger Office interprets the HSR Act and the Rules, the acquisition of the mortgage portfolio is exempt under Sec. 7A(c)(2) of the Act. That provision exempts from the Acts reporting requirements acquisitions of bonds, mortgages, deeds of trust, or other obligations which are not voting securities. Further, under HSR Rule 801.21, such mortgages are not treated as assets of the acquired person. And under Rule 801.13 the mortgage portfolio will not be treated as an asset held by (redacted) as a result of the acquisition. Thus, the mortgage portfolio is not aggregated with the servicing assets in applying the size-of-transaction test of the Act and the Rules. The Premerger Offices position is that (redacted)s acquisition of the servicing assets would be reportable only if their assigned purchase price or fair market value by itself met the $15 Million size-of-transaction test. Consequently, under the above facts the entire package acquisition of the mortgage portfolio and servicing assets would not be reportable under the Act and the Rules.
If the transaction proceeds, (redacted) desires to make any required filing in the very near future in order to consummate by year end. I am therefore requesting yet another courtesy: I would greatly appreciate your calling me directly at (redacted) if my understanding of your Offices interpretation is incorrect.
I am grateful for your prompt and courteous assistance in helping (redacted) assure that it is in full compliance with all applicable premerger reporting obligations.
Sincerely,
(redacted)