Question
From:(redacted)
Sent:Wednesday, February 20, 2008 3:20 PM
To:Verne, B. Michael
Subject:HSR Reportability of a Potential Transaction
Dear Mike:
I am writing to memorialize the advice you gave meyesterday regarding potential HSR reporting obligations in the transactiondescribed below. Please let me know if you think I have not accuratelysummarized that advice.
The Proposed Transaction
Corporation A is a United States corporation engagedin a variety of financial and non-financial businesses, including the creditand charge card business. Corporation A conducts its credit and charge cardbusiness through a number of subsidiaries and divisions.
Corporation A is contemplating a transaction in whichit will sell its commercial credit and charge card portfolio and certainrelated assets. Corporation A will, however, retain its consumer credit cardbusiness and its business of issuing private label credit cards (i.e. cardsthat are merchant-specific) to both commercial customers and individuals. CorporationA will not be transferring to the buyer any of the banks through which itoffers its credit or charge card products.
Inaddition to its own commercial credit and charge card
portfolio,Corporation A also offers its products, services, and technology to other banksthrough a "white label" product offering under which the issued cardcarries the client bank's brand name but relies on Corporation A's systems. CorporationA operates this business under two different models. In some cases CorporationA has the credit risk and owns the receivables, and simply pays the clientbanks a fee to be able to use their name. In other cases Corporation A'sclients pay it a fee for the use of its technology and services, but the bankclients issue the cards and assume the credit risk.
Finally,Corporation A also offers its commercial clients what it calls a "virtualpayment" product. Rather than relying on physical cards, this productrelies on one-time use credit card/charge card numbers (similar to the one-timeuse account numbers offered by some consumer credit card providers for onlinepurchases). This product interfaces with the client's accounts payable systemso that instead of printing a check or initiating an electronic funds transfer,the vendor is paid using a one-time use credit card number.
Analysis
Parts of this transaction are comparable to theacquisitions of credit card portfolios that have been deemed ordinary coursetransactions exempt under Rule 802.1 because they do not involve the sale ofsubstantially all the assets of any business unit.
Because Corporation A will continue to be in the creditcard business (both consumer credit cards and private label cards for consumerand commercial customers), we understand that under Rule 802.1 its credit andcharge card portfolio will be an exempt asset, the value of which should not beincluded in determining whether the transaction will be HSR reportable. Weunderstand that this would be true regardless of whether or not Corporation Awould be selling assets or the equity of subsidiaries of the businesses throughwhich it offers its commercial credit or charge card products.
With respect to Corporation A's "whitelabel" business, we understand that the sale of credit card receivablesowned by Corporation A (i.e. in cases where Corporation A pays other banks afee to offer cards under their name) will be treated as an ordinary coursetransaction. However, any value separately attributable to the white label cardbusiness, rather than the receivables, will not be treated as a sale in theordinary course because it is a servicing business, not a financing business. Moreover,Corporation A will not remain in this business after the contemplated sale.
Finally, with respect to the virtual paymentsbusiness, we understand that the value of the credit card/charge cardreceivables associated with this product line will be treated as an exemptasset. However, any other value attributed to this product line will not betreated as an exempt asset.
I very much appreciate the time you took to discuss thiswith me and to review this summary of our discussions. I hope I have accuratelysummarized the staff's position on these issues, but if I have misinterpretedyour comments, please let me know that.