Question
January 15, 2008
VIAELECTRONIC MAIL
Mr. B. Michael Verne
Compliance Specialist
Premerger Notification Office
Federal Trade Commission
600 Pennsylvania Avenue, NW
Washington, DC 20580
Re:Hart-Scott-RodinoAct Interpretation
DearMichael:
Thank you for taking the time tospeak with me on Friday. I am writing to confirm our conclusion that, under thefacts described below, the limited partnership LP is its own ultimate parententity for purposes of the HSR Act:
Investor controls two entities, GP Inc. and ManagementLP. Investor also has limited partnership interests in a number of limitedpartnerships, the business of each of which is to invest in the votingsecurities of other issuers. While there are a number of such partnerships, thelegal question is the same for each of them, so we will assume a singlepartnership LP. No limitedpartner in LP (including Investor) has the right to 50% or more of the profitsof LP, or of itsassets upon dissolution. In addition to Investor's limited partnershipinterests, GP Inc. (controlled by Investor) is the general partner of LP, andthereby controls its day-to-day business and investment decisions, andManagement LP has a management agreement with LP pursuant to which ManagementLP provides overhead and administrative services in exchange for an annualmanagement fee (paid in cash quarterly, in advance). Although, as generalpartner, GP Inc. is also entitled to a small share of LP's profits and assetsupon dissolution, even when that interest is aggregated with Investor's limitedpartnership interest, Investor does not have the right to 50% or more of the profitsof LP, or of its assets upon dissolution.
At the outset, you confirmed that Management LP's right toan annual management fee is neither a right to "profits" or "assets upondissolution" of LP, and is not a non-corporate interest that needs to beaggregated with Investor's limited partnership interests for purposes ofdetermining the control of the LP. That is true even if the management fee isin whole or in part contingent on the annual performance of LP.
I then explained a potential deferred management feearrangement, by which Management LP could elect to defer a portion of itsearned fee for a period of years, during which the cash would remain investedby LP, and at the end of which period Management LP would be entitled to its deferredamount times the percentage gain or loss in value of LP over the deferral period. Management LPwould not be a partner in LP and would not be entitled to any interim profitdistributions during the deferral period. You confirmed that, notwithstandingthe fact thatManagement LP's gain or loss from this arrangement would be equal to that of alimited partner ofLP over the same period, Management LP would still not have a right to the"profits" or "assets upon dissolution" of LP, and thus theamount payable to Management LP is not a non-corporate interest that must beaggregated with Investor's limited partnership interests in LP and GP Inc.'sgeneral partnership interest in LP for purposes of determining control of LP.LP is, therefore, still its own ultimate parent entity for purposes of the HSRAct.