Question
November 21, 2003
ByElectronic Mail
Mr.B. Michael Verne
Premerger Notification Office
Bureau of Competition
Federal Trade Commission
600 Pennsylvania Avenue, NW
Washington, DC 20580
Re:Premerger Notification Analysis
DearMr. Verne:
Thisletter seeks to confirm our telephone conversation of November 17, 2003 with (redacted)and (redacted) concerning the non-reportability under the Hart-Scott-RodinoAntitrust Improvements ACT of 1976, 15 U.S.C. 18a ("HSR Act"),and applicable regulations of a multi-faceted transaction that is intended tocreate a joint venture.
Party A and Party B(collectively, the "Parties") have signed a letter of intent ("LOI")pursuant to which a joint venture, consisting of three newly-created legalentities, will be formed. These entities, a Delaware General Partnership (the"GP"), a Netherlands BV (the "BV"), and a Limited Liability Company tobe formed in the United States (the "LLC"), are discussed separately below.
The Parties willcontribute various entities doing business in the United States, Canada, Australia and Japan to the GP. Underthe Premerger Notification Office's ("PNO") longstandinginterpretation of the HSR Act, the creation of the GP is not a reportableevent.
The Parties willcontribute to the BV various entities doing business in countries other thanthose identified in the previous paragraph. You have previously advised us thatthe formation of a BV is potentially reportable under 16 C.F.R. 801.40,unless one of the exemptions contained in 16 C.F.R. 802.51 isapplicable. We have determined that the exemption in 16 C.F.R. 802.51(b)applies because sales made in or into the United States in each of the Parties'most recent fiscal years by the entities to be contributed to the BV are, inthe aggregate, well under US$50 million. Furthermore, we have determined thatit is unlikely that the entities to be contributed to the BV will haveaggregate sales in or into the United States in excess of US$50 million in each of the Parties' currentfiscal years. In this regard, monies collected from foreign entities by anentity acting as a collection agent in the United States, which then transfersthe monies to the same or other foreign entities, are not considered to besales "in or into" the United States. In addition, in neither thecurrent nor the most recent fiscal year do the entities being contributed tothe BV have aggregate total assets in the United States in excess of US$50 million.Accordingly, as the ultimate parent entities of each of the Parties are bothforeign persons, the formation of the BV is exempted from therequirements of the HSR Act by 16 C.F.R. 802.51(b).
The Parties are formingthe LLC to provide certain centralized management functions to the GP, the BV,and any other entities that are created in connection with the formation ofthe joint venture pursuant to the LOI. The Parties will contribute to the LLCthe employment contracts of certain of their officers who will manage the jointventure entities. These will include the contracts of senior executives andother personnel who perform administrative functions that are most economicallyprovided to the joint venture on a centralized basis. We understand from ourconversation that the formation of the LLC would not be reportable for tworeasons.
First, such contributionswould not be viewed by the PNO as the contribution of "two or morepre-existing, separately controlled businesses" under the PNO's FormalInterpretation 15. Since the LLC would provide management and administrativesupport services that were previously performed in-house and were not (and willnot be) made available to third parties; the contributed contracts would notconstitute business units under 16 C.F.R. 802.1(a). Second, since theLLC is simply assuming the liabilities and benefits of existing employmentagreements and is not paying to acquire them, the contracts would be valued atzero for purposes of the HSR Act and would not approach the Act's $50 millionsize of transaction test.
I would be grateful ifyou would contact me at the above phone number or e-mail address if thisanalysis is erroneous in any respect.