Question
August 18, 1995
VIA FACSIMILE
Premerger Notification Office
Bureau of Competition
Federal Trade Commission
600 Pennsylvania Avenue, NW, Room 303
Washington, D.C. 20580
Attention: Mr. Richard Smith
Re: Three party asset transaction
Dear Mr. Smith:
Our firm represents a party in a transaction that was recently discussed with you by (redacted) and (redacted) at (redacted). Our analysis of the filing requirements differs slightly from theirs, and I would appreciate the opportunity to discuss the issues with you.
Our client A has entered into a definitive agreement with (redacted) client B, to acquire more than $50 million assets of B. A is a $100 million person and B is a $10 million person. The acquisition agreement contains the following provision:
This Agreement may be assigned, in whole or in part, by [A] without the prior written consent of [B] without the prior written consent of [B] in accordance with the terms and conditions set forth in the Agreement attached as Exhibit 9 (the Assignment Agreement); provided, however, in no event shall any assignment by [A] . . . release [A] from its liabilities and obligations hereunder; provided, further, however, that no such assignment shall be effective until the closing; provided, further, however, that the Assignment Agreement is strictly between [A] and the assignees named therein, and [B] shall have no liability or obligations under and shall not otherwise be bound by any of the provisions of the Assignment Agreement. If all or a portion of this Agreement is assigned by [A], [A] shall notify [B] of such assignment in writing and shall specify which of the [assets] is being purchased by an assignee, whereupon the assignee or assignees shall succeed to [A]s rights under the Agreement to purchase those (assets) as may be designated by such assignment.
(italics mine). Although the first italicized phrase denies privity between B and the assignee, the second arguably may create it.
Pursuant to the above provision, our client A has now entered into a definitive agreement with C whereby C has agreed to acquire more than $15 million of the B assets. B has been notified of As assignment to C of As purchase rights as to those assets. C is not related to A or B, and we assume it is at least a $10 million person. Virtually all of the assets of B are within a single SIC Code.
Here is our analysis of the filing requirements:
1. A must file and wait with respect to its acquisition of more than $50 million of assets of B (and B files as the acquired person). Although A does not expect to buy all of those assets, in order to be in a position to fulfill its agreement with B. A must with respect to the whole bundle in the event C defaults, goes out of business or some other unforeseen circumstance occurs.
2. If C is a $100 million person, C must file and wait with respect to its acquisition of more than $15 million of assets of B (and B files as the acquired person).
3. If C is not a $100 million person, then C and B need not file and wait, since neither of them is a $100 million person.
Whether as a technical matter there is privity of contract between B and C seems to be irrelevant. Absent an exemption, the Hart-Scott-Rodino Act prohibits a person engaged in interstate commerce who is sufficiently large from acquiring more than $15 million of assets of another large person unless both the acquiring person and the acquired person file and wait. In the transaction where C is the acquiring person, B should be the acquired person under Rule 801.2(b), since it is the entity whose assets are being acquired (and it will have the relevant information on dollar revenues and geographic markets). The only thing that C is acquiring from A is an assignment of a purchase right, which is for nominal consideration (if any). Assuming C fulfills its contractual obligations, A will not at any time have title (transitory or otherwise) to the assets of B to be acquired by C.
As to the manner in which C and B should respond to item 2(d) of the notification and report form, I assume B can furnish its contract with A (since that is the document that describes the assets that C will acquire), and perhaps can furnish the notice from A that specifies the assets that C will acquire. In its filing, C can furnish its agreement with A and the contract between A and B (to which it will succeed, in part, as of the closing).
We understand (redacted) has suggested that the second transaction should be (redacted) an acquisition between A and C, since B and C have never had face-to-face negotiations, and probably never will have them. All negotiations with C were conducted by A, which had the contractual power to acquire the assets of B. Even so, our reading of the Hart-Scott-Rodino Act and Rule 801.2 leads us to believe that under the circumstances (if B and C are large enough) the Act and Rules require filings by parties who in effect are strangers to each other.
I would greatly appreciate the opportunity to discuss this transaction with you when you have a free moment (and I can arrange for someone (redacted) to participate as well. My direct number is (redacted). Thank you.
Very truly yours,
(redacted)
cc: (redacted)