Question
June 13, 2005
Facsimile: 202-326-2624
Mr. James Ferkingstad
Premerger Notification Office
Bureau of Competition
Room 303
Federal Trade Commission
600 Pennsylvania Avenue, N.W.
Washington, .DC 20580
Re: Confirmation of Conclusion
Dear Mr. Ferkingstad:
Previously,you and I spoke regarding a transaction relating to the sale by a trust ofsubstantially all of its assets in exchange for interests in a limitedpartnership. I am writing to confirm the conclusion with respect to whether thetransaction is reportable under the Fart-Scott-Rodino Antitrust ImprovementsAct of 1976, as amended (the "Act"), and the rules (the"Rules") promulgated thereunder.
Thetrust was formed by the trustor's transfer of legal title to the trust propertyto the trustee. The initial trustee of the trust was designated in the trustagreement and was a party thereto. Under the trust agreement the trustee may beremoved by the affirmative vote of a majority of the trust unit .holderspresent at a duly called and held meeting of the trust unit holders.Successor trustees are also appointed by a majority of the trust unit holderspresent at a duly called and held meeting of the trust unit holders. Units of beneficialinterest in the trust are widely held.
Itis contemplated that the trust unit holders will vote to sell all of thetrust's assets (other than cash), with a value in excess of $200 million, to anewly formed limited partnership in exchange for limited partnership units thataggregate to 98% of the outstanding limited partnership interests after thetransaction. The limited partnership will be formed prior to the transactionwith a nominal cash contribution .from, the general partner and at the time ofthe transaction will hold no assets other than cash. Followingthe trust's acquisition of limited partnership units, the trustee willdistribute the limited partnership units pro rata to the trust unit holders,
Rule801.2(f)(1)(i) provides that "in an acquisition of non-corporate interestswhich results in the acquiring person controlling the entity, that person isdeemed to hold all of the assets of the entity as a result of the acquisition.The acquiring person is the person acquiring control of the entity and theacquired person is the pre-acquisition ultimate parent entity of theentity." Rule 801.2(f)(2) states that "any contribution of assets orvoting securities to an existing unincorporated entity or to any successorthereto is deemed an acquisition of such voting securities or assets by theultimate parent entity of that entity and is not subject to Rule 801.50[Formation of unincorporated entities] ." Example 2 to Rule 801.2(f)states as follows:
LLC X is its own ultimate parent entity. A contributes amanufacturing plant valued in excess of $200 million (as adjusted) to X whichissues new interests to A resulting in A having a 50% interest in X. A isacquiring non-corporate interests which confer control of X and therefore willfile as an acquiring person. Because A held the plant prior to the transactionand continues to hold it through acquisition of control of LLC X after thetransaction is completed no acquisition of the plant has occurred arid LLC X istherefore not an acquiring person.
Ourtransaction is very similar to the above cited example, with the additionalfact that the limited partnership in this transaction holds no assets at thetime of the transaction other than cash. Based upon the example cited above, noacquisition of the trust's assets should be deemed to occur and the limitedpartnership should not be deemed to be an acquiring person. Under Rule 801.21,cash is not considered an asset of the person from which it is acquired.Therefore, the trust should not be deemed to be acquiring any assets since theonly asset the limited partnership holds prior to the transaction is cash.Accordingly, the acquisition of limited partnership units by the trust and theacquisition of assets of the trust by the limited partnership should notbe reportable under the Act. Whether the distribution of limitedpartnership units by the trustee to trust unit holders will be reportabledepends upon whether a person holding trust units will acquire a controllinginterest in the limited partnership. At this time we do not know the answer tothat question.
Iwish to thank you in advance for your time and consideration in this matter. Ifyou have any questions, please telephone me at (redacted).