Question
September 15, 1992
BY OVERNIGHT COURIER
John M. Sipple, Esquire
Chief, Premerger Notification Office
Bureau of Competition
Federal Trade Commission
Room 303
6th and Pennsylvania Ave., N.W.
Washington, D.C. 20580
Re: Hart-Scott-Rodino Act Interpretation
Dear Mr. Sipple:
Thank you for your assistance in our phone conversation yesterday in providing the Premerger Offices position regarding the Hart-Scott-Rodino Act (HSR) and the Commissions implementing rules (Rules). I am writing to confirm my understanding of that position, and to provide further details of the facts involved in the transactions that generated by inquiries.
TRANSACTIONS BACKGROUND
(Redacted) is contemplating increasing, through a series of acquisitions, its interests in three separate partnerships in which (redacted) currently is a partner. The partnerships operate the same line of business, but in different geographic areas within the same state. A wholly-owned (redacted) subsidiary will make the acquisitions.
One of the proposed transactions poses the question of the appropriate treatment under HSR of the acquisition of multiple partnership interests that result in the acquiring firm holding 100% of the partnerships interests. If the transaction itself otherwise is reportable, (redacted) must resolve whether it should file as both an acquiring and acquired person, or simply as the former.
Most of the numerous interests to be acquired are partnership interests. However, some interests will be acquired through (redacted) purchase of 100% of the voting securities of subsidiaries of three unaffiliated entities, which in turn hold the partnership interests to be transferred to (redacted). These three corporate entities whose stock (redacted) will acquire own no assets other than the partnership interests, and control no other entities.
In two partnerships, after the acquisitions (redacted) will continue to hold less than 100% of the partnership interests. Some selling entities hold interests in two or all of the three partnerships.
In a third partnership involved, (redacted) is the general partner and in a series of transactions will increase its interest from approximately 70% to 100% (100% Partnership). (Redacted) will do so by purchasing partnership interests held by five separate entities, and by purchasing all of the voting securities of a sixth entity that is the remaining partner (Stock Partner). The Stock Partner also owns a partnership interest in the other two partnerships mentioned above. Accordingly (redacted) purchase of 100% of the Stock Partners securities also will result in (redacted) acquiring interests in those two partnerships as well. The Stock Partner has no assets other than these three partnership interests.
It is unclear at present whether the fair market value (FMV) of the total assets of the 100% Partnership will exceed $15 Million. It is possible that FMV may be under $15 Million, presuming the purchase price paid for the additional 30% interest is an accurate guage [sic]. At closing, (redacted) also may assume responsibility for certain capital calls, issued but unpaid, for which the selling partnership otherwise would be liable to the partnership.
(Redacted) will acquire the Stock Partners voting securities for approximately $4-5 Million. (Redacted) will acquire the other issuers stock for well under $5 Million. The Stock Partner and the other two issuers of the voting securities to be acquired each have annual net sales and total assets of less than $25 Million.
PREMERGER OFFICE INTERPRETATION
I understand that, as the Premerger Office interprets the HSR Act and the Rules, the acquisition of a partnership interest ordinarily is not a reportable event. The sole exception exists where as in the 100% Partnership here as a result of the acquisition the acquiring person will hold 100% of the partnership interests. In that event, the acquiring person is deemed to have acquired 100% of the partnerships assets. Further, it is your interpretation that in this situation the 100% Partnership itself and not any of the selling partners is the acquired person for HSR purposes.
Under the Rules, (redacted) must value the 100% Partnerships total assets (not net of liabilities) to ascertain whether the acquisition meets the HSR Size-of-Transaction test. If the FMV of those assets is greater than $15 Million, the transaction would meet that filing criterion. If the purchase price of the acquired interest is used to determine FMV of the 100% Partnerships assets, that price should include all other non-cash consideration (redacted) pays. This would include liabilities of the selling partners that (redacted) assumes. If the issued but unpaid capital call constitutes such a liability of the selling partners, (redacted) must include it (as part of the consideration paid for the partnership interests acquired) in determining FMV of the 100% Partnerships assets.
However, it is your interpretation of th HSR Act and the Rules that, unless (redacted) purchae of the voring securities from the Stock Partner itself is independently reportable, (redacted) need not aggregate the stock to be acquired from the Stock Partner together with the FMV of the 100% Partnership assets in considering whether the Size-of-Transaction test is met.
As indicated above (redacted) the acquiring person also is a current partner holding more than a 50% interest in the 100% Partnership. Under the Rules, this means that (redacted) controls the 100% Partnership for HSR purposes. In a transaction of the type I have described, it is your Offices interpretation that (redacted) is both the acquiring person and the acquired person. As such, only (redacted) need make an HSR filing if the series of transactions otherwise is reportable. Again, because none of the selling partners are acquired persons, they need not submit a filing even if the acquisitions are otherwise reportable.
Finally, applying your Offices interpretations and the Rules to the assumed facts, (redacted) acquisitions involving the other two partnerships would not be the Size-of-Transaction test under the Act and Rules for at least two reasons. First (redacted) is acquiring neither $15 Million in voting securities, nor a controlling share of stock in an entity with annual net sales or total assets of $25 Million or more. Second, acquiring partnership interests that result in less than 100% interest is not a reportable event.
If the transaction proceeds (redacted) desires to make any required filing in the very near future. I therefore am requesting yet another courtesy: I would greatly appreciate your calling me directly at (redacted) to confirm that my understanding of our Offices interpretation of the HSR Act and the Rules is correct.
Again, I am grateful for your assistance in helping (redacted) assure that it is in full compliance with all applicable premerger reporting obligations.
Sincerely,
(redacted)
cc: (redacted)