Question
June 10, 1992
By Hand Delivery
Victor L. Cohen, Esq.
Premerger Notification Office
Bureau of Competition
Federal Trade Commission
Room 303
Sixth Street and Pennsylvania Avenue, N.W.
Washington, D.C. 20580
Dear Victor:
I am writing this letter to confirm the oral advice you provided on June 8 regarding the nonreportability under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 of an acquisition in which an existing partner will increase its holding of the interests in a partnership from 56.03% to 99.5%
As background, I indicated that the partnership was originally created by partners A, B and C. A held 49% and was a general partner. C held .5% and was a limited partner. B and C were controlled by the same ultimate parent.
In a subsequent year, the partnership was restructured. A purchased a 7.03% interest from B, thus increasing its ownership to 56.03%. A became a general partner. As a result of the sale to A, Bs share of partnership interests decreased to 43.47% and B became a limited partner. C sold its .5% limited partnership interest to D, a third party not controlled by A or B. To help finance Ds acquisition from C, the partnership made a distribution to D equal to .5% partnership capital, with the requirement that Ds .5% share of future profits would be used first to replenish Ds capital account up to the .5% level, before being distributed out of the partnership to D.
A now intends to acquire Bs 43.47% interest, thus increasing As partnership interests to 99.5%. A has an option to acquire the remaining .5% interest from D in two years.
The question I raised was whether As proposed acquisition of 99.5% of the partnership interests would result in a reportable acquisition of the underlying partnership assets, or whether, instead, there would be no reportable acquisition until or unless A acquired the remaining .5% interest. You indicated that As acquisition of the 99.5% interest would not be reportable. You also advised that if A were subsequently to acquire the remaining .5% interest, an HSR filing would be required at that time.
As we discussed, your advice is supported by both Interpretation 93 of the ABAs Premerger Notification Practice Manual (1991) and the Commissions Statement of Basis and Purpose accompanying the partnership control regulations, 52 Fed. Reg. 20058 (may 29, 1987. As the Manual states (at 71):
[A}n acquisition of less than all of the interests in a partnership is not a reportable event. The reason is that the transfer of less than 100 percent of a partnerships interests in not regarded as an acquisition of an asset or voting security within the meaning of the rules.
* * *
This position is almost as old as the rules themselves. The Commission might have regarded partnership interests as assets, but potentially reportable upon their transfer, but the staff chose not to do so.
Similarly, the Commissions Statement of Basis and Purpose to amended rule 801.1(b) states that while consideration has been given to a different rule, acquisitions of less than 100% of a partnership remain nonreportable:
[T]he Commission is considering whether, in light of its adoption of the partnership control rule, it should also revise its rules to require reporting the acquisition of control of a partnership. Currently, the staff interpretation makes acquisition of less than a 100% interest in a partnership not reportable, because a partnership interest is deemed to be neither a voting security nor an asset.
52 Fed. Reg. at 20061
If the above does not accurately reflect the advice you provided that As proposed acquisition of 99.5% of the interests in the partnership described above would not be reportable under Hart-Scott, please call me immediately.
As always, I thank you very much for your time and most helpful assistance.
Very truly yours,
(redacted)