Question
May 5, 2004
HAND DELIVERY
Mr. Michael Verve
Compliance Specialist
Premerger Notification Office
Bureau of Competition
Federal Trade Commission
Washington, DC 20580
Re:Incentive Payment to Certain Shareholders Not Treated as Consideration forCompany Assets
DearMr. Verne
This is to confirm my telephone conversation with you onMarch 30, 2004, in which you agreed that a cash payment from a third person tocertain shareholders of a target corporate entity would not constituteadditional consideration for the purchase by one corporate entity of the assetsof the target corporate entity.
FACTS:
Company Aintends to acquire assets from Company B (the "ProposedTransaction"). Company A and Company B have some common shareholders, noneof which control either company for HSR purposes. However, one group ofshareholders of Company B who are members of a single family (the "RelatedShareholders") can prevent the sale of the subject assets based on theirfifty percent aggregate ownership of Company B.
Company Aand Company X have common shareholders who in the aggregate own more than fiftypercent of then voting stock in each company. Company X intends to make a cashpayment to some of the Related Shareholders to induce them to agree to the saleof Company B's assets. The form of the inducement will be a contact to provideconsulting services to Company X. Company X has valid business reasons formaking the inducement payment, because Company X believes that the ProposedTransaction will enhance the business of Company X and therefore, will benefitthe shareholders of Company X.
ANALYSISAND CONCLUSION:
Company Aand Company B are their own ultimate parent entities because no singleshareholder holds' fifty percent (or more) of the voting stock nor does anysingle shareholder have a contractual right to appoint fifty percent (or more)of either entities' board of directors. The value of a transaction betweenCompany A and Company B would include the payment of monies to Company B forthe subject assets. However, the value of such transaction would not includethe cash Payment from Company X to the Related Shareholders. This is truebecause Company A and Company X are separate persons under the HSR rules ofpractice. Thus, the payment by Company X to the Related Shareholders is notadditional consideration for the assets that Company A acquires from Company B.
If youwish to discuss the matter further, please telephone me at (redacted). Thankyou for your time band consideration in this matter.