Question
(redacted)
August 30, 1996
VIA FACSIMILE AND US MAIL
Premerger Notification Office
Bureau of Competition
Federal Trade Commission
600 Pennsylvania Avenue, NW, Room 303
Washington, D.C. 20580
Re:
Dear Ms. Villavicencio:
I am writing to memorialize the advice you provided during our telephone conversation on Monday, August 26, 1996, concerning the appropriate analysis under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the Act) and regulations promulgated thereunder in connection with the formation of a limited liability company (the LLC). In discussing the transaction outlined below, I ask you to assume that all applicable size tests were met.
Facts:
In the proposed transaction, two corporations (Corporation A and Corporation B, respectively) will contribute assets to the LLC, and will receive equal LLC ownership interests therefor, in connection with the formation of the LLC. Corporation A will contribute non-cash assets with a value of $X to the LLC. Corporation B will contribute cash in the amount of $Y to the LLC. So as to achieve an equal ownership between Corporation A and Corporation B in the formation of the LLC, the LLC will make an equalization payment to Corporation A in an amount equal to the difference between the value of assets contributed by Corporation A and the amount of cash contributed by Corporation B (i.e., $X minus $Y). [BUT WILL NOT EXCEED $X. THE EQUALIZATION PAYMENT DOES NOT CONSTITUTE A TRANSFER OF ASSETS OR VOTING STOCK] The difference between $X and $Y may exceed $Y. The equalization payment to Corporation A will be made from (i) the cash contributed to the LLC by Corporation B, (ii) cash from a loan by Corporation B to the LLC, or (iii) a combination of both (i) and (ii) above. The governing body of the LLC will be a board of managers consisting of representatives of Corporation A and Corporation B who are employees, officers or directors of the corporations.
Analysis:
During our conversation, you advised me that the formation of such an LLC, including the contribution of the assets by Corporation A and Corporation B, would not be subject to the Acts reporting requirements because the ownership interests in the LLC would not be deemed to constitute voting securities. However, you indicated that if Corporation A or Corporation B appointed an outsider (i.e., a person who is not an employee) to the LLCs managing board, then the LLC formation transaction would be reportable under the provisions of the Act relating to the formation of a joint venture corporation. You further advised me that the payment to Corporation A by the LLC would constitute an equalization payment in connection with the LLCS formation and, as such, would not constitute a reportable distribution or be deemed a payment in connection with an acquisition by the LLC.
If this letter does no accurately describe the advice you provided during our conversation, please call me as soon as possible. Thank you for your time and assistance in this matter.
Very truly yours,
(Redacted)
[(ILLEGIBLE)]
cc: (redacted)