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Date
Rule
801.10(d)
Staff
Michael Verne
Response/Comments
It doesn't say greater of acquisition price or FMV, because it is valuing interests in the non-corporate entity the same as voting securities of a non-publicly traded corporation. In both, if the acquisition price is determined, there is no need to do a FMV. In your hypothetical, I assume that A also has the right to more than 50% of the profits. If so, only A is an acquiring person. The value would be the value of 51% of the combined value. The value would reflect the fact that the newco has debt.

Question

From: (redacted)

Sent: Friday, January 27, 2006 8:49 PM

To: Verne, B. Michael

Subject:Non corporate entity valuation

Under 801.10(d), the value ofthe acquisition of a non corporate entity is the acquisition price plus the FMVof previously held interests.

Why doesn't it say FMV oracquisition price, whichever is greater, as in acquisitions of votingsecurities and assets?

If Company A and Company B mergeinto a newly formed LLC, and for governance purposes, each holds 50% of theinterests; however, Company A also has non voting economic preferences thatgive it more than 50% of the assets upon dissolution. I assume in that caseCompany A controls, and we do not have a transaction with two AcquiringPersons.

Additionally, in valuing thetransaction as to Company A's acquisition, the value would be the value of 51%(equal to interests held by Company A) of the combined value of Company A andB, yes and not the value of Company B plus "previously held" CompanyA? Can this value be net of liability? If so, the value is less than $20million. Company B has in excess of $50 million of debt (the combined LLC willhold a lot of debt). The bankers are using EBIDA at some interest rate lessliabilities. I am also assuming that if we take assets less liabilities we arealso under the threshold. Are these valuations acceptable to the FTC? Theinformal letters aren't any help here.

MV COMMENTS

It doesn't say greater ofacquisition price or FMV, because it is valuing interests in the non-corporateentity the same as voting securities of a non-publicly traded corporation. Inboth, if the acquisition price is determined, there is no need to do a FMV.

In your hypothetical, Iassume that A also has the right to more than 50% of the profits. If so, only Ais an acquiring person. The value would be the value of 51% of the combinedvalue. The value would reflect the fact that the newco has debt.

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