Question
April 27, 1995
VIA FACSIMILE AND CERTIFIED MAIL
Premerger Notification Office
Bureau of Competition
Federal Trade Commission
600 Pennsylvania Avenue, NW, Room 303
Washing ton, D.C. 20580
Attn: Tom Hancock, Esq.
Re: Request for Informal Interpretation
Dear Mr. Hancock:
This letter will confirm the telephonic responses that we received from you yesterday with respect to our telephonic request for informal interpretations of the application of the concept of control as defined at 16 C.F.R. 801.1(b) of the Federal Trade Commissions premerger notification rules (the Rules) implementing the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (HSR).
As a factual matter, (redacted) and I informed you that we are representing a foreign limited partnership (the Partnership) in the sale of its assets. As a preliminary legal matter, we confirmed with you our understanding that the question of whether the Partnership is controlled by another entity for purposes of an HSR notification is governed exclusively by 16 C.F.R. 801.1(b)(1)(ii), which in application provides that another entity will be deemed to control the Partnership if that entity either (1) has the right in the event of dissolution of the Partnership to 50 percent or more of the Partnerships assets. We then informed you as a factual matter that there is a foreign company (the Company) which presently holds an interest in the Partnership above 50 percent (the Partnership Interest), which entitles the Company to receive profits and assets on dissolution in the same percentage. We then asked the following two questions:
Question One
The Company holds the Partnership Interest solely as a nominee of a number of investors and investment funds, none of which independently has the right to receive 50 percent or more of the profits or assets on dissolution of the Partnership. The Company is required by law to divide and distribute all distributions of profits that it receives from the Partnership immediately to each of its investors in accordance with their respective interests, and would be required to hold any assets distributed by the Partnership on dissolution in trust for the investors. The economic reality is that the Company holds the Partnership Interest in street name on behalf of the investors, who are the beneficial owners of the Partnership Interest. Although the Company may hold a bare legal interest in the Partnership, it has no right to retain any distributions of profits or assets received from the Partnership.
QUESTION: Does the Company control the Partnership for purposes of an HSR notification?
RESPONSE: You responded that, for HSR purposes, the Company holds the Partnership Interest as an agent of the investors, and that the Company would not be deemed to control the Partnership under the Rules.
Question Two:
We informed you that there is a warrant agreement (the Warrant) that gives third parties the right to purchase an interest in the Partnership, and that the Warrant is freely exercisable at any time. If the Warrant were exercised, the Companys interest in the Partnership would be diluted such that it would have the right to less than 50 percent of the profits and assets on dissolution of the Partnership. It is probable that the Warrant will be exercised at or immediately prior to the consummation of the sale of the Partnerships assets.
QUESTION:Can control of the Partnership for HSR notification purposes be determined on a fully diluted basis as if the Warrant had been exercised?
RESPONSE: You responded that the relevant time for purposes of determining control under the Rules is the consummation of the acquisition. Therefore, if, as of the date of filing of the HSR notification form, the Warrant will definitely be exercised at or before the consummation of the acquisition, then control can be determined on a fully diluted basis (i.e., as if the Warrant had been exercised). If, however as of the date of filing of the HSR notification, the Warrant will not definitely be exercised at or before the consummation of the acquisition, then control cannot be determined on a fully diluted basis.
Please contact the undersigned as soon as possible if you believe that any of the foregoing does not accurately reflect the interpretations that we requested or that you provided. If we do not hear from you, we will assume that the foregoing is accurate.
Thank you very much for your assistance.
Sincerely yours,
(redacted)
cc: (redacted)