Question
From:
Sent:
(Redacted)
Tuesday, March 17, 2009 11:42 AM
To:
Verne, B. Michael
Subject: HSR ReportabilityQuestion
Mike:
Good morning.Below is a description of an HSR reportability question that I was hoping todiscuss with you. In that regard, I will give you a call to discuss thisfurther, but I wanted to set out the facts and circumstances for yourconsideration in advance of the call.
Company A andCompany B are foreign persons. They intend to form a joint venture (that willbe the equivalent of a corporation) into which they will each contributevarious entities and partial interests in entities. The joint venture, CompanyC, will be organized under foreign law and will be a foreign issuer. One of theentities, Company D, that will be contributed to the joint venture has USrevenues and assets in excess of the thresholds set forth in Rule 802.51 (b).The other controlled entities being contributed (e.g., entities E, F, G and soon --there are several entities being contributed) do not hold or have USassets or revenues. Further, Companies A and B each will contribute itsrespective 36% interest in Company D to Company C, such that Company C willhold 72% of Company D. (The public owns the remaining 28% interest.) Company Aand Company B will make their contributions to Company C, and each will receive50% of the voting securities of Company C in return. However, they will holdtheir 50/50 interests in Company C only as an interim step. Immediately afterformation of Company C, the contribution of the entities and interests, inexchange for their 50/50 interests, Companies A and B will distribute theirrespective interests to their respective shareholding entities, which consistof a number of foreign entities (at least 10 shareholders each). In the finalstep of the formation, therefore, there will be numerous shareholders (at least10) of Company C, but no shareholder will control Company C.
The specificquestion is whether Rule 802.51 (b) applies to this transaction and exempts itfrom reportability. While Companies A and B will obtain control of Company C,that control will only be an interim step in the acquisition. The final step ofthe formation is that multiple entities (foreign persons) will hold interestsin Company C but no foreign person will control We also note further that afiling was made with respect to the formation/acquisition of Company D byCompanies A and B. Three years ago, they filed to cross the 25% threshold.Specifically, they noted in their description of the transaction that, upon theformation of Company D (to which each contributed various entities), each wouldobtain just under 45% of the voting securities of Company D, and, through ashareholder agreement, each would be entitled to nominate half of the membersof the governing boards, independently or jointly. Certain shares of Company Dwere sold to the public, resulting in public ownership of 28% of Company D, andreducing the holdings of each of Companies A and B to 36% apiece, withcontinued equal board control. The parties received early termination of thewaiting period.
In conclusion,Company C, a foreign issuer, will not be controlled by any of the foreignperson shareholders upon its formation, except only as a interim step.Moreover, Company D, the only entity being contributed to Company C that has orholds US revenues and assets, when formed by Companies A and B, was reported byCompanies A and B.