Question
VIA HAND DELIVERY
Mr. Patrick Sharpe
Compliance Specialist
Federal Trade Commission
Bureau of Competition
Pre-Merger Notification Office
Room 301
6th and Pennsylvania Aves., N.W.
Washington, DC 20580
Dear Patrick:
This is to confirm our telephone conversation on Friday May 13, 1994. The facts are as follows:
Company B currently has a wholly owned subsidiary, Target, which it intends to sell (in a voting securities transaction) to Company A for $7.325 million in cash. Assume for these purposes that Company B and the entities it controls have gross assets or net sales of $100 million or more and Target has net sales of $25 million or more. Company A is a newly formed company which is not controlled by any person. It currently has no assets and has no income. There is no regularly prepared annual statement or balance sheet for Company A. Sometime prior to the consummation of this transaction, the shareholders of Company A will raise $17.5 million in capital to fund the company. 1 At closing, in addition to paying Company
B $7.325 million in return for the voting securities of Target, Company A will pay the following: (1) Target’s lender approximately $450,000 as a one-time fee as a condition of the refinancing of the loan under Company A’s ownership of Target; (2) a “finder’s fee in the amount of $525,000 to the individual who acted as the intermediary for bringing Company B and Company A together for this transaction; and (3) accountants and lawyers fees which will be in excess of $200,000.
STAFF COMMENT TO (1): ? No comment
STAFF COMMENT TO (2): OK - Axinn Fogg at 5-38
Under 16 C.F.R. § 801.11(e), the total assets of a person that does not have a regularly prepared balance sheet is calculated by the assets held by the acquiring person at the time of the acquisition, less all cash that will be used by the acquiring party as consideration in an acquisition of voting securitiers [sic], and less all cash that will be used for expenses incidental to the acquisition. Based on our telephone conversation, it is my understanding that the payments delineated above would be deducted from the initial capitalization of Company A, rendering it with only $9 million of assets for Hart-Scott-Rodino purposes. Accordingly, it is my understanding that no filing need be made under the Hart-Scott-Rodino Antitrust Improvements Act in connection with the purchase of Target by Company A.
STAFF COMMENT TO (3): OK - letter # 169 ABA Manual concurs with this
Please let me know as soon as possible whether I have in anyway [sic] misunderstood the position of the FTC Premerger Notification Office staff. As always, I appreciate you [sic] assistance in this matter. Best regards.
Sincerely,
(redacted)
STAFF COMMENTS: The PMN is not sure about fee (1). However, it is unnecessary to make that determination for this scenario since either of fees (2) & (3) will make A less than a $10.0 MM person. I concur with this letter with exceptions noted. PS
RS concurs. Called (redacted) 5-19-94
There are two shareholders of Newco, Individual A and Individual B, who may have netassets in excess of $100 million and who will receive approximately 15% and 20% of the votingsecurities of Newco for capital contributions of $3.5 million and $3 million respectively. As wediscussed, since neither Individual A norIndividual B will have control of Newco andNewco does not have any net sales or assetsprior to this formation, the formation ofNewco is not a reportable event for eitherIndividual A or Individual B under 16 C.F.R. § 802.20 even though Newco meets the size of theparties test for purposes of 16 C.F.R. § 801.40. The advice given in ABA Interpretation No. 198is still the interpretation followed by the Premerger Notification Office Staff.