Question
From:(redacted)
Sent:Tuesday, May 08, 2007 9:03 AM
To:Verne, B. Michael
Cc:(redacted)
Subject:HSR Question on Voting Securities Value
Mike,
Wehave a factual scenario that we wanted to run by you. It is our understandingthat the following transaction would be deemed below the size of transaction thresholdunder the HSR Act. This is the question we called you about last night, butthought it might be helpful for us to email the facts to you.
CompanyA, which is its own ultimate parent entity ("UPE") plans to acquire100% of the shares of Company B stock via a merger of Newco into Company B.Newco will be a wholly-owned subsidiary of Company A. Company B is also its ownUPE. The consideration to be paid by Company A for the merger will consist ofcash of approximately $150 million.
Ofthe total consideration, approximately $30 million in cash will be used torepay debt that is owed to third parties by Company B.
CompanyB has two classes of stock: Class A and Class B. Only the Class A stock carriesthe present right to vote for the election of directors of Company B. There are8,333 shares of Class A voting stock outstanding and 75,000 shares of Class Bnon-voting stock outstanding. The holders of the Class A and Class B shareswill receive the same per share consideration pursuant to the merger. Moreover,the holders of Class A and Class B shares are the same seven individuals, whotogether own all Company B shares in the ratio of 10% voting stock (Class A)and 90% nonvoting stock (Class B).
Inaddition, there is an earn-out provision under the merger agreement, pursuantto which if a certain consent is received from a third party, additionalconsideration will be paid by Company A of up to $30 million post-closing. Thispayment would be payable to the shareholders of Class A and Class B stock as apost-closing adjustment and increase in the purchase price per share: again,the holders of the Class A and Class B shares will receive the same per shareconsideration.
Thus,the maximum total consideration to be paid by Company A to the shareholders ofCompany B in connection with the merger after debts owed to third parties havebeen repaid is up to $150 million, of which up to $15 million will be payableto the holders of voting securities in respect of such voting securities. Theremainder of the consideration will go to the same 7 shareholders asconsideration for Class B non-voting shares. We understand from the staff'sinformal HSR interpretations that if the purchase price per share to be paidper share of voting securities is clear in the operative agreement, that thetransaction price allocable to the voting securities will be deemed determined,and the transaction will not meet the size of transaction test.
Thank you very much for your assistance with thisquestion.