Question
June 16, 2004
VIA FACSIMILE
PreMerger Notification Office
Bureau of Competition
Federal Trade Commission
Room 303
600 Pennsylvania Ave., N.W,
Washington, DC 20580
Ph: (202) 326-3100
Fax: (202) 326-2624
Attention: James Ferkingstad,
Re: Confirmation of Informal Advice on Hypothetical from ConferenceCall of June 15, 2004
Dear Mr. Ferkingstad:
Iwanted to confirm the advice you provided to me on our conference callyesterday and the voicemail follow-up message that you left for me for thismorning, In our telephone call yesterday, I presented the followinghypothetical transaction to confirm my understanding from a review of the Hart-Scott-RodinoAntitrust Improvements Act of 1976, as amended (the "HSR Act") and accompanying rules and regulations and relatedtreatises that a filing under the HSR Act wouldnot be required.
Hypothetical
Corporation A is a publicly-traded company and Corporation B is aprivate company, both working in the same NAICS 6-digit industry. Corporation Ais to form a wholly-owned subsidiary that would merge with and into CorporationB, with Corporation B as the surviving corporation aid thus a wholly-ownedsubsidiary of Corporation A. In the merger, each share of Capital Stock ofCorporation B will be exchanged for 2 shares of publicly-registered VotingCommon Stock of Corporation A. Corporation B's capitalization is divided intotwo classes of stock: Class A Voting Common Stock, of which 530,000 shares areoutstanding and Class B Nonvoting Common Stock, of which 6,500,000 shares areoutstanding. Based upon a closing market price of $20 per share for CorporationA's Common Stock on the date that the Merger Agreement is executed, the holdersof Corporation B's Class A Voting Common Stock would receive 1,060,000 shares ofCorporation A's Voting Common Stock valued at $21.200,000 and the holders ofCorporation B's Class B Nonvoting
Common Stock would receive 13,000,000 shares of Corporation A'sVoting Common Stock value at $260,000,000.
Although a few holders of Corporation B's Class A Voting CommonStock could receive total share of Corporation A's Voting Common Stock (forboth their Corporation B Class A Voting Common Stock and Class B NonvotingCommon Stock) valued in the aggregate at $50,000,000 or more neitherCorporation A nor any such former shareholders of Corporation B would haveannual net sales or total assets of $100,000,000 or more, and thus theSize-of-the-Parties test is not satisfied and no HSRfiling for any of these additional acquisitions of voting securities needs tobe made.
In ourtelephone call you agreed that in determining whether or not the Size-of-the-Transactionis met, only the aggregate market price of Corporation A's publicly-tradedCommon Stock issued to the former holders of the Class A Voting Common Stock ofCorporation B needs to be considered; and thus since the value of theCorporation A Voting Common Stock issued in exchange for the Corporation B'sVoting Common Stock is less than $50,000,000, the Size-ofthe-Transaction testis not met. You also stated that it does not matter (i) that the aggregatemarket price for Corporation A's Voting Common Stock issued to the holders ofCorporation B's Nonvoting Common Stock would total in excess of $200,000,000,since the acquired shares in the exchange were "nonvoting" stockwithout the right to elect directors or (ii) that the value of Corporation A'sCommon Stock exchanged for Corporation B's Class B Nonvoting Common Stock iswell above the $200,000,000 threshold, even is there were former Corporation Bshareholders who receive Corporation A's stock in exchange for both Class AVoting and Class B Nonvoting Common Stock of Corporation B.
Younoted that it is only the value (i.e., applicable "market price") ofCorporation A's Common Stock exchanged for Corporation B's Class A VotingCommon Stock that needs to be considered in determining if theSize-of-the-Transaction test is satisfied. You did note that since CorporationA's Common Stock is publicly traded, care would need to be taken to ensure thatthe "market price" for this stock does not rise to such an amountwithin the HSR Act's prescribed 45-day time periodprior to closing.
Youfurther cautioned about the possibility of a separate reportable transactionfor any shareholders of Corporation B receiving such number of shares ofCorporation A's Voting Common Stock that satisfy the HSR Act's reporting requirements. I did note that in the hypotheticalcase, there may be a few shareholders that own Corporation B's Class A VotingCommon Stock and Class B Nonvoting Common Stock that will receive a totalamount of Corporation A's voting Common Stock with an aggregate market price inexcess of $50,000,000. However, r noted that in all of these cases, the amountin question would not be $200,000,000 or more and the Size-of-the-Person testwould not be satisfied. Neither Corporation A nor any such former shareholderof Corporation B would separately have annual net sales or total amounts of$100,000,000 or more in the most recent year. In summary, you acknowledged thatthe result may seem strange given that after the merger Corporation B would bea wholly-owned subsidiary of Corporation A, but that since the value ofCorporation A's Voting Common Stock exchanged for only the Class A VotingCommon Stock of Corporation B is well below the $50,000,000 jurisdictionalthreshold, no filing would be required,
In afollow-up voicernail message to you, I asked if you would confirm that the factthat Corporation B's Class B Nonvoting Common Stock is entitled under thecorporate law of its state of incorporation to vote on the proposed merger doesnot mean that such shares are "voting securities" under the HSR Act, since the term "voting securities" under the HSR Act is defined as meaning "any securities which at presentor upon conversion entitle the owner or holder thereof to vote for the electionof directors of the issuer or, with respect of unincorporated issues, personsexercising similar functions." You subsequently returned my call and leftme a voicemail message confirming that as long as the Class B Nonvoting CommonStock do not have a right to vote in the election of directors of CorporationB, such stock would not be considered "voting securities" under the HSR Act, even if the holders of such stock do have the right to voteon the approval of the merger under applicable state corporate law.
Pleaseconfirm the advice that you provided as stated herein, based upon the factsstated herein, or provide me with any required additional information regardingthe applicability of the HSR Act to the hypothetical situationdetailed herein, particularly if there is a particular factual assumption thatdoes not appear to have been discussed that could have the potential ofimpacting the need for the making of a premerger notification filing for thehypothetical transaction described herein.