Question
December 9, 2003
VIAFACSIMILE and REGULAR MAIL
Mr. B. Michael Verne
Federal Trade Commission
Premerger Notification Office
600 Pennsylvania Avenue, N.W.
Washington, D.C. 20580
Re: OrdinaryCourse Of Business Exemption
DearMike:
Thisletter follows up on our discussion on. Friday, December 5, 2003relating to a proposed acquisition of a group of energy contracts. During ourcall, we concluded that the acquisition described below would be exempt underthe ordinary course of business exemption. Based on our discussion last weekand the analysis set forth below, the parties intend to complete thetransaction without making are H-S-R filing. Please advise me as soon aspossible if you lave any questions regarding the analysis set forth below, orif you believe a filing is required under the .facts described in this letter.
Facts
Acquirorexpects to purchase a portfolio of power contracts from Seller. Acquiror is amarketer and dealer of wholesale power, the commodity involved its thistransaction. It engages in a variety of wholesale power transactions, includingfull supply requirements contracts and long term purchases and sales, amongothers. Acquiror has a staff of employees dedicated to the marketing, tradingand the operational aspects of wholesale power transactions. Most frequently,Acquiror enters into new power contracts, but sometimes it acquires existingcontracts, such as contemplated in this transaction.
Selleris an integrated power firm that produces power and has contracts to sell powerto utilities or other power purchasers. Seller has a subsidiary ("TradingSub") whose business has been focused on merchant trading of energycontracts (similar to Acquiror's business). Acquiror and Seller anticipate thatTrading Sub will sell to Acquiror a portfolio of power contracts that have beenselected from the Trading Sub's two "books" of contracts (East Bookand West Book). Acquiror will not hire Trading Sub's employees or acquireassets other than the designated contracts (which will need to be novated orassigned to the Acquiror) and related books and records. The contracts TradingSub will sell to Acquiror constitute the vast bulk of Trading Sub's powercontracts. The power contracts currently held by Trading Sub that are not beingsold to Acquiror will either be sold to one or more third parties, oz will betransferred to Seller or another of its subsidiaries to hold until their termsexpire.1 Seller will continue to operate as an integrated utility,and in that role expects to continue to enter into contracts for the purchaseand sale of power. However, Seller does not intend to operate as a"merchant trader" of power contracts, which has been the business ofTrading Sub, and Trading Sub will cease operations after the contracts are soldto Acquiror and any remaining contracts it holds are sold to one or more thirdparties or transferred to another subsidiary of Seller.
HSRAnalysis
As wediscussed last week, under the facts described above concurred that Acquiror'sacquisition of. contracts constituting the majority of (redacted) power contractswould be exempt as a transaction in the ordinary course o business. See15 U.S.C. 18a(c)(1) (exempting from filing "acquisitions of goods orrealty transferred in the ordinary course of business.") We concluded onour call that the exemption would apply to Acquiror's acquisition of contractsfrom Trading Sub because the Acquiror's business involves trading wholesalepower. In addition, Acquiror will not be acquiring all of Trading Sub'scontracts, nor will it be acquiring employees or other business operations.
Asalways, we very much appreciate your assistance in this matter.
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