Question
From: (redacted)
Sent: Tuesday, January 20, 2004 4:32 PM
To: Verne Michael
Subject: HSRQUESTION
Mike:
Please look over the attachedscenario and call me with your thoughts or, if you agree that no filing isrequired, a simple e-mail reply to that effect will be fine.
HSR QUESTION
Facts:
Thetarget (Company A) is a corporation owned by individuals P1, P2 and P3.
Thebuyers are P3, P4 and an unrelated corporation (Company B).
Thenew securities of Company A will be issued in units consisting of 1 share ofnon-voting, non-convertible preferred stock and 1 share of voting common stock("Units").
Transaction(all happening simultaneously):
- CompanyA borrows $15M from an unrelated bank.
- CompanyA redeems all of the common stock shares held by P 1 and P2 and a portion ofthe common stock shares held by P3 for cash.
- CompanyA redeems the remaining shares of common stock held by P3 for Unitsrepresenting a 10% interest in Company A valued at $8M.
- CompanyB pays $65M to Company A in exchange for Units representing a 80% interest inCompany A.
- P4 pays$8M to Company A in exchange for Units representing a 10% interest in CompanyA.
- WhileCompany A's relative control of the voting stock would enable it to elect amajority of Company A's directors, Company B, P3 and P4 enter into ashareholders agreement pursuant to which Company B will have the right toselect a majority of Company A's directors.
Based on the liquidationpreference and dividend rate on the preferred shares, nearly all of Company B's$65M purchase price is being attributed to the preferred shares and very littleis being attributed to the common shares. Therefore, Company B will holdsubstantially less than $50M of common stock.
No one is acquiring common sharesin Company A other than as part of the Units, so there is no independent basisfor ascribing a particular value to the common shares.
The redemption price of theexisting Company A common shares is not relevant to the value of the new sharesbecause the capital structure (debt, preferred stock and common stock) thatresults from the transaction is inherently and materially different from thestructure in place prior to the transaction.
Question: Do those facts support a conclusion that Company B willhold less than $50M of voting securities, making the transaction unreportable?