Question
September 30, 2005
Via Facsimile
Michael B. Verne, Esq.
Premerger Notification Office
Federal Trade Commission
Room 303
600 Pennsylvania Avenue, N.W.
Washington, D.C. 20550
Re; Application of Exemption for Transaction in the OrdinaryCourse of Business
Dear Mr. Verne;
Pursuant to our telephoneconversations yesterday, I am writing to confirm. the eligibility of atransaction for an exemption from the notification requirements of theHart-Scott-Rodino Antitrust Improvements Act (the "Act") undersection 802.1(d)(3) of the Commission's regulations.
Our client, Seller, owns andoperates approximately 25 mobile offshore dulling units directly and through awholly-owned subsidiary. Most of these units are jack-up drilling units builtin the 1980s or later, although several of the jack-up units were built in the1970s. One unit is a semi-submersible drilling unit built in 1976. Sellerintends to cause one of its wholly owned subsidiaries to sell thesemi-submersible unit (the "Asset") to Buyer for the price of $60million. Seller and Buyer axe both U.S. persons.For purposes of this inquiry, you should assume that Seller arid Buyer meetboth the commerce and size-of-person requirements of the Act. The partiescontemplate concluding this transaction during the month of October, 2005.
Given the number of drilling unitsowned by Seller, the Asset does not constitute all or substantially all of theassets of a business unit. Moreover, the Asset is a used good which has auseful life of more than one (1) year.1 Accordingly, it would appearthat the transaction is eligible for an exemption under section 802.1(d)(3) ifSeller is replacing the capacity of the Asset as contemplated by thatregulation.
As part of an on,-going fleetupgrade during which Seller is replacing older drilling units with new units,Seller has recently acquired a new jack-up drilling unit to replace the Asset.2This new drilling unit was built by a wholly-owned subsidiary of the Seller's.While the new rig was documented as a U.S. flagvessel in the name of the Seller on April 21, 2005 it was not delivered until August 31, 2005. Whereas the Asset can drill in water with depths up to1,200 feet, the new unit can drill in water with depths up to 250 feet.However, the new unit has technical capabilities superior to those of theAsset, is more efficient and, most importantly for your consideration, has adrilling capacity equal to or greater than the drilling capacity of the Asset.
Given the number of units operatedby the Seller, by companies other than the Seller and the Buyer's ,intended useof the Asset, we believe that this transaction does not raise any substantiveantitrust concerns.
Moreover, it is our understandingthat because the Asset does not constitute all or substantially all of theassets of a business unit of Seller, the proposed sale may qualify as a sale inthe ordinary course of business. Further, it is our understanding that becausethe Asset is a used durable good axed Seller has acquired a new drilling rigwith production capacity equal to or greater than that of the Asset within thesix (6) months preceding the contemplated transaction, by taking delivery ofthe new drilling rig on. August 31, 2005, the transaction is exempt from thenotification requirements of the Act under section 802.1 (d) (3) of theCommission's regulations
We would appreciate yourconfirmation that the foregoing understanding is accurate. Of course, if youshould require any further information, please do not hesitate to contact me bytelephone. Because the parties intend to proceed with this transaction in thenext few weeks, your prompt attention to this inquiry would be appreciated
Footnotes
1It is our understanding that Buyer will convert the Asset for use as a"floating offshore installation," which has been defined by one majorvessel classification society as "a buoyant construction engaged in offshoreoperations including drilling, production, storage or support functions, andwhich is designed and built for installation at a particular offshorelocation."
2Seller also has signed contracts for the delivery of at least two more newjack-up drilling rigs, which rigs will be delivered .more than six months afterthe completion of the proposed transaction.