Question
From: (redacted)
Sent: Thursday,November 17, 2005 5:54 PM
To: Verne,B. Michael
Subject: Requestfor telephone conference re potential transaction
Mike,
I left a vmsgbut thought it more efficient to send an email. I hope we can schedule atelephone call at your earliest convenience to discuss the following factpattern in the context of when the required HSRshould be filed.
My hospitalclient is negotiating the acquisition of a small hospital-system. The targetsystem is bleeding cash profusely, and the acquiring hospital has certain constraintsthat prevents it from taking title to the assets before 7/1/06. To conserve cash and protect the value of the assets pending theactual acquisition, the parties desire to implement a two-part transaction tobecome effective on or about January 1, 2006 (subject to government approvals).
The two-parttransaction contemplates a management contract, followed by an affiliationagreement through which 801.1 (b) "control" will betransferred. First, the parties intend to enter into a management contractthrough which my client will exert management control, but not 801.1 (b)"control," over the system as soon as all necessary governmentapprovals are obtained. Second, the parties intend to enter into an affiliationagreement that requires my client to acquire virtually all system assets noearlier than 7/1/06 and no later than 6/30/07. The contracts are to be executed simultaneously with eachcontract being contingent upon execution of the other contract.
Pursuant to themanagement contract, my client is to exercise complete day-to-day operationalcontrol over the system, subject to oversight and strategic direction by thesystem's governing board. The management contract, standing alone, might raiseSection 1 issues. However, we contend that this contract is ancillary to thedelayed acquisition because of the unique circumstances facing the parties. Theparties propose to file their respective HSRs on or about December 1 and toimplement the two-part transaction as soon as possible after receiving allnecessary government approvals.
Issues fordiscussion:
1. Should theHSRs for this transaction be filed in anticipation of the management contractas proposed, or should they be delayed until 801.1 (b) control is aboutto be transferred? We believe the HSRs should be filed in anticipation ofsigning the contracts and not delayed.
2. Assuming thatthe simultaneous execution of the management contract and affiliation agreementmay be treated as a unitary transaction, will the parties be required to file asecond HSR if 801.1 (b) control is nottransferred within one year from the expiration/termination of the first waitingperiod? We believe that the transfer of 801.1 (b) control is notrelevant if the two-part structure is indeed a unitary transaction for purposesof the Act.
3. If, on theother hand, the transfer of 801.1 (b) control is key to when the HSRsare to be filed for this transaction, we wish to verify that execution of theproposed management contract will not be considered by the PNO to be gun-jumping for purposes of a later HSR filing. (We do not intend to solicit guidance as to whether themanagement contract in question would raise Section 1 issues.)