Question
August 11, 2005
Mr. Michael B. Verne
Premerger Notification Office
Bureau of Competition
Federal Trade Commission
6th Street & Pennsylvania Ave., NW
Washington, DC 20580
Re: ExemptionsApplicable to Acquisition of Voting Stock Interest In Commercial Real EstateFinance Company
Dear Mike:
I am writing toconfirm the guidance and interpretations you have provided to us regarding the applicabilityto out proposed transaction of certain exemptions under the Hart-Scott-RodinoAntitrust Improvements Act of 1976, as amended (the "Act"), and theCommission's implementing regulations, in particular the "ordinary courseof business" exemption contained in Section 7A(c)(1) of the Act and Rule802.4. The relevant facts regarding the proposed transaction that we havediscussed are briefly summarized below.
The proposedtransaction consists of the acquisition of 60% of the outstanding voting securitiesof an issuer that is a large provider of financial services to the globalcommercial real estate industry. The issuer's business includes commercialmortgage lending, mortgage servicing, mortgage software services, assetmanagement and investment advisory services. The seller currently owns 100% ofthe issuer's voting stock and will retain a 40% interest following consummationof this transaction. The purchase price being paid exceeds $1 billion.
We have analyzedthe reportability of this transaction under Rule $02.4, which exemptsacquisitions of voting securities of issuers holding c` assets the directacquisition of which would be exempt. As we have discussed, according to thelast regularly prepared financial statements, the principal assets of theacquired issuer include: commercial real estate mortgages and mortgage-backedor mortgage-related securities, which are exempt under Section 7A(c)(2); equityinvestments in various commercial real estate-related entities, which to theextent included within the acquired issuer hold assets exempt under Rules 802.2and/or 802.5, or in some cases, direct real estate interests covered by thoseexemptions; goodwill associated with commercial mortgage and real estateinvestment acquisitions; and cash and other investment securities. None ofthese assets would count toward the $53.1 million non-exempt asset threshold ofRule 802.4.
In addition tothe foregoing, the acquired issuer holds mortgage servicing rights relating tothird-party mortgages not held by the issuer, along with property, equipment,employees and systems/ facilities relating to both the mortgage origination andmortgage servicing businesses. We understand that the PNO's position is that mortgage servicing rights related tothird-party mortgages are not covered by the Section 7A(c)(2) mote exemption.In addition, the issuer provides various other services to third partiesrelating to commercial real estate finance, including asset management,investment advisory functions, and software and on-line investment services,all related to mortgages not held by the issuer.
We haveconcluded, however, that the commercial real estate mortgage servicing, assetmanagement and related investment advisory services described above wouldqualify for exemption under Section 7A(c)(1) of the Act as acquisitions"transferred in the ordinary course of business." Our conclusion isbased on the fact that the seller will continue as a leading financial servicesprovider for the residential real estate industry, holdingsubstantial mortgage-related assets and engaging in substantial businessoperations of a similar nature (albeit now on a somewhat smaller scale) relatedto residential real estate mortgages and related financial services. Morespecifically, the seller will continue to engage in mortgage lending, servicingof third-party mortgages, mortgage securitization, distressed asset resolution,investment management, investor services, analytical website tools, and othermortgage finance businesses, all relating to the residential real estateindustry. Thus, the seller will not be exiting the mortgage loan and mortgageservicing business, nor related mortgage software, investment advisory andasset management functions, although the mortgage and related financial serviceswill be provided to a different segment of the real estate finance industry.
Finally, as wehave discussed, the transaction also includes the acquisition of bank assetsincluded within the acquired issuer, which requires banking agency approvalunder 12 U.S.C. 18170(j). The acquisition of these assets is exemptpursuant to Rule 802.8(b)(1). Thus, these bank assets will also be deemedexempt for purposes of Rule 802.4.
Based on theforegoing analysis and facts described above, we have concluded that thistransaction is not reportable under the Act, and accordingly the parties intendnot to make any filings thereunder other than providing a copy of the bankapproval filing under Rule 802.8. We understand that the Premerger NotificationOffice concurs with this interpretation of the Act and Rules.
Please let usknow if you have any questions concerning this letter or require any additionalinformation. As usual, we very much appreciate your attention to this matter.We would also appreciate your confirming by email or telephone that this letteraccurately summarizes our telephone conversations and that you agree with ourconclusions regarding the applicability of the exemptions described herein.