Question
March 23, 2005
Michael Verne
Premerger Notification Office
Bureau of Competition
Federal Trade Commission
7th & Pennsylvania Avenue, NW
Washington, DC 20580
Dear Mike:
Iam writing to confirm my understanding of telephone conversations we had on March 15, 2005 and March 23, 2005 concerning the potential reportabilityunder the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended("HSR Act"), of a proposed transactiondiscussed below.
Proposed transaction
Ourclient("Purchaser") intends to acquire, pursuant to a Share PurchaseAgreement, 100% of the shares of three corporations; Company 1, Company 2 andCompany 3 (collectively referred to as "Companies.) None of theCompanies are publicly traded. While the shares of each of the Companies willbe acquired from a separate seller, the Companies are directly or indirectlyowned and controlled by a common foreign corporate parent.
Companyl and Company 3 are "foreign issuers" under 16 C.F.R. 801.1(e)(2)(ii)in that they are not incorporated in the United States, are not organized underthe laws of the United States and do not havetheir principal offices in the United States.Company 1 and Company 3 do not directly, or indirectly through controlledentities, have any sales in or into the United Statesor hold any assets in the United States.
Company2 is a "United States issuer" under 16 C.F.R. 801.1(e)(1)(ii) as it is incorporated in the United States and has its principal offices in the United States. Company 2 indirectly holds some assetsoutside of the United States through entities it controls. While theoverall purchase price for the shares of all of the Companies will exceed the $53.1million HSR size of the transaction threshold, theamount allocated to Company 2 under the Share Purchase Agreement net offinancial debt is well below $53.1 million.
Inaddition to purchasing the shares of the Companies, Purchaser will purchase, forthe amount of the loan balances, loans that have been made to the Companies bythe sellers. Pursuant to a promissory note, Company 2 owes $45 million to theentity selling its shares. In addition to purchasing that loan for $45 million,Purchaser will buy the smaller loans owed by Company 1 and Company 3 to theirrespective sellers.
Conclusions
Youconfirmed that the entire transaction described above is exempt under the HSR Act. Specifically, you confirmed the following:
(1)The acquisition of Company 1 and Company 3, the foreign issuers, is exemptunder 16 C.F.R. 802.51. This exemption applies so long as Company 1 andCompany 3 collectively did not make sales in or into the United States of over $53.1 million in the most recentfiscal year or collectively hold assets in the United States with an aggregate value over $53.1 million. See 16 C.F.R. 802.51.
(2)As this transaction involves the acquisition of nor-publicly traded votingsecurities, the value for HSR purposes of the shares of Company 2 isthe purchase price as allocated for those shares in the Stock PurchaseAgreement (including any exhibits). See 16 C.F.R. 801.10(a)(2)(i). Here,the; acquisition of Company 2 will be exempt since the purchase price describedabove for Company 2 is well below the $53.1 million size of the transactionthreshold. Even if, hypothetically, the purchase price allocation for Company 2exceeded $53.1 million under the Stock Purchase Agreement, the; transaction maybe exempt under revised 16 C.F.R. 802.4 which becomes effective on April 7, 2005 for transactions closing on or after that date. Under thenew 16 C.F.R. 802.4, Purchaser would be able to exclude the value offoreign assets held by Company 2 (assuming those assets did not in aggregategenerate sales in excess of $53.1 million in or into the United States duringthe most recent fiscal year) in determining if the value of the non-exemptassets held by Company 2 is below $53.1 million, which would make theacquisition exempt.
(3)Purchaser's acquisition of the outstanding loans to the Companies is exempt.The same would apply if Purchaser acquired or paid off any other liabilities ordebt of the Companies, regardless of whether the debt was owed to a seller or athird party. The purchase price for the loans would not be included in valuingCompany 2 for HSR purposes. This means that none of the considerationfor the purchase of the loans would be included in determining if the $53.1million size of the transaction threshold is met. You explained that thisposition was consistent with the long standing position of the FTC PremergerNotification Office that debt or other assumed liabilities are not included inthe purchase price for acquisitions of voting securities. The exclusion fromthe HSR valuation of any consideration for the purchase of the loans is not.impacted by whether the loans are purchased immediately before or after, or atthe same time as the purchase of the shares. Further, the exclusion from the HSR valuationof any consideration for the purchase of the loans is not impacted by whetherthere are any loan guaranties released or extinguished through the purchase ofthe loans.
Please let me know as soon as possible ifyou disagree with any of the conclusions discussed above, or if I have misunderstoodany aspect of your advice. Thank you for your assistance in this matter.