Question
From:
(redacted)
Sent:
Thursday, April 23, 2009 11:08 AM
To:
Verne, B. Michael
Subject: HSR question
Hi Mike:
Hope all is well.
I have a question regarding the value of votingsecurities that will be held as a result of an acquisition. Purchaser currentlydoes not hold any shares of Target. Purchaser and Target have entered into aMerger Agreement whereby Purchase will acquire all of Target's outstandingvoting securities. Because Target is in distress, Purchaser also is negotiatingwith the creditor committee. The total consideration to be paid isapproximately $75 million consisting of cash and voting securities ofPurchaser. Approximately $25 million of the acquisition price is earmarked topayoff existing debt of the Target. The debt to be paid consists of outstandingSenior Subordinated
Notes --convertible debentures that areconvertible into Target's common stock.
The question is whether the funds earmarked topayoff the outstanding Senior Subordinated Notes can be excluded from theacquisition price because the funds are not consideration for the Target'soutstanding voting shares. I understand that generally funds earmarked topayoff debt of the Target is not viewed as consideration. I believe that theprinciple should apply in this case as well but wanted to confirm this because,while the funds are being used to payoff Target's existing debt, the debtqualifies as convertible voting securities under the HSR Rules. If viewed as anacquisition of convertible voting securities, it seems reasonable to take theview that the acquisition of the convertible debentures is nonetheless exempt.
It seems that either line of analysis results inan acquisition price for the outstanding voting securities less than $65.2million. Either the funds earmarked to payoff Target's debt is notconsideration or the acquisition of the Senior Subordinated Notes is exemptunder the HSR Rules as an acquisition of convertible voting securities.
Please confirm that you agree.