Question
April 12, 2004
B MichaelVerne, Esq.
Federal Trade Commission
Premerger Notification Office
Bureau of Competition, Room 303
6th Street and Pennsylvania Avenue N.W.
Washington, DC 20508
DearMike:
I write to confirm the oral advice you gave to me in telephone conversationson April 1, 2004 and April 12, 2004. In the first conversation 1 explained that ourclient "Company B") plans to acquire a contract for the constructionof a vessel to be used in the shipping trade. The vessel does notrepresent all or substantially all of the assets of the acquired person("Company A"). A special purpose LLC within Company A holds theconstruction contract and conducts activities related to completing theconstruction (financing activities, etc.). Aside from relatively minor assetsancillary to the construction, it is our understanding that the contractrepresents all or substantially all of the assets of the special purpose LLC,and you should assume so for purposes of your analysis. I asked whether thePremerger Notification Office ("PNO") would consider the acquisitionto be exempt as the acquisition of goods in the ordinary course of businessunder 7A(c)(1) of the Clayton Act and 16 C.F.R. 802.1.
We discussed whether the vessel would be considered an"operating unit" that removes the acquisition from the scope of theexemption. t highlighted the examples in the Rules that assume withoutdiscussion that a vessel such as a cruise ship is not an "operatingunit." Id. at ex. 7 (sate of anise ship by cruise ship operator; exemptionapplies); ex. 8 (sale of fleet of six passenger cruise ships by luxury cruiseship operator; exemption applies). You stated that the PNO's position has beenthat vessels are not considered operating units for purposes of the exemption.You also stated that the PNO takes the position that the placement of assetswithin a special-purpose LLC does not render them assets "operated . . .as a business undertaking in a particular location or for particular productsor services . . ." so that the exemption. does not apply, even if theassets are the only ones held by the special-purpose LLC, Cf. 802.1(a}. You stated that, under these facts, the vessel would not beconsidered an operating unit.
Althoughwe did not discuss it explicitly, eve ask that you confirm that the acquisitionof a vessel tinder construction is the acquisition of a new good within themeaning of 16 C.F.R.
802.1(b).Example 2 to that exemption concerns the acquisition of new engine componentsto be used in the manufacture of airplane engines, which the example finds tobe the acquisition of new goods. Similarly, the acquisition of a vessel underconstruction can only be considered the acquisition of a new good, as long asit does not constitute an operating unit. Please confirm whether you agree withthis analysis.
In asecond call held today with (redacted) Esq. of (redacted) we asked you whether,in the PNO's view, B's acquisition of a contract for the completion of anexempt asset (in this case, a new vessel) is a potentially reportableacquisition. In our view, if the contract to be acquired is for the acquisitionof an exempt asset, thin the acquisition of the contract likewise should beexempt. To decide otherwise would draw a distinction with no competitivesignificance between the direct acquisition of a completed exempt asset and theacquisition of a contract to obtain the exempt asset. In addition, we drew yourattention to ABA Interpretation No. 103, which states that, in the context of areal property lease, if the real property subject to the lease would be exemptfrom acquisition, then an acquisition of the lease interest also is exempt andnot valued, even if a premium is paid. In our view, this interpretationimplicitly recognizes that a lease interest has no competitive significanceapart from that of the asset leased. By analogy, the acquisition of a contractright for construction of an exempt asset has no competitive significance apartfrom that of the asset being constructed, coven if the purchaser will pay apremium in excess of $50 million to acquire that right. If the acquisition ofthe completed asset would tie exempt, so should the acquisition of the contractto complete construction of the asset. You confirmed that this analysis wascorrect and that B's acquisition of a contract for the construction of avessel, even for a substantial premium, would not rewire a filing underthe HSR Act.
Thankyou for your consideration of these issues, Mike. Please call me at (redacted)to confirm or correct my description of our teleconferences and also to eon.firm or correct my conclusion that the acquisition of a vessel under constructionis the acquisition of a "new good."