Question
DRAFT
November , 1995
Richard B. Smith, Esq
Premerger Notification Office
Bureau of Competition
Federal Trade Commission
600 Pennsylvania Avenue, NW, Room 303
Washing ton, D.C. 20580
Dear Mr. Smith:
I am writing to confirm our telephone conversation of November 13, 1995, in which you gave your informal opinion that, under the circumstances described below, a transaction would not be reportable under the Hart-Scott-Rodino Antitrust Improvements Act:
Seller manufactures widgets and sells the widgets through a number of distribution channels. Buyer and Sellers subsidiary compete in the sale of widgets through one such channel, which is seasonal. Seller has over $100 million in assets/sales and Buyer has over $10 million in assets/sales. Buyer ordinarily purchases approximately $2-3 million in widgets from Seller in the ordinary course of business each year.
Buyer will acquire, at a purchase price of $12.1 million, all the assets of Sellers subsidiary except for inventory (valued at approximately $6.2 million), accounts receivable (valued at approximately $1.4 million), and certain raw materials (valued at approximately $0.3 million). Buyer will assume obligations and liabilities of Sellers subsidiary relating to the purchased assets (most likely about $0.3 million, but less than $0.7 million).
After the aforementioned sale of the assets of its subsidiary, Seller would continue to manufacture widgets, but Sellers subsidiary would no longer remain in the business of seasonal widget sales. The unsold inventory of Sellers subsidiary would continue to be stored at the Buyers warehouse (formerly, the Sellers subsidiarys warehouse) for a period of up to seven months (i.e., until the end of the current widget-selling season). During this period, Sellers subsidiary would retain title to the $6.2 million inventory, and would have the right to sell the inventory to any person at any time. Under the terms of the asset sale, Buyer would have the right (but not any obligation) to purchase any or all of the unsold inventory from Sellers subsidiary on an as needed basis on customary terms, without discount. In addition to any purchases of such inventory that Buyer may make on an as needed basis, Buyer would be obligated to purchase (at Sellers cost) $2 million of this inventory at the end of the seven month
*STAFF COMMENT: Of less than 2, then buy whats left. 11/14 - DLW
widget-selling season. (This $2 million obligation was the result of negotiations between Buyer and Sellers subsidiary as to the amount of inventory that Buyer would be required to purchase from Sellers subsidiary.) Seller would then sell, destroy, remove any unsold inventory from the warehouse prior to the commencement of the next selling season.
Buyer and Seller would also enter into a 5-year widget supply contract, commencing at the beginning of the next selling season; this 5-year contract would increase the number of widgets purchased by Buyer from Seller, in exchange for certain price discounts.
If the foregoing does not accurately reflect our conversation and your informal opinion, please do not hesitate to call me (redacted). Thank you very much.
Sincerely,
(redacted)
cc: (redacted)