Question
From: (redacted)
Sent: Friday,July 08, 2005 4:51 PM
To: Verne, B. Michael
Subject: Sale of Interests inPartnership or LLC - HSR Analysis
Mike,
I am writing just to confirm a conversation that you and I had about a monthago regarding the non-reportability of a transaction involving the sale of aninterest in a power project. I apologize for the long delay, but I was onlyasked this week to try to memorialize our conversation for the benefit of theBuyer's counsel in this transaction. Obviously, if you require additional factsor would like to discuss the matter further before responding, please do nothesitate to call me.
Basically, the facts we discussed were as follows: Company A, a Delaware LLC,owns a 40% limited partnership interest in Company B, a Delaware LimitedPartnership that owns and operates a cogeneration project. Buyer wishes topurchase Company A's interest. Company A has no other holdings or assets otherthan its interest in Company B, and the other 60% ownership of Company B willremain the same.
The parties are discussing two alternative structures for the transaction. In structure#1 (which we called the "LP Sale" in our discussion), Buyer wouldacquire the 40% LP interest directly from Company A. In structure #2 (which wecalled the "Upstream Sale"), Buyer would instead acquire 100% of theLLC interests in Company A from Company A's two owners, which own 15% and 85%interests, respectively. As we discussed, we have concluded that neitherstructure would require HSR reporting under the new rules.
First, the LP Sale would not be reportable because Buyer would not be acquiringa "controlling" interest in an unincorporated entity under Rule801.2(f)(1). Company A's 40% interest in Company B basically corresponds to a40% economic interest (ie, right to profits and right to assets in event ofdissolution).
Second, the Upstream Sale would not be reportable, even though it wouldconstitute the sale of 100% of the LLC interests, because of the Rule 802.4exemption. As you explained, Rule 802.4 has now been broadened to cover anyacquisition of non-corporate interests where the unincorporated entity,together with all entities it controls, does not hold non-exempt assets with anaggregate FMV of more than $50 million (as adjusted). The PNO staff takes the position that the non-reportable 40% LP interestwould not count toward this size-of-transaction limit in 802.4, and thus ifCompany A has no other holdings or assets, the Upstream Sale would qualify forthat exemption.
I would appreciate your confirming that this analysis is correct. If you haveany other questions, please let me know. Thanks very much for your assistanceand guidance.