Question
From: (redacted)
Sent: Wednesday, October 22, 2003 7:21 PM
To: Verne, Michael
Subject: reportabilityquestion
Mike:
Hope you-can help out with this
Facts:
1. A new corporation("Newco") will be formed with three otherwise unaffiliatedshareholders to acquire the stock of Target.
2. A will contribute $18M in cashfor approx. 47% of Newco's stock.
3. B will contribute $12M in cashfor approx. 32% of Newco's stock
4. C will contribute $8M in Targetstock for approx. 21 % of Newco's stock.
5. None of A, B or C will have thepower to appoint a majority of Newco's directors.
6. Newco will borrow $20M from anunrelated bank.
7. The $30M of contributed cashand the $20M of loan proceeds will be used to acquire the rest of the Targetstock in a merger of Target with a shell subsidiary of Newco.
8. The only $100M person in thetransaction is A.
My take is as follows:
1. The formation of Newco is notreportable because no one will hold $50M or more of Newco stock.
2. The acquisition of Target byNewco will only be reportable if A is Newco's UPE (if Newco is its own UPE,there is no $100M party to the transaction). The only way to reach that resultis to analyze Newco after A and B have made their contributions but before Cbecomes a shareholder of Newco, which would make no sense because the capitalcontributions by A, B and C, the bank financing, the merger and the cash-out ofthe Target shares will all happen simultaneously.
Does that hold up? I couldn't findany guidance on how (or when) one determines who holds the voting securities ofa corporation being formed for the purpose of making an acquisition.
Please call me if you have anyquestions or need more info.