Question
July 6, 2004
By Messenger
Mr. Michael Verne
Premerger Notification Office
Bureau of Competition
Room 303
Federal Trade Commission
6th Street and Pennsylvania Avenue, N.W.
Washington, D.C. 29580
Dear Mr. Verne:
This correspondence is afollow-up to our exchanges of voice mails concerning a proposed transaction.
The factual circumstances are asfollows. A corporation, Company A, is acquiring another corporation, Company B,through a merger of a corporate subsidiary of Company A into Company B, withCompany B surviving the merger as a wholly owned subsidiary of Company A.Company B has three classes of outstanding stock: Common Stock, Series APreferred Stock and Series B Preferred Stock. The Series A Preferred Stock andSeries B Preferred Stock have no current rights to vote for directors. Only theCommon Stock has the right to vote for directors and to vote on the merger.
In connection with thetransaction, the common shareholders are receiving no consideration for theirshares of Common Stock1. The holders of Series A Preferred Stock,which is the senior preferred stock, are receiving full liquidation value fortheir shares; however, the holders of Series B Preferred Stock, which is thejunior preferred stock, are receiving less than their full liquidationpreference. Thus, there is no value attributable to the Common Stock. Most ofthe holders of the Series A Preferred Stock and the Series B Preferred Stockare also holders of the Common Stock that will be cancelled in the merger forno consideration. The merger agreement provides that at the Closing of thetransaction Company A will make (or cause to be made) $108.5 million of cashpayments. These payments will include:
1. Paymentof approximately $75.5 million (a portion of which will be deposited in escrowto secure certain post-closing obligations) to the holders of shares of SeriesA Preferred Stock and Series B Preferred Stock of Company B;
2. Thepayment to Company B of an amount sufficient to enable Company B to repaycertain borrowed funds (approximately $23 million);
3. Thepayment of certain Company B expenses (approximately $4 million);
and
4. Thepayment of certain transaction bonuses to individual employees of Company B(approximately $6 million), a portion of which will be deposited in escrow tosecure certain post-closing obligations.
In myvoice mail of June 25, 2004, I expressed the view that thetransaction described above should not be reportable for HSR purposes because no consideration is being paid for "votingsecurities" within the meaning of the HSR Act.I also noted Interpretations 93 and 98 in the Premerger NotificationPractice Manual of the Section of Antitrust Law of the American BarAssociation which deal with certain situations where the provision of funds toenable a target company to retire existing indebtedness does not count towardthe HSR size of transaction amount.
In yourreply voice mail of June 28, 2004 you concurred that no HSR filing is necessary in the circumstances discussed.
Please contact me as soon aspossible at (redacted) if you should disagree with the summary above.
Thank you very much for your assistance.
Footnote
1 Effective upon the consummation of themerger, Company A, on the one hand, and Company B's shareholders, on the otherhand, will mutually release each other from any claims based on facts orcircumstances occurring prior to the closing date of the merger. Because theholders of Company B Common Stock are not receiving any consideration for theircommon shares in the merger and there are two holders of Common Stock who arenot also holders of Series A Preferred Stock or Series B Preferred Stock, thesetwo holders of Company B's common stock will receive a $1,000 cash payment inconsideration of this release.